- Proposal to increase the Profit Requirement, with transitional arrangements
- Feedback is sought during a two-month consultation period, ending on 1 February 2021
The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) published a consultation paper on the Main Board Profit Requirement (the Consultation Paper).
HKEX Head of Listing Bonnie Y Chan said: “Our proposal to increase the profit requirement for a Main Board Listing will enhance the distinction between a Main Board and GEM listing in Hong Kong, offer issuers clearer choice, and investors greater clarity. The proposal is part of our ongoing commitment to enhance market quality, and to further strengthen Hong Kong’s role as Asia’s premier international financial centre.”
The minimum profit requirement under Main Board Rule 8.05(1)(a) (Profit Requirement) has not been changed since its introduction in 1994. Since the minimum market capitalisation requirement under Main Board Rule 8.09(2) (Market Capitalisation Requirement) was increased from $200 million to $500 million in 2018, the Exchange has seen an increase in listing applications from issuers that marginally met the Profit Requirement, but had relatively high proposed market capitalisations.
The Exchange believes this misalignment of the Profit Requirement, with the increased Market Capitalisation Requirement, has raised regulatory concerns as to the quality of companies seeking Main Board Listings. Consequently, the Exchange is proposing to increase the Profit Requirement by either 150 per cent, based on the percentage increase in the Market Capitalisation Requirement in 2018 (Option 1)1; or by 200 per cent, based on the approximate percentage increase in the average closing price of the Hang Seng Index from 1994 to 2019 (Option 2)2.
Recognising the impact that such proposal might have on companies which have already commenced their listing preparations, the Exchange also proposes introducing transitional arrangements if the increment proposal is adopted. The Exchange will also introduce temporary conditional relief from the increased Profit Requirement to facilitate the listing of quality companies whose financial results have been temporarily and adversely affected by the COVID-19 pandemic and the economic downturn (each application will be considered on a case by case basis).
The Exchange invites broad market feedback on the substance of its proposals. The two-month public comment period will end on Monday, 1 February 2021.
The Consultation Paper is available on HKEX website.
Notes:
- The minimum profit attributable to shareholders will be increased, from $20 million to $50 million in respect of the most recent financial year of the trading record period, and from $30 million to $75 million in respect of the two preceding financial years.
- The minimum profit attributable to shareholders will be increased, from $20 million to $60 million in respect of the most recent financial year of the trading record period, and from $30 million to $90 million in respect of the two preceding financial years.
About HKEX
Hong Kong Exchanges and Clearing Limited (HKEX) is one of the world’s major exchange groups, and operates a range of equity, commodity, fixed income and currency markets. HKEX is the world’s leading IPO market and as Hong Kong’s only securities and derivatives exchange and sole operator of its clearing houses, it is uniquely placed to offer regional and international investors access to Asia’s most vibrant markets.
HKEX is also the global leader in metals trading, through its wholly owned subsidiaries, The London Metal Exchange (LME) and LME Clear Limited. This commodity franchise was further enhanced with the launch of Qianhai Mercantile Exchange (QME), in China, in 2018.
HKEX launched the pioneering Shanghai-Hong Kong Stock Connect programme in 2014, further expanded with the launch of Shenzhen Connect in 2016, and the launch of Bond Connect in 2017.
www.hkexgroup.com
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