The Stock Exchange of Hong Kong Limited (the "Exchange") in 2018 published a consultation paper on “a Listing Regime for Companies from Emerging and Innovative Sectors” ("2018 Consultation"). After the publication of the consultation conclusion for the 2018 Consultation, the Exchange implemented Chapter 8A of the Main Board Listing Rules to permit issuers with a Weighted Voting Rights (“WVR”) structure to list on the Exchange, but the requirements under Chapter 8A limit beneficiaries of WVR to individual only. The Exchange recognised that allowing corporate entities to benefit from WVR would be a significant new development. On 31 January 2020 the Exchange issued a consultation paper regarding Corporate Weighted Voting Rights Beneficiaries (“Consultation Paper”).
The Consultation Paper sets out a list of proposed requirements for a WVR corporate regime, including the following.
- A corporate WVR beneficiary must be primary listed on the Exchange or on a Qualifying Exchange, for example, NYSE, NASDAQ, and have a minimum market capitalization of at least $200 billion;
- It must be either the company that meets the proposed requirements to benefit from WVR itself or be a wholly owned subsidiary of that company;
- The listing applicant must not represent more than 30% of the corporate WVR beneficiary in terms of market capitalization at the time of listing;
- A corporate WVR beneficiary must either be an innovative company itself or have business experience in one or more emerging and innovative sectors as well as a track record of investments in, and contributions to, innovative companies;
- It must have held an economic interest of at least 10% and must have a material involvement in the management or the business of the listing applicant for at least two financial years prior to its listing application. At listing, and thereafter, the corporate WVR beneficiary must hold an economic interest of at least 30% in the listing applicant;
- The contribution of the corporate WVR beneficiary to the listing applicant must be of a nature that cannot be easily replicated or substituted by other means;
- To benefit from WVR, a corporate must demonstrate that it owns an “ecosystem” at listing (and on an ongoing basis) that benefits and operates the listing applicant; and
- The WVRs held by a corporate beneficiary must have a time-defined “sunset” period of not more than ten years for the WVR of a corporate WVR beneficiary, which may then be renewed for successive periods of not more than five years with the approval of independent shareholders.
The Consultation Paper was considered by the Council with the assistance of the Company Law Committee of the Law Society. A submission was prepared in response. In general, the Law Society welcomes the Exchange's proposals and has provided comments on some of the proposals. A copy of the submission can be found on the Law Society's website: http://www.hklawsoc.org.hk/pub_e/news/submissions/20200428.pdf