Latham and Watkins.20110927

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    Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limitedliability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting the practice inHong Kong and Japan. Latham & Watkins practices in Saudi Arabia in association with the Law Office of Mohammed Al-Sheikh. Copyright 2011 Latham& Watkins. All Rights Reserved.

    International Companies SeekingListing in Hong Kong Legal andRegulatory Implications

    Michael Liu, PartnerStanley Chow, Partner

    September 2011

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    Historical Perspective and Recent Trends (1)

    Majority of companies listed on the Hong Kong Stock Exchange

    are overseas incorporated companies. Most of them with sole primary listing in Hong Kong.

    Began to see dual A and H share listings for PRC state ownedenterprises since 2006. Bank of China, China Life were amongst

    the first.

    Dual or sole primary listings or secondary listings for internationalcompanies not headquartered in China became more popularsince the relaxation in acceptable jurisdictions for incorporation in

    2007.

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    Historical Perspective and Recent Trends (2)

    About 10 international companies listed in Hong Kong in the last

    2 years. LOccitane, Prada, Samsonite have gone for seeking a primary

    listing in Hong Kong for the first time. All these companies raisedcash and did NOT have another listing status elsewhere.

    Vale (Brazilian incorporated), SouthGobi (British Columbiaincorporated), Kazakhmys (English incorporated), all of whichwere existing listed companies, sought secondary listing in HongKong by way of introduction. No cash was raised at the time.

    Glencore (Jersey incorporated) sought a secondary listing statusin Hong Kong at the same time as a London IPO. Concurrentofferings in London and Hong Kong took place at the time of itsLondon/HK IPO.

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    Summary of Choices in Hong Kong Listing

    Primary listing for the first time (raises cash, typically there will be

    an international offering). Primary listing at home coupled either with a dual primary listing

    in Hong Kong (less likely) or a dual secondary listing in HongKong (more likely) at the same time. Typically will raise cash.

    For existing listed companies, seeking a secondary listing inHong Kong by introduction (no cash raised) or with an offering.

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    Examples of Dual Offerings and Dual Listings

    Simultaneous dual offerings/listings

    HK/New York Stock Exchange China Life

    HK/London Stock Exchange Glencore International plc HK/Euronext Paris United Company RUSAL Ltd. (placing to professional

    investors only in HK)

    HK/Toronto Stock Exchange China Gold International Resources Corp. Ltd.

    HK/Singapore Stock Exchange Prudential plc (also listed on London Stock

    Exchange and New York Stock Exchange) Other dual listings

    HK/New York Stock Exchange/Euronext Paris/Brazil Stock Exchange/MadridStock Exchange Vale S.A. (listing of HDRs)

    HK/London Stock Exchange/Kazakhstan Stock Exchange Kazakhmys PLC

    HK/London AIM Asian Citrus Holdings Ltd.

    HK/Toronto Stock Exchange SouthGobi Energy Resources Ltd.

    HK/Tokyo and Osaka Stock Exchanges SBI Holdings (listing of HDRs)

    HK/Singapore Stock Exchange China New Town Development Co. Ltd.,Fortune REIT, China Print Power Group Ltd., China Animal Healthcare Ltd.,Midas Holdings Ltd.

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    Hong Kong Listing Requirements (1)

    Basic requirements the same for both primary listing and secondary listing inHong Kong:

    Track record:

    profit test

    market cap (HK$2B)/ revenue (HK$500M)/ positive cash flow (HK$100M)test

    market cap (HK$4B)/revenue (HK$500M) test

    Management continuity: the Issuer must have management continuity of atleast three financial years.

    Ownership continuity: there must be ownership continuity and control for atleast the most recent audited financial year.

    Suitability for listing: if the Issuers controlling shareholder (with a 30% ormore shareholding) has an interest in a competing business, the Issuer mustdemonstrate that it is capable of carrying on its business independently andat arms length from the competing business. If competition is significant,HKSE may regard the Issuer as unsuitable for listing.

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    Hong Kong Listing Requirements (2)

    Independent operations and connected transactions: the Issuer shouldbe able to operate independently (i.e. financial independence, operational

    independence, management independence), particularly from its controllingshareholder (and its associates) after listing. There should not be asignificant number of related party transactions, and related partytransactions should be conducted on an arms length basis.

    Acceptable country of incorporation

    Management presence in Hong Kong: the Issuer must have a sufficientmanagement presence in Hong Kong - normally at least two of its executivedirectors must be resident in Hong Kong, although the HKSE has thediscretion to grant waivers.

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    Hong Kong Listing Requirements (3)

    Corporate governance:

    INED (three with one having accounting/ financial expertise)

    Hong Kong Company Secretary (HK qualifications and residency)

    Audit/Remuneration/Nomination Committees:

    the Issuer must establish an audit committee with at least 3 membersthat are non-executive directors (and the majority of the members,including the chairman, must be independent, non-executive directors).

    One of the independent audit committee members must haveappropriate professional qualifications or accounting or related financialmanagement expertise.

    the Issuer should have both remuneration and nomination committeescomposed of a majority of independent, non-executive directors (if the

    Issuer does not have such committees, it must explain why in itsannual report).

    Public float: normally a minimum of 25% of the shares must be held by thepublic (this can be lower if market capitalization is sufficiently large, subject toHKSE approval), and not more than 50% of the shares in public hands at the

    time of listing can be beneficially owned by the three largest public shareholders.

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    Information on Acceptable Jurisdictions ofIncorporation

    Acceptable jurisdictions

    The Hong Kong Stock Exchange may refuse the listing of an overseas issuerif it is not satisfied that the issuer is incorporated or otherwise established in ajurisdiction where the standards of shareholder protection are at leastequivalent to those provided in Hong Kong.

    Traditionally, only accepted foreign companies incorporated in Bermuda,Cayman Islands and the PRC.

    Now, other jurisdictions formally ruled to be acceptablejurisdictions:

    - Australia - Brazil

    - British Virgin Islands - Canada (Alberta)

    - Canada (British Columbia) - Canada (Ontario)- Cyprus - France

    - Isle of Man - Italy

    - Japan - Jersey

    - Luxemburg - Singapore

    - United Kingdom - USA (State of California)

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    Requirements for Secondary Listings inHong Kong

    For secondary listing, may apply for a waiver from certain of thebasic requirements on a case-by-case basis. In practice,extensive waivers are given.

    Additional requirements for secondary listing:

    Issuer must have a primary listing on another regulated

    exchange where the standards of shareholder protections areat least equivalent to those provided in Hong Kong.

    Issuer must be subject to equivalent shareholder protectionstandards in its jurisdiction of incorporation.

    Issuer must maintain a share register and appoint an agent toaccept service of process in Hong Kong.

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    Availability of Secondary Listing Status inHong Kong

    Quote from Hong Kong Stock Exchange website(Centre of Gravity test):

    Secondary listing issuers are primarily listed on another stock exchange andthe majority of their equity securities are not usually traded on the Exchange.Secondary listing is available to overseas issuers, excluding Greater Chinaissuers, seeking a Main Board listing and having sufficient connections witha foreign market. In determining whether an issuer has sufficient

    connections with a foreign market to warrant a secondary listing, we will notonly consider the issuers place of incorporation but also look at other factorsto determine its centre of gravity, including:

    the number of Hong Kong shareholders;

    the extent of equity securities trading on the Exchange;

    the location of head office and place of central management;

    the location of business and assets with reference to its corporate andtax registration; and

    the protection available to Hong Kong investors under any foreign laws

    or regulations.

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    Information on Waivers for Secondary Listing

    Examples Waivers for secondary listing

    Common waivers sought for overseas companies:

    - Management presence in HK- Certain connected transactions

    - Property valuation report

    - Joint company secretary

    - Public float requirement

    - Clawback mechanism

    - HK accountants

    - Equity fund raising rules

    - Share repurchase rules

    - Certain disclosure requirements- Partial waivers from disclosure of price-sensitive information requirements

    - Notifiable and connected transactions

    - Corporate governance codes

    - Takeovers Code public company

    - Accounting principles

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    Day H + 53End of

    StabilizationPeriod

    Typical Hong Kong IPO Timeline

    Day TA1 ConfidentialApplication to

    HKSE

    H

    HKSEHearing Date

    H + 14Bulk-print of

    Red Herring

    H + 24Sign IPA /Pricing /

    Print FinalInternational

    Offering Circular

    H + 32Listing

    DUE DILIGENCE

    T (60 to120)

    Kick-offMeeting

    H + 19Sign HK U/W Agreement /Prospectus Registration

    Note: This timeline is for illustration purposes only. The exact dates depend on the circumstances of the case.

    VERIFICATION OF PROSPECTUS

    DRAFT PROSPECTUS

    DEALING WITH HKSE QUERIES

    RESEARCH REPORTS PREPARED

    H + 16Bulk-print

    Prospectus

    H + 20HK Offeringcommences

    H + 23HK Offering

    closes

    ROADSHOW

    STABILIZATION & GREENSHOEEXERCISE PERIOD

    RESEARCH REPORT BLACK-OUT PERIOD