In 2021, the Hong Kong Stock Exchange (HKEX) had a robust year, with over 90 listings raising over $318 billion Hong Kong dollars. Shanghai Stock exchange also supported a large volume of new listings on the SSE STAR Market and significant deals on the STAR Market and Main Board. Many new economy companies have looked to Hong Kong and China as the most preferred listing destination for Chinese companies.
We spoke with capital markets lawyer Wenhao Ding from Zhong Lun Law Firm to learn about the latest listing requirements and how the geopolitical environment has impacted the IPO market.
You have experience advising IPOs in China/Asia. Can you tell us a bit about your background and your legal practice?
I am a partner of Zhong Lun Law Firm, and I currently focus on advising A-share listings and overseas listings.
I acquired my LLB degree at Beijing Foreign Studies University in China, and my JD Degree at Case Western Reserve University in the United States.
Have there been any notable COVID impacts on the IPO marketing?
Travel is very restricted in the Greater China area and around the global since the COVID epidemic. Though we have sorted out some alternative plans, for example, video interviews and remote due diligence. Video helps replace the face-to-face interaction that has always been a pivotal piece of the due diligence process. With the right technology platform like the Intralinks Virtual Data Room (VDR), dealmakers can easily import, organize and protect their video files with just a few clicks.
Are there any notable new enhancements HKEX has made to its listing framework?
HKEX is considering amending its listing rules to allow pre-revenue and pre-earning technology companies to be listed on HKEX. Previously this only applies to biotech companies, but now the HKEX is considering extending the rule to cover other sectors.
What are your views on the Mainland IPO market in 2022?
With the poor performance of Hong Kong stock market since last September and the uncertainties of US market, I believe the Mainland market will face a greater opