Introduction
In our newsletter published November 2021, we discussed the Securities and Futures Commission’s (the “SFC”) conclusion on its consultation on conduct requirements for bookbuilding and placing activities, under which the SFC announced the new requirements to be introduced as paragraphs 17.1A and 21 to the Code of Conduct for Persons Licensed by or Registered with the SFC (the “New Code Provisions”) in relation to the roles and conduct standards expected of capital market intermediaries (“CMI(s)”).
On 22 April 2022, to align with and complement the new requirements of the Code, The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) published an information paper (the “Information Paper”) on amendments to the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) (or Appendix 3 to the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the “GEM Listing Rules”) on bookbuilding and placing activities in equity capital market transactions and sponsor coupling (the “Rule Amendments”).
Applicability of Rule Amendments
The Rule Amendments are applicable to the following types of transactions:
1. a placing of equity interests to be listed on the Stock Exchange, including a placing (a) in connection with a new listing (be it by way of a primary listing or secondary listing); and (b) of equity interests of a class new to listing or new equity interests of a class already listed under a general or specific mandate in accordance with Rule 7.12A of the Listing Rules (Rule 10.13 of the GEM Listing Rules) or other relevant codes and guidelines; and
2. a placing of listed equity interests by an existing holder of equity interests if it is accompanied by a top-up subscription by the existing holder of equity interests for new equity interests in the issuer.
On the other hand, no specific amendments will be made to the Listing Rules relating to the placing of debt securities. Intermediaries should nevertheless when applicable, abide by the New Code Provisions in debt capital market transactions.
The Rule Amendments
The following table summarises the key Rule Amendments with the corresponding New Code Provisions as introduced by the SFC:
| Key Amendments | The New Code Provisions | Listing Rules (GEM Listing Rules) Reference | |
| 1. Appointment of a Capital Market Intermediary including an Overall Coordinator | |||
| Appointmentof a capital market intermediary | A CMI involved in bookbuilding and/or placing activities in Hong Kong shall be appointed under a written agreement. | Paragraph 21.3.2 of the New Code Provisions | Rule 3A.33 (Rule 6A.40 of GEM Listing Rules) |
| Appointment of overall coordinator(s) | Any overall coordinators (“OC(s)”) involved in bookbuilding and/or placing activities in Hong Kong shall be appointed at an early stage in an IPO that involves a placing. | Paragraph 21.4.1 (a) of the New Code Provisions | Rule 3A.35 (Rule 6A.42 of GEM Listing Rules) |
| Content of the written engagement agreement | The written agreement should specify, amongst others:· the roles and responsibilities of the CMI/OC;· the fee arrangements;· the fee payment schedule; and· (for placing in connection with a new listing) the obligations of the new applicant and its directors to provide certain assistance to the syndicate CMI/OC. | Paragraph 21.3.2 (for CMI) and Paragraph 21.4.1(a) (for OC) of the New Code Provisions | For CMI: Rule 3A.34 (Rule 6A.41 of GEM Listing Rules). For OC: Rules 3A.35 and 3A.36 (Rules 6A.42 and 6A.43 of the GEM Listing Rules) |
| 2. Appointment of Overall Coordinator(s) in Placing that involves Bookbuilding Activities | |||
| Timing of appointment | An OC shall be appointed no later than two weeks after the date of the submission (or re-filing, as the case may be) of the listing application. | Paragraph 21.4.1(b) and (c) of the New Code Provisions | Rule 3A.37 (Rule 6A.44 of GEM Listing Rules) |
| Overall-coordinator Announcement | An announcement on the appointment of all OC(s) (the “OC Announcement”) must be published no later than two weeks following the date of submission. The announcement shall disclose the name(s) of all OC(s) appointed as at the date of the announcement | / | Rules 3A.37, 12.01C and Paragraph 17A of Practice 22 of the Listing Rules (Rules6A.44, 16.01C and Paragraph 16A of Practice Note 5 of the GEM Listing Rules) |
| Where an additional OC is appointed or the engagement of an existing OC is terminated after the publication of the initial OC Announcement, the new applicant shall publish a further OC Announcement informing the investing public of such change. | / | Rules 3A.3, 3A.41(2) and paragraph 17A of Practice Note 22 of the Listing Rules (Rules 6A.44, 6A.46(2) and paragraph 16A in Practice Note 5 of the GEM Listing Rules). | |
| New applicants permitted to make a confidential filing will be required to publish the initial OC Announcement on the same date as they publish their post hearing information packs on the Stock Exchange’s website. | / | Paragraph 18 of Practice Note 22 of the Listing Rules (paragraph 17 of Practice Note 5 of theGEM Listing Rules) | |
| 3. Appointment of at Least One Sponsor-Overall Coordinator in Main Board IPOs | |||
| Appointment of sponsor-overall coordinator in Main Board IPOs | A new applicant must ensure that at least one OC it appoints in connection with a placing involving bookbuilding activities of a new listing is also appointed as a sponsor independent of the new applicant. | Paragraph 17.1A of the New Code Provisions | Rules 3A.02 (Note), 3A.43 and 3A.45 (Not applicable to GEM applicants) |
| Timing of appointment | Appointments shall be made at the same time and no less than two months before the submission (or re-filing, as the case may be) of the listing application to the Stock Exchange. | Paragraph 21.4.1(b)(i) of the New Code Provisions | Rule 3A.43 (Not applicable to GEM applicants) |
| 4. Associated Obligations of Issuers and their Directors | |||
| Assessment of investors | The written engagement agreement with each syndicate member must contain the obligations of the new applicant and its directors to provide the syndicate member with, among other things, a list of the directors and existing shareholders of the new applicant, their respective close associates and any nominees engaged by any of the foregoing persons for the subscription or purchase of equity interests. | Paragraph 21.4.5 of the New Code Provisions | Rule 3A.46 (Rule 6A.48 of the GEM Listing Rules) |
| Pricing and allocation | An issuer should document the rationale behind its decision on allocation and pricing, in particular where the decision is contrary to the advice, recommendation(s) and/or guidance of the OCs. The OCs shall inform the Stock Exchange if decisions made by the issuer amount to non-compliance with the Listing Rules. | Paragraph 21.4.2(c)of the New Code Provisions | Paragraph 19 of Appendix 6 (Rule 10.16B of the GEM Listing Rules) |
| Confirmation of no rebate | Each new applicant is required to confirm that no rebate has been provided by it, its controlling shareholder(s) and directors and the syndicate members to any placees or the public (as the case may be), in the announcement of the final offer price and the allotment results of the IPO. | Paragraph 21.3.7(a) of the New Code Provisions | Note 2 to Rule 12.08 and Form D in Appendix 5 to the Listing Rules (Note 3 to Rule 16.13 and Form D in Appendix 5 to the GEM Listing Rule) |
Conclusion
The Rule Amendments will apply to listed issuers and new applicants (as the case may be) which submit (or re-file) their listing applications on or after 5 August 2022. As the Rule Amendments is about to take effect, listed issuers are advised to review and adopt corresponding measures in response to the Rule Amendments.
