Hong Kong stock exchange operator tightens regulation of back-door listings with new rules
- HKEX drops profit requirement after concerns expressed during two-month public consultation
- New rules effective from October 1
Bourse operator Hong Kong Exchanges and Clearing has tightened the regulation of so-called back-door listings with the introduction of rules that go into effect from October 1, according to the conclusion of a public consultation released on Friday.
In a back-door listing, a company that has gone public sells its major assets or shareholding, enabling a new buyer to secure listing status without going through the application process. New buyers usually inject their businesses into the existing entity, which has in some cases compromised the quality of listings.
The new rules ban listed companies from selling major assets or shareholding within three years after change in ownership. If a company sells its major shareholding to another firm, the stock exchange will monitor its acquisitions over the next 36 months.
Should the listed company keep selling its existing business or assets, and keep buying new businesses or assets from its new shareholders within the three-year period, the exchange will view this activity as an attempt by the new buyers to secure listing status by circumventing the new listing requirements.
If the exchange considers this a back-door listing, it will review the new buyer’s fitness against all listing criteria.
The change in rules is aimed at cleaning up problematic corporate behaviour at the Hong Kong bourse, Asia’s second-largest stock market, and enhancing market quality and investor protection.
“The rule changes are a positive step forward for the whole market, and will not restrict legitimate business activities, business expansion or diversification of listed issuers,” said David Graham, HKEX's head of listing.