Conditions for Chinese companies to go public in Hong Kong
Main board listing requirements:
The purpose of the home game: a large number of purposes, including raising funds for larger, better-based and profitable companies.
Mainline business: There are no specific regulations, but in fact, the profit of the mainline business must meet the minimum profit requirement.
Business record and profit requirement: The total profit for the three years prior to listing is HK$50 million (the latest year must reach HK$20 million, which is the total of the previous two years).
Business Objective Statement: There are no relevant requirements, but applicants should provide a general description of future plans and prospects.
Minimum market value: The market value of Hong Kong when listing must reach HK$100 million.
Minimum public shareholding: 25% (if the issuer's market exceeds HK$4 billion, the minimum can be reduced to 10%).
Management, company ownership: The three-year business record period must be operated under substantially the same management and ownership.
Restrictions on the sale of major shareholders: restricted.
Information disclosure: Financial report twice a year.
Underwriting arrangements: Open offerings for subscription must be fully underwritten.
Number of shareholders: There must be at least 100 shareholders at the time of listing and the issue amount of HK$1 million must be held by not less than three shareholders.
GEM listing requirements:
The purpose of the home game: a large number of purposes, including raising funds for larger, better-based and profitable companies.
Mainline business: Must be engaged in a single business but allow for surrounding business activities around the single business.
Business records and profitability requirements: There is no minimum profit requirement. However, the company must have an “active business record” for 24 months (such as turnover, total assets or market capitalization at the time of listing of more than HK$500 million, the issuer can apply to reduce the “active business record” to 12 months).
Business Objective Statement: Requires the applicant's overall business objectives and explains how the company plans to achieve these goals for the remainder of the financial year in which it is listed and for the next two financial years.
Minimum market value: There are no specific regulations, but in fact, it should not be less than HK$46 million when listed in Hong Kong.
Minimum public float: HK$30 million or 25% of the issued share capital (if the market value exceeds HK$4 billion, the minimum public float can be reduced to 20%).
Management, company ownership: During the “active business record” period, it must be operated under substantially the same management and ownership.
Restrictions on the sale of major shareholders: restricted.
Information Disclosure: A quarterly disclosure, the interim report and the annual report must show the comparison between actual operating results and business objectives.
Underwriting arrangements: There is no hard-underwriting requirement, but if the issuer wants to raise new funds, the new shares can only be listed when the minimum subscription amount listed in the prospectus is reached.
Hong Kong listing process
The first stage:
Appointment of GEM listing sponsors;
Appointment of intermediaries, including accountants, lawyers, asset appraisers, stock transfer offices;
Determine the requirements of major shareholders for listing;
Implement the initial sales plan.
second stage:
Decide on time to market;
Prudent investigation and verification work;
Assess business and organizational structure;
Company restructuring listing structure;
Review the accounting records of the past two/three years;
The sponsor drafts the prospectus;
Chinese lawyers drafted applications from the China Securities Regulatory Commission;
Prepare other relevant documents;
Submit the listing application to the China Securities Regulatory Commission.
The third phase:
Submit the Hong Kong listing documents and the Stock Exchange for approval;
Prepare promotional materials;
Invite an underwriter;
Determine the issue price;
Introduction to the underwriting team analyst;
The underwriting team analyst prepares the company research report;
The underwriting team analyst's research report finalized.
The fourth stage:
China Securities Regulatory Commission approved;
The exchange approves the listing application;
Sub-underwriting arrangement;
demand analysis;
Road show
Public offering.
After the IPO, arrange the quantity, pricing and post-marketing sales:
Stock pricing
Allocate stocks to investors;
The sales are completed, and the amount of funds collected is in place;
The company's stock began to trade in the secondary market.
Set up a listing office:
The implementation strategy for listing is the responsibility of the listing office. The members of the listing office are selected by the relevant departments of the company to form a working group, join the professional work team, and be responsible for the relevant listing work.
Hong Kong IPO fees
The cost of listing on the Hong Kong Stock Exchange in Hong Kong includes the fees paid to sponsors, legal counsel, accountants and other intermediaries. The total cost will vary greatly depending on the size of the initial issuance. Enterprises should prepare 5% to 30% of the proceeds to be issued. cost. Among them, the standard underwriting expenses are 3.5%-4.0% of the raised funds.
The difference between the Hong Kong stock market and the mainland market
There are many differences between the Hong Kong stock market and the mainland market, including:
1. The Hong Kong stock market is more international, with more institutional investors. Overseas and local institutional investors account for about 65% of the total turnover (39% and 26% respectively), and the turnover of overseas investors is even more The total turnover is over 40%. As investors from all over the world may make different judgments on the valuation of securities and market prospects, mainland investors should be more cautious when participating in the Hong Kong stock market.
