Hong Kong Exchanges and Clearing (HKEx) has issued a new guidance to ban cash companies to list, effectively cracking down on so-called back-door listings.
The exchange on Monday issued new rules for listing under which cash companies – whose assets consist wholly or substantially of cash – will not be allowed to list. This also means if any listed company suspends trading to issue a large number of shares to a fresh investor in return for cash that becomes greater than the original business, they will not be allowed to resume trading.
Even if the company uses the cash to buy new businesses, the exchange will consider this as a new listing application.
David Graham, HKEx’s chief regulatory officer and head of listing, said in a statement that the new guidance was needed in view of a surge in listed companies proposing large-scale fundraisings, leading to substantial cash injections into these companies.
The new investors who are sold the shares often take control of the issuers and invest the money into new businesses – a common method of back-door listing, through which listed companies are taken over by unlisted entities. In the process, the original business of the issuer becomes marginal, which, Graham said, is becoming a new trend.
We review our rules and practices from time to time to ensure that they have addressed developments in the market,” Graham said.