New HKEX Amendments to Debt Listing


On August 21, 2020, The Stock Exchange of Hong Kong Limited (the “HKEX”) posted a consultation finding on “Review of Chapter 37 – Debt Issuances to Professional Investors Only” (the “Consultation Findings”) , which followed the publication of “’Chapter 37 Review Discussion Paper – Debt Matters for Professional Investors Only” (the’ Consultation Paper ‘) in December 2019. The consultation concluded adopted most of the changes proposed in the consultation paper and the changes to Chapter 37 of the Rules Governing the Listing of Securities on the Main Board of The Stock Exchange of Hong Kong Limited (the “Listing Rules”) entered into force on 1 November 2020.

Main amendments to chapter 37 of the listing rules

The main changes to Chapter 37 of the registration rules include: (1) improved eligibility requirements; (2) tightening of eligibility exemptions applicable to regional and local public enterprises; (3) the modification of the definition of “Professional investor”; (4) the new obligation to publish listing documents on the HKEX website; and (5) strengthening the continuous reporting obligations of issuers and guarantors regarding defaults and insolvency. A summary of the changes is presented below:

1. Improved eligibility conditions

The new changes include stricter listing standards, mainly with regard to the minimum net asset value requirement and the minimum issue size. These higher standards aim to ensure that only issuers with a large pool of assets and proven track record of issuing large amounts of debt will be eligible and to align the quality of listings with other trading platforms. listing of popular debts, notably Singapore, Luxembourg and Ireland. Exchanges:

 Under revised Rule 37.05 of the Listing Rules, unless certain exemptions apply, issuers of debt to professional investors must have minimum net assets of HK $ 1 billion, an increase over the ‘then existing net asset requirement of HK $ 100 million.

 Under revised Rule 37.09A of the Listing Rules, the minimum issue size is set at HK $ 100 million, with the exception of contactless issues. By comparison, there was no minimum issue size requirement under the old listing rules.

2. Strengthening of exemptions applicable to regional and local public enterprises

Under the listing rules, Crown corporations, which are defined as comprising corporations majority owned by a government or whose liabilities are fully guaranteed by a government, would be exempt from the minimum net asset requirement and the ‘obligation to provide two-year audited accounts under Rule 37.05b and Rule 37.06b of the Listing Rules, respectively.

On March 28, 2018, the Ministry of Finance of the People’s Republic of China issued the Circular on the Regulation on Fundraising Activities Carried Out by Financial Institutions for Local Government and State-Owned Enterprises, which made it clear that no support or support financial would be provided. by a state to its state-owned companies in the event of non-compliance with their payment obligations, the HKEX has therefore revised the definition of “state-owned company” so as to specifically exclude companies majority-owned or controlled by a public authority regional or local. The effect of this change is that companies controlled by regional or local authorities will be required to qualify for listing with a net asset value of at least HK $ 1 billion and an issue size of at least HK $ 1 billion. minus HK $ 100 million rather than simply relying on the exemptions of state-owned companies.

3. Modification of the Definition of “Professional investor”

Former Rule 37.58 of the Listing Rules defines “professional investors” in Hong Kong as investors as defined in Part 1 of Schedule 1 of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (the “SFO”) (ie institutional investors) excluding high net worth investors as prescribed by the rules established under article 397 of the OFS. Consequently, the “professional investors” defined in chapter 37 of the Listing Rules were not aligned with those of the SFO.

In fact, almost all issuers seek professional investor exemption (the “PI waiver”) in the listing process to give themselves the flexibility to market the securities. However, since the PI Waiver is not codified in the Listing Rules, potential issuers may be less aware of this flexibility. The need to seek the grant of the exemption also creates an additional administrative burden for issuers and is inconsistent with the light regulatory approach to the debt securities listing regime under Chapter 37 of the Listing Rules (“Chapter 37 Debt securities issuance regime ”).

Therefore, the definition of “professional investors” has been revised to include high net worth investors and other professional investors prescribed by the rules established under Section 397 of the SFO, thereby eliminating the need to request an IP waiver.

4. New requirement to post registration documents on the HKEX website

Previously, Chapter 37 of the Listing Rules did not require the publication of listing documents as they are issued only to professional investors and are generally not accessible to the public. However, failure to publish the listing document means that investors may not be alerted to the caveats in the listing document and may not benefit from all of the information contained in the listing document when determining if they have to buy debt securities listed on the HKEX under the Chapter 37 Debt Issuance Scheme.

Therefore, the HKEX changed its rules to require the publication of listing documents. LC Lawyers LLP is an independent law firm and Hong Kong law firm member of the EY global network, together with other members of the law firm. as of the date of listing on the HKEX website, which improves transparency and increases market awareness of the nature of the Chapter 37 debt issuance scheme, which targets professional investors only. This change also brings HKEX closer to its main competitor, such as the Singapore, Luxembourg and Ireland stock exchanges, which have historically required disclosure of the listing document, although the ability to publish the document only in Chinese is still unique and differentiates the HKEX from its competitors.

5. Strengthening of continuous reporting obligations in the event of default and insolvency

Another major change to the listing rules is the strengthening of regulatory oversight of issuers and guarantors in terms of their ongoing obligations. HKEX adopted the proposal for the consultation document, which includes the following:

 demand a prompt response to inquiries from HKEX in the event of unusual movements in the price or trading volume of an issuer’s listed debt securities, or the possible development of a false market;

 demand the announcement of a default or of matters leading or involving a liquidation and / or a liquidation;

 require the announcement of developments after the suspension of the issuance of debt securities under Chapter 37 Debt Securities Issuance Regime;

 clarify when to make an information announcement in order to avoid market or misinformation having a material effect on a guarantor’s ability to meet its debt obligations;

 require issuers to disclose information having a significant impact on their ability to meet their obligations under listed debt securities;  specify that both issuers and guarantors are required to comply with ongoing obligations; and

 to clarify that issuers and guarantors are required to meet their ongoing obligations only with respect to their debt securities that are listed on HKEX, and not their other debt instruments.


Despite the changes to Chapter 37 of the scoring rules outlined above, HKEX also stressed that it will maintain its current disclosure and verification approach, light approach, with respect to debt scoring documents under the Chapter 37 Debt Issuance Scheme, and which serve at least four purposes:

 balancing the need to protect investors and maintain an efficient and appropriate listing platform;

 improve the eligibility conditions to improve the overall financial health of the market;

 strengthen continuous reporting obligations to better protect investors; and  streamline the listing process to reduce the administrative burden on issuers.

Source link

John A. Bogar