2. In terms of product categories, the Hong Kong stock market offers different types of products, including equity securities, equity warrants, derivative warrants, futures, options, CBBCs, exchange traded funds, unit trusts/mutual funds, real estate investment trusts. Funds and debt securities are available for investors with different risk preferences to choose between different market conditions.
There are also many differences in the trading arrangements between the two markets, such as:
1. The Mainland market has a price limit system, that is, if the fluctuation rate exceeds a certain percentage, the relevant shares will stop trading for a specified period of time; the Hong Kong market does not have this system. In addition, under the laws of Hong Kong, the Hong Kong Securities and Futures Exchange may not be closed unless the Hong Kong Securities and Futures Commission has instructed the Financial Secretary of the Hong Kong Special Administrative Region.
2. In the Hong Kong stock market, when the shares rise, the color displayed on the stock quote screen is green, when it falls, it is red; the mainland is the opposite.
3. The Hong Kong stock market mainly uses Hong Kong dollars as the trading currency; the mainland stock market uses the RMB as the trading currency.
4. In Hong Kong, securities firms can arrange for investors to sell securities that were purchased earlier on the day, commonly known as "day-to-day" trading. The Mainland requires securities to be sold after they are transferred to the account. Investors should negotiate with securities dealers to allow "short-day" trading.
5. The Hong Kong stock market permits regulated short selling transactions.
6. Hong Kong's securities clearing house will settle securities and liquidation payments with securities dealers on T+2. All liquidation arrangements between the securities firm and its clients are commercial agreements between the securities firm and the investor. Therefore, investors should check with the securities firm for the settlement of the funds before the transaction, such as whether they need real-time payment when purchasing the securities, or when the securities can be recovered after the securities are sold.
Ways for mainland companies to list in Hong Kong
Chinese mainland enterprises (including state-owned enterprises and private enterprises) who choose to list in Hong Kong may go public in the form of H-shares or red-chip stocks, or buy shells.
Issuance of H shares:
Enterprises registered in China may, through asset restructuring, be approved by their competent authorities, state-owned asset management departments (only applicable to state-owned enterprises) and the China Securities Regulatory Commission, and set up joint stock companies registered in China to apply for the issuance of H shares in Hong Kong.
Advantages: 1. The enterprise is familiar with the domestic company law and reporting system; 2. The China Securities Regulatory Commission has listed the H shares, and the policy is more supportive. The time required is shorter and the procedures are more direct.
Disadvantages: In the future, the company's share transfer or other corporate behavior is more constrained by domestic regulations. However, with the listing of a number of H-share companies in recent years, the Hong Kong market has greatly improved its acceptance of H-shares.
Issuing red chip listings:
A red chip listed company refers to a holding company (including Hong Kong, Bermuda or the Cayman Islands) incorporated overseas, and applies for the issuance of red chips as a listed individual.
Advantages: 1. The red chip company is registered overseas, and the shareholding of the controlling shareholder is tradable 6 months after the listing; 2. The post-listing financing, such as share allotment, rights issue and other stock market operations, has the highest flexibility.
The State Council’s Notice on Further Strengthening the Issuance of Stocks and Listings Abroad in June 1996 (the “Red Chip Guidelines”) strictly restricts the listing of state-owned enterprises by red chip.
The China Securities Regulatory Commission also issued guidelines in June 2000. All overseas listed projects involving domestic interests must obtain written confirmation from the CSI without dissent before listing.
Buying a shell:
Buying a shell is a controlling stake in a listed company to acquire a listed company, and then injecting assets to achieve the purpose of “reverse takeover and backdoor listing”.
The Hong Kong Stock Exchange and the Securities and Futures Commission have several major restrictions on the listing of shells:
Full acquisition: If the purchaser purchases more than 30% of the shares of the listed company, it must submit a full acquisition to the remaining shareholders.
Re-listing application: The acquisition of assets after buying a shell may be regarded as a new listing application by the Stock Exchange.
The company's shareholding: Hong Kong listed companies must maintain sufficient public shareholding, otherwise they may be suspended. In the initial stage of buying a shell, it may not be able to achieve the purpose of fund raising, but it can use the listed company after the acquisition to raise shares and raise shares. According to the "Red Chip Guidelines", all Chinese-funded companies are strictly restricted in buying shells overseas.
In the case of the acquisition of the shell, the preparation time is shorter, and the work is more streamlined. However, more time and planning are needed to circumvent the regulations of each regulation. Buying a shell is sometimes more cumbersome than applying for a new listing. At the same time, many domestic and Hong Kong approval procedures may not be saved.