The Hong Kong Institute of Certified Public Accountants welcomes the current review of Hong Kong's listing regime to identify areas where the regime could be strengthened and expanded in order to meet the evolving needs of investors and issuers and enhance Hong Kong's competitiveness as a global capital center.
In its comments on the concept paper and consultation paper of the Hong Kong Exchanges and Clearing, which set out a set of proposals to enhance Hong Kong's listing framework, improve market quality and attract a broader range of companies to come to list in Hong Kong, the HKICPA noted it has no objection, in principle, to the establishment of a New Board to attract potential issuers which do not fit into the current listing regime.
“However, the proposed New Board is intended for "New Economy" industries but there is no generally accepted definition of New Economy,” says the HKICPA.
The HKICPA noted that this "New Economy" concept is an evolving concept which can potentially embrace all new industries or any existing industry that use new technologies to partly or wholly produce, sell or distribute their goods and services.
“It is impractical to restrict the New Board to any particular industries and any attempt to draw a line will be arbitrary,” says the HKICPA.
Companies with non-standard governance structure
While the HKICPA has no objection to HKEX exploring the feasibility of permitting companies with different voting right structures to be listed in Hong Kong, it said that changes should not be made on a piecemeal fashion without examining the overall implication of the weighted voting rights (WVR) on investor protection.
“In this respect, we recommend introducing wider changes to corporate governance and regulatory framework in Hong Kong to maintain appropriate investor protection, and for educating the market and investors on the non-standard governance structure and associated risks,” said the HKICPA.
The HKICPA further commented that companies with WVR structures would need to explain and justify the adoption of a WVR structure and have effective mechanisms to safeguard the interests of ordinary shareholders before being permitted to be listed.
HKICPA believes that consideration should be given to impose restrictions or conditions on WVR structure that take into account the circumstances of each company to avoid abuses of WVR, such as: restrictions on the types of persons that can hold WVR; restrictions on transfer of WVR to third parties; and requirements to impose a sunset clause on WVR structure.
The institute considers that investor protection, which is central to Hong Kong's high regulatory standards and the core value of the securities market, should not be compromised.
New Board PRO and New Board PREMIUM
The HKICPA also said there is little point in creating a New Board PREMIUM to accommodate companies with non-standard governance structures as the proposed admission financial requirements, the vetting and approval process of new listing applicants and the continuous listing and corporate governance obligations of its issuers would be same as the Main Board.
The New Board could simply be a listing venue for pre-profit / early stage companies that do not meet the existing financial or track record eligibility requirements of the Main Board or GEM and for professional investors only (i.e. the New Board PRO).
“With GEM being repositioned as a board for small to medium-sized companies, we suggest that the new listing framework to comprise of three boards – New Board, GEM and Main Board,” said the HKICPA.
The institute noted that the characteristics and the scope of each of the boards should be clearly delineated to avoid confusion. “HKEX should provide a clear roadmap and mechanism of how a listed issuer could migrate its listing from one board to another, when the characteristics of an issuer have changed due to growth and development.”