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Hong Kong cuts China-risk section in listing rules, but says scrutiny unchanged

Published 07/31/2023, 09:50 AM
Updated 08/02/2023, 06:36 AM
© Reuters. People walk past a screen displaying the Hang Seng stock index outside Hong Kong Exchanges, in Hong Kong, China July 19, 2022. REUTERS/Lam Yik/File photo

By Selena Li and Kane Wu

HONG KONG (Reuters) -Hong Kong stock exchange has removed a China-risk section for mainland-incorporated companies in its listing application rules with effect from Tuesday, which the bourse said was to align disclosure requirements for IPO-aspirants from other countries and the scrutiny level remains the same.

In its latest revision to listing rules, the bourse repealed a whole section focusing on risks from China's policies and its business and legal environment, according to a consultation conclusion paper published on July 21.

Hong Kong Exchanges and Clearing Ltd (HKEX), however, said there had been "no roll back" in the level of scrutiny the listing rules require, with China-incorporated issuers 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," it said.

"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 make their public market debut either in Hong Kong or in the United States, and global investors pay close attention to disclosures made in their IPO prospectuses to weigh 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, while other amendments were made to reflect "recent changes in Mainland China regulatory framework", the Hong Kong exchange said in its conclusion paper on July 21.

In a summary of rule revisions, the exchange didn't 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 on July 20 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 failure to do so could cost them a regulatory green light for IPOs.

The U.S. Securities and Exchange Commission earlier this month 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.

© Reuters. People walk past a screen displaying the Hang Seng stock index outside Hong Kong Exchanges, in Hong Kong, China July 19, 2022. REUTERS/Lam Yik/File photo

The now-removed China risk section in Hong Kong listing rules required the mainland issuers to offer a summary of risks of "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.

The majority of Chinese companies' offshore listing proposals have been filed with the Hong Kong exchange since China's new offshore listing regime came into effect on March 31, but few of them have got Beijing's nod to start raising funds.

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