This statement explains the approach of the Securities and Futures Commission (SFC) to the listing of certain infrastructure project companies – such as those falling within the Belt and Road Initiative of the Central Government – in Hong Kong. In particular, given the specific circumstances of such companies, the SFC explains the factors that it would take into account when reviewing the proposed listing of such infrastructure project companies in Hong Kong.
Infrastructure project companies can give rise to special investment risks that reflect the nature of the project or its location. There would need to be prominent disclosure of such risks in the prospectus in any event. But the risks associated with such projects may be sufficiently concerning that they cannot be addressed by disclosure alone. On the other hand, if, despite these risks, there are sufficient risk mitigation factors, the SFC will take this into account when reviewing the proposed listing. All infrastructure project companies seeking a listing in Hong Kong will be able to refer to these factors, which will be relevant for many Belt and Road infrastructure projects.
This statement sets out possible mitigating factors that the SFC will take into account when reviewing the proposed listing. Readers should refer to the Securities and Futures (Stock Market Listing) Rules (SMLR)1, the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (SEHK) and the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the Listing Rules) to understand the relevant listing requirements and, where necessary, seek qualified professional advice. This statement is not a substitute for the SMLRs, the Listing Rules or such advice.
The factors set out in this statement should not be construed as being definitive and applicable to all cases where the scenarios may at first appear similar. In any given case, regard must be had to all the relevant facts and circumstances. It is possible therefore that other mitigating factors may be appropriate in the circumstances of the specific company. Listing applicants are encouraged to consult at an early stage of any planned listing application where these factors may be relevant.
Factors the SFC will take into account when reviewing the proposed listing in Hong Kong of infrastructure project companies
When assessing applications from listed companies or listing applicants, it may not be possible to adequately address the level of risks to the investing public solely by risk disclosure. But, there are factors that may mitigate the level of perceived risk sufficiently such that the SFC would be less likely to use its powers of objection.
These factors include, for example:
- A large shareholding by a relevant Mainland state-owned enterprise, sovereign wealth fund, substantial listed company or substantial and globally-active institutional investor;
- A sizeable Mainland, Development or International Bank committed to providing ongoing project finance;
- A direct involvement or shareholding by the relevant state government (ie, where the project assets are located);
- The project is located in a jurisdiction that is an IOSCO MMOU2 signatory, or if this is not the case, there is sufficient comfort that the SFC can obtain relevant public and non-public information about the activities of the company in the jurisdictions in which it operates. This comfort could be based on a bilateral memorandum of understanding between the SFC and the overseas securities regulator; on whether the listed holding company is incorporated in Hong Kong; on whether books and records are kept in Hong Kong, or on whether there are Hong Kong resident director(s).
This list of factors is not exclusive and other attributes may be proposed in substitution. It is also likely that not all of these attributes will be applicable in any one case.
Generally speaking, the more of these factors are present the lower the perceived level of potential risk to the investing public.
Listing applicants should also consider whether the requirements set out under the joint policy statement regarding the listing of overseas companies issued by the SFC and the SEHK in 2013 are applicable.
1 The SFC is empowered under section 6 of the SMLR to require further information from the listing applicant and, where necessary, to object to, or impose conditions on, the listing of the securities under an application defined in section 2 of the SMLR, unless the securities are offered as part of a capitalisation issue, pre-emptive offer, substitutions or employee share option scheme as exempted under section 4 of the SMLR. Listing applicants may be either corporations seeking to list in Hong Kong or corporations already listed in Hong Kong. For example, the SFC has the power to object to the listing of securities issued by a listed issuer as consideration for an acquisition.
Pursuant to section 6(2) of the SMLR, the SFC may object to a listing application if it appears to the SFC that:
(a) the application does not comply with the basic requirements for listing set out under section 3 of the SMLR;
(b) the application is false or misleading as to a material fact or is false or misleading through the omission of a material fact;
(c) the applicant (i) has failed to comply with the SFC’s request for information under section 6(1) of the SMLR or (ii) in purported compliance with such request, has furnished the SFC with information which is false or misleading in any material particular; or
(d) it would not be in the interest of the investing public or in the public interest for the securities to be listed.
Pursuant to section 3 of the SMLR, a listing application must:
(a) comply with the rules and requirements of the SEHK (except to the extent that compliance is waived or not required by the SEHK);
(b) comply with any provisions of law applicable; and
(c) contain such particulars and information which, having regard to the particular nature of the applicant and the securities, is necessary to enable an investor to make an informed assessment of the activities, assets and liabilities and financial position, of the applicant at the time of the application and its profits and losses and of the rights attaching to the securities.
2 Multilateral memorandum of understanding of the International Organization of Securities Commissions