HKEX mulls overhaul of capital raising and delisting rules

Exchange plans significant rule changes in efforts to improve market quality and shorten the length of trading suspensions

Sweeping amendments are planned for the Stock Exchange of Hong Kong’s capital raising and delisting rules.

In two major consultations unveiled on 22 September, the Exchange’s managing body has invited stakeholders to provide their thoughts on the changes, which aim to boost Hong Kong’s market quality and reputation.

As Hong Kong Exchanges and Clearing (HKEX) announced, the consultations follow a recent, internal review of the Exchange’s relevant measures in the capital raising and delisting fields.

In the wake of that review, the Exchange has proposed a series of changes designed to address potential abuses related to “large-scale, deeply discounted” capital raising activities, as well as share issuance transactions.

It also plans to reform Hong Kong’s listing rules to improve the effectiveness of the delisting framework – tackling the problem of prolonged trading suspensions imposed upon some issuers’ listed securities.

Key measures tabled in the capital raisings consultation include:

1. Highly dilutive capital raisings
Disallowing rights issues, open offers and specific mandate placings (either individually or when aggregated within a rolling, 12-month period) that would result in a cumulative, material value dilution of 25% or more – unless there are exceptional circumstances, for example, the issuer is in financial difficulty.

2. Rights issues and open offers

  • Requiring minority shareholders’ approval for all open offers, unless the new shares are to be issued under the authority of an existing, general mandate;
  • Removing the mandatory underwriting requirements for all rights issues and open offers;
  • Removing the connected transaction exemption currently available to persons acting as underwriters of rights issues or open offers;
  • Requiring underwriters for rights issues and open offers (if any) to be persons licensed under the Securities and Futures Ordinance and independent from the issuers and their connected persons; and
  • The exception to that point would be that controlling shareholders may act as underwriters, if they provide compensatory arrangements available for the unsubscribed offer shares and comply with the relevant transaction rules.

3. Placing of warrants or convertible securities under general mandate

  • Disallowing the use of general mandate for placing of warrants; and
  • Restricting the use of general mandate to the placing of convertible securities with an initial conversion price that is no less than the market price of the shares at the time of placing.

4. Use-of-proceeds disclosure
Firms would be required to make fuller disclosure in their interim and annual reports of what they have done with the proceeds from their equity-fundraising projects.

5. Share subdivisions and bonus issues of shares
Disallowing both, if the theoretical share price after the adjustment for the subdivision or bonus issue is less than HK$1 or HK $0.50.

(That measure would restrict only share subdivisions and bonus issues – the Exchange is not planning to introduce any minimum share price on an ongoing basis.)

Meanwhile, in the delisting rules consultation, key measures include:

1. Under the Main Board Listing Rules

  • Adding a separate delisting criterion that will allow the Exchange to delist an issuer after its continuous suspension for a prescribed period – proposed to be either 12, 18 or 24 months;
  • Specifying a new delisting process that will apply to all of the existing criteria. Under this new process, the Exchange may either a) publish a delisting notice giving the issuer a period of time to remedy the relevant issues to avoid delisting, or b) delist the issuer immediately in appropriate circumstances; and
  • Removing Practice Note 17, which sets out a three-stage delisting procedure for issuers without sufficient operations or assets, to which the new delisting process will also apply.

2. Under the Growth Enterprise Market (GEM) Listing Rules
Adding a separate delisting criterion that will allow the Exchange to delist an issuer after its continuous suspension for a prescribed period – proposed to be either six or 12 months.

3. In addition…

Provide transitional arrangements for Main Board/GEM issuers whose securities are under suspension immediately before the effective date of the proposed, new framework.

In the interests of keeping trading suspensions to the shortest possible duration, the second consultation is also seeking views on proposed changes to key suspension requirements.

HKEX chief regulatory officer and head of listing David Graham said: “Our proposals relating to capital-raising activities are targeted, and seek to ensure that ordinary capital-raising activities will not be restricted.”

He explained: “After adopting a more robust delisting policy to address concerns about a number of long suspended issuers, we are proposing changes to the delisting framework to facilitate efficient and orderly exits of poor-quality issuers and provide certainty to the market on the delisting process, bringing our practice more in line with other major markets.”

Graham added: “We are considering proposals to enhance our rules on backdoor listings and our continuing listing criteria, and plan to publish [further] consultation papers in due course to seek market views.”

Find the capital raisings consultation here

And click here for the delisting consultation.

Scroll to top