Listing of Securities on the Stock Exchange of Hong Kong Limited

Qualifications for Listing

The basic conditions which have to be met as a prerequisite to the listing of equity Securities on the main board of the Hong Kong Stock Exchange are set out in Chapter 8 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, (“Listing Rules”).

However, it should be noted that these requirements are not exhaustive and the Exchange may impose additional requirements in a particular case. The Exchange also retains an absolute discretion to accept or reject an application for listing and the compliance with the relevant conditions may not itself ensure an applicant’s suitability for listing.

The starting point is that the potential issuer and its business must, in the opinion of the Exchange, be suitable for listing. In addition, the issuer must satisfy either the “profit test” or the “market capitalisation/revenue/cash flow test” or the “market capitalisation/revenue test”.

The profit test

To meet the profit test, a new applicant must have an adequate trading record under substantially the same management and ownership. This means that the issuer, or its group, must satisfy each of the following:-

  1. a trading record of not less than three financial years during which the profit attributable to shareholders must, in respect of the most recent year, be not less than HK$20,000,000 and, in respect of the two preceding years, be in aggregate not less than HK$30,000,000. The profit mentioned above should exclude any income or loss of the issuer, or its group, generated by activities outside the ordinary and usual course of its business;
  2. management continuity for at least the three preceding financial years; and
  3. ownership continuity and control for at least the most recent audited financial year.

The market capitalisation/revenue/cash flow test

To meet the market capitalisation/revenue/cash flow test, a new applicant must satisfy each of the following:-

  1. a trading record of not less than three financial years;
  2. management continuity for at least the three preceding financial years;
  3. ownership continuity and control for at least the most recent audited financial year;
  4. a market capitalisation of at least HK$2,000,000,000 at the time of listing;
  5. revenue of at least HK$500,000,000 for the most recent audited financial year; and
  6. positive cash flow from operating activities carried out by the new applicant, or its group, that are to be listed of at least HK$100,000,000 in aggregate for the three preceding financial years.

The market capitalisation/revenue test

To meet the market capitalisation/revenue test, a new applicant must satisfy each of the following, unless otherwise waived by the Exchange:-

  1. a trading record of not less than three financial years;
  2. management continuity for at least the three preceding financial years;
  3. ownership continuity and control for at least the most recent audited financial year;
  4. a market capitalisation of at least HK$4,000,000,000 at the time of listing;
  5. revenue of at least HK$500,000,000 for the most recent audited financial year; and
  6. at least 1,000 shareholders at the time of listing.

In the case of the market capitalisation/revenue test, the Exchange will sometimes accept a shorter trading record period under substantially the same management if the new applicant is able to demonstrate to the satisfaction of the Exchange the following:-

  1. the directors and management of the new applicant have sufficient and satisfactory experience of at least three years in the line of business and industry of the new applicant. Details of such experience must be disclosed in the listing document of the new applicant; and
  2. management continuity for the most recent audited financial year.

The Exchange may accept a shorter trading record period and/or may vary or waive the above profit or other financial standards requirement in certain circumstances, for example for mineral companies or project companies.

Sometimes there are exceptional circumstances where the issuer or its group has a trading record of at least two financial years and if the Exchange is satisfied that the listing of the issuer is desirable and in the interest of the issuer and investors and that the investors have the necessary information available to arrive at an informed judgement concerning the issuer and the securities for which listing is sought.

Other requirements

  • The latest financial period reported on by the reporting accountants must not have ended more than 6 months before the date of the listing document.
  • The Exchange must be satisfied that there will be sufficient public interest in the business of the issuer and the securities for which listing is sought.
  • Normally there will need to be at least 25% of the issuers total issued share capital held by the public.
  • The expected market capitalisation of a new applicant at the time of listing must be at least HK$200,000,000.
  • A new applicant applying for a primary listing on the Exchange must have a sufficient management presence in Hong Kong. This will normally mean that at least two of its executive directors must be ordinarily resident in Hong Kong.
  • A proposed issuer will need to appoint a sponsor, who is responsible for lodging the formal application for listing and all supporting documents and for dealing with the Exchange on all matters arising in connection with the application, and a underwriter.

Timing/Costs etc

The listing process is set out in detail in the Listing Rules, the overall timing can vary but is unlikely to be completed in less than 3-6 months.

Costs, again, vary tremendously but are usually proportional to the complexity of the listing, the time table to complete the whole process and the amount being raised. These will include listing fees, sponsor and underwriter fees, lawyers and accountants, marketing, printing and share registrar costs.

Once a company is listed it is required to publish interim and annual accounts, and its transactions must comply with the provisions relating to notifiable and connected transactions set out in the Listing Rules.

November 2006

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