Hong Kong lifts listing bar for the first time in nearly three decades to deter dud applicants from the status of a stock exchange seat

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Companies seeking to list on the main board of HKEX must have earned at least HK$80 million in combined profits in the three years before listing, a 60 per cent increase from the current requirement

HKEX backed down from its original plan of raising the qualifying threshold in two options of at least HK$125 million or HK$150 million

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Exchange Square in Central, where HKEX is located. Photo: Sam Tsang.

Enoch Yiu

Published: 4:55pm, 20 May 2021Updated: 10:57pm, 20 May 2021

Hong Kong’s stock exchange operator will from January lift its listing qualifications for the first time in nearly three decades, but will stop short of doubling the requirements after resistance from the city’s brokers and bankers.

Companies seeking to raise funds on the main board of Asia’s second-largest capital market must have earned at least HK$80 million (US$10.3 million) in combined profits in the three years before listing, a 60 per cent increase from the current requirement, according to an announcement by Hong Kong Exchanges and Clearing (HKEX). The profit requirement for the most recent year before the listing will increase from HK$20 million to HK$35 million. The new rules will take effect in January 2022.

The exchange decided to water down its proposal, yielding to strong opposition to the plan, the South China Morning Post reported on May 5. The change of heart by the exchange underscores its need to balance its pursuit of a robust pipeline in initial public offerings (IPOs) with an acceptable minimum standard and quality on the exchange.

“The exchange is mindful that the proposed increase in the profit requirement will affect companies at an early development stage, or SMEs, which intend to list on the main board,” HKEX said, adding that 95 respondents had registered their opposition to the proposal. “The exchange nevertheless has a role to play in maintaining the quality of the main board by setting appropriate initial listing criteria to attract companies of the desired profile and to protect the interest of the investing public.”

HKEX, which operates as a publicly traded company with its shares traded on the exchange, had wanted to increase the financial qualifications to deter smaller applicants and so-called shell companies from seeking listings.

“We are committed to upholding and enhancing market quality, as well as to promote investor protection,” said Bonnie Chan, HKEX’s head of listing. “Robust gatekeeping, together with targeted post-listing regulation, are crucial in achieving this, providing more clarity and transparency to the market on our regulatory and enforcement responsibilities. We believe the revised rules will benefit the Hong Kong capital markets as a whole, further strengthening the city’s role as Asia’s premier international financial centre.”