Hong Kong trims China-risk section in listing rules, but maintains scrutiny.
By Selena Li and Kane Wu
HONG KONG (Reuters) – The Hong Kong stock exchange has made an exciting change to its listing application rules. As of Tuesday, the exchange has removed a China-risk section for mainland-incorporated companies. This move is aimed at aligning the disclosure requirements for IPO-aspirants from all countries. Don’t worry, the scrutiny level remains the same.
In its latest revision to listing rules, the Hong Kong stock exchange has repealed a whole section that focused on risks from China’s policies and its business and legal environment. This change was outlined in a consultation conclusion paper published on July 21.
However, Hong Kong Exchanges and Clearing Ltd (HKEX) has clarified that there has been “no roll back” in the level of scrutiny required by the listing rules. China-incorporated issuers are still subject to the same disclosure rules as other issuers.
“All listing applicants, regardless of place of incorporation and operational jurisdictions, must continue to disclose any material matters and specific risk factors that are relevant to their business, operations, industry, jurisdiction of incorporation, etc,” HKEX stated.
“If there are material risks in doing business in any jurisdiction in which a listing applicant has material operations, they are required to disclose it under the existing rules. This applies to all issuers, from all jurisdictions.”
A large number of Chinese companies choose to make their public market debut either in Hong Kong or in the United States. Global investors closely analyze the disclosures made in their IPO prospectuses to assess risks and prospects.
China’s securities watchdog published updated rules for offshore listings in February, and Hong Kong followed with its own consultation on proposed changes a week later.
The deletion of the China-specific risk section was part of a move to “align the requirements” for all issuers. Other amendments were made to reflect “recent changes in Mainland China regulatory framework,” according to the Hong Kong exchange’s conclusion paper on July 21.
In a summary of rule revisions, the exchange did not list the removal of China risk disclosures as a major change.
“Legacy rules had split out specific requirements for People’s Republic of China-incorporated issuers, but the recent consultation has sought to align requirements for all overseas-incorporated companies,” the exchange said.
REGULATORY CHANGES IN CHINA, U.S.
The China Securities Regulatory Commission recently met with local lawyers and asked them to refrain from including negative descriptions of China’s policies or its business and legal environment in companies’ listing prospectuses, sources said.
The regulator warned that failure to comply could hinder regulatory approval for IPOs.
Earlier this month, the U.S. Securities and Exchange Commission directed Chinese companies listed on U.S. stock exchanges to disclose more details about the role of the Chinese government in their operations and the impact of a 2021 law banning the import of goods from China’s Uyghur region.
The now-removed China risk section in Hong Kong listing rules required mainland issuers to offer a summary of risks related to “the relevant laws and regulations,” “the political structure and economic environment,” “foreign exchange controls and exchange rate risk” of China, as well as other specific risks of doing business in China.
Since China’s new offshore listing regime came into effect on March 31, the majority of Chinese companies’ offshore listing proposals have been filed with the Hong Kong exchange. However, only a few of them have received Beijing’s approval to start raising funds.
(Reporting by Selena Li and Kane Wu in Hong Kong; Editing by Sumeet Chatterjee, Christina Fincher and Neil Fullick)
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