Key amendments to Chapter 37 of the Listing Rules
The key amendments to Chapter 37 of the Listing Rules include: (1) enhancement of eligibility requirements; (2) tightening of the eligibility exemptions applicable for regional and local state-owned enterprises; (3) the amendment of the definition of “Professional Investor”; (4) the new requirement to publish the listing documents on the website of the HKEX; and (5) the enhancement of continuing reporting obligations of issuers and guarantors relating to defaults and insolvency. A summary of the amendments is set forth below:
1. Enhancement of Eligibility Requirements
The new amendments include higher standards for listing, mainly on the minimum net asset value requirement and minimum issue size. These higher standards are intended to ensure that only issuers with large asset pools and proven track records of issuance of debts of significant amounts will be eligible and to bring the quality of listings in line with other popular debt listing venues including the Singapore, Luxembourg and Ireland exchanges:
- Under the revised Rule 37.05 of the Listing Rules, unless certain exemptions apply, issuers of debt to professional investors must have minimum net assets of HK$1 billion, an increase from the then existing HK$100 million net asset requirement.
- Under the revised Rule 37.09A of the Listing Rules, the minimum issuance size is set at HK$100 million, with the exception of tap issuances. By comparison, there was no minimum issuance size requirement under the former Listing Rules.
2. Tightening of the Exemptions Applicable for Regional and Local State-owned Enterprises
Under the Listing Rules, state corporations, which are defined to include companies which are majority-owned by, or whose liabilities are fully guaranteed by a state, would be exempt from the minimum net asset requirement and the requirement to provide two years’ audited accounts under Rule 37.05b and Rule 37.06b of the Listing Rules, respectively.
The Ministry of Finance of the People's Republic of China issued the Circular on the Regulation on the Financing Activities Conducted by Financial Institutions for Local Governments and State-owned Enterprises on 28 March 2018, which made it clear that financial support or backing will not be provided by a state to its state corporations in case of default of their payment obligations, therefore the HKEX revised the definition of “state corporation” so as to specifically exclude companies majority-owned or controlled by any regional or local State authority. This change has the effect that companies controlled by regional or local authorities will have to fulfil the listing eligibility requirements of net assets of at least HK$1 billion and issue size of at least HK$100 million rather than simply relying on the state corporation exemptions.
3. Amendment of the Definition of “Professional Investor”
Former Rule 37.58 of the Listing Rules defines “professional investors” in Hong Kong to mean those investors as defined under Part 1 of Schedule 1 to the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the “SFO”) (i.e. institutional investors) excluding, high net worth investors as prescribed by rules made under section 397 of the SFO. As a result, “professional investors” defined under Chapter 37 of the Listing Rules was not aligned with those under the SFO.
In reality, almost all issuers apply for the professional investor waiver (the “PI Waiver”) in the listing process to provide themselves with the flexibility in marketing the securities. However, since the PI Waiver is not codified in the Listing Rules, potential issuers may be less informed of such flexibility. The need to apply for the grant of the waiver also creates an additional administrative burden on issuers, and is inconsistent with the light-touch regulatory approach of the listing of debt securities regime under Chapter 37 of the Listing Rules (the “Chapter 37 Debt Issuance Regime”).
Therefore, the definition of “professional investors” has been revised to include high net worth investors and other professional investors prescribed by rules made under the section 397 of the SFO, thus eliminating the need to apply for PI Waiver.
4. New Requirement to Publish the Listing Documents on the Website of the HKEX
Previously, Chapter 37 of the Listing Rules did not require publication of the listing documents because they are issued to professional investors only and not generally available to the public. However, not publishing the listing document means that investors may not be alerted to the caution statements in the listing document and may not have the benefit of all of the information in the listing document when determining whether to purchase debts securities listed on the HKEX under Chapter 37 Debt Issuance Regime.
Therefore, the HKEX amended its rules to require the publication of listing documents on the listing date on the HKEX’s website, which enhances transparency and increases market awareness of the nature of Chapter 37 Debt Issuance Regime which target professional investors only. This change also brings the HKEX in line with its main competitor like exchanges in Singapore, Luxembourg and Ireland which have historically required the disclosure of the listing document, although the allowance to publish the document only in Chinese is still unique and differentiates the HKEX from its competitors.