3 January, 2018
On 15 December 2017, The Stock Exchange of Hong Kong Limited (the “Exchange”) published its consultation conclusions on the consultation paper on the review of the Growth Enterprise Market (“GEM”) and changes to the GEM and Main Board Listing Rules published on 16 June 2017.
The Exchange decided to implement substantially all of the proposals in the consultation paper, including, among other things:
- removing the streamlined process for GEM transfers to the Main Board;
- raising the minimum cash flow requirement for GEM applicants from HK$20 million to HK$30 million;
- raising the minimum expected market capitalisation of GEM applicants at the time of listing from HK$100 million to HK$150 million;
- introducing a mandatory public offering requirement of at least 10% of the total offer size for all GEM IPOs;
- extending the post-IPO lock-up requirement on controlling shareholders from one year to two years for GEM; and
- raising the minimum expected market capitalisation of Main Board applicants at the time of listing from HK$200 million to HK$500 million.
This client alert summarises the changes to the GEM and Main Board listing requirements that will take effect on 15 February 2018.
Changes to the GEM listing requirements
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Current regime |
New regime |
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Name |
English name: “Growth Enterprise Market” (acronym: “GEM”) Chinese name: 「創業板」 |
Rename as “GEM” (for both Chinese and English names) |
|
Target issuers |
Companies of an emerging nature |
Small to mid-sized companies |
|
Approval authority |
Listing Department (authority delegated from the Listing Committee)
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Listing Committee P.S. The unwinding of authority delegated to the Listing Department by the Listing Committee will be announced at a later date after the outcome of the proposed separate consultationon the system for decisions of the Listing Committee. |
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Minimum cash inflow from operating activities before changes in working capital for the two financial years immediately preceding the issue of the listing document |
HK$20 million |
HK$30 million (↑50%) |
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Minimum market capitalisation at the time of listing |
HK$100 million |
HK$150 million (↑50%) |
|
Minimum public float value at the time of listing |
HK$30 million |
HK$45 million (↑50%) |
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Offering mechanism |
Free to decide the offering mechanism provided full disclosure is made in the listing document (100% placing allowed)
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|
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Placing to core connected persons, connected clients and existing shareholders, and their respective close associates |
Allowed so long as full disclosure is made in the listing document |
Placing to core connected persons, connected clients and existing shareholders, and their respective close associates requires waiver/ consent of the Exchange (similar to the relevant requirements under Appendix 6 to the Main Board Listing Rules and HKEX-GL85-16) |
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Post-IPO lock-up period on controlling shareholders
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Controlling shareholders cannot sell shares for the first six month upon listing. For the next six months, controlling shareholders may sell shares but must retain control |
Controlling shareholders cannot sell shares for the first year upon listing. For the second year, controlling shareholders may sell shares but must retain control |
Changes to the Main Board listing requirements
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Current regime |
New regime |
|
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Minimum market capitalisation at the time of listing |
HK$200 million |
HK$500 million (↑150%) |
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Minimum public float value at the time of listing |
HK$50 million |
HK$125 million (↑150%) |
How will the changes affect new listing applicants?
All new listing applications received by the Exchange prior to 15 February 2018 will be processed in accordance with the GEM or Main Board Listing Rules in force immediately before 15 February 2018, as the case may be, with only one renewal of such application permitted thereafter (which must be made within three calendar months from the date on which the application has lapsed).
Applications received on or after 15 February 2018 will be processed in accordance with the amended GEM or Main Board Listing Rules, as the case may be.
Changes to the GEM transfer mechanism
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Current regime |
New regime |
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Application for transfer of a GEM listing to the Main Board (“GEM Transfer Applications”)
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Streamlined process:
– Announcement of an application to transfer to Main Board
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No streamlined process:
– Announcement of an application to transfer to Main Board
– dispensation from certain documentary requirements – dispensation from the post-IPO lock-up requirement – dispensation from the restriction on post-listing fund raising – dispensation from the requirement to appoint compliance adviser |
Transitional arrangements in relation to GEM Transfer Applications
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GEM Transfer Applications submitted before 15 February 2018 |
GEM Transfer Applications submitted during the three-year period starting from 15 February 2018 (the “Transitional Period”) |
GEM Transfer Applications submitted after the end of the Transitional Period |
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GEM Transfer Applications submitted by (a) companies listed on GEM as at 16 June 2017 and (b) GEM applicants who have submitted a valid listing application as at 16 June 2017 and subsequently listed on GEM pursuant to such application (with only one renewal of such application permitted) (collectively the “Eligible GEM issuers”) during the Transitional Period are entitled to the following transitional arrangements: (a) eligibility will be assessed in accordance with the Main Board Listing Rules in force immediately before 15 February 2018; and (b) as to the transfer process, (i) applicants that have changed their principal businesses and/or controlling shareholders since listing on GEM will be required to appoint a sponsor to conduct due diligence and publish a listing document as a new listing applicant to the Main Board; or (ii) applicants that did not change their principal businesses and controlling shareholders since listing on GEM will only need to prepare a GEM transfer announcement in connection with its GEM transfer. Such applicants are required to appoint a sponsor to conduct due diligence in respect of their activities during the most recent full financial year and up to the date of the GEM transfer announcement to ensure that the information in the GEM transfer announcement is accurate, complete and not misleading. (P.S. SFC has published an FAQ on its website which provides guidance on the due diligence that a sponsor is expected to conduct on a GEM transfer applicant that plans to issue a GEM transfer announcement under the transitional arrangements.) GEM Transfer Applications made by GEM issuers that are NOT Eligible GEM Issuers on or after 15 February 2018 will be processed and their eligibility will be assessed under the amended Main Board Listing Rules. |
Processed and eligibility assessed under the amended Main Board Listing Rules
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For further information, please contact:
Rebecca Yip, Deacons
rebecca.yip@deacons.com.hk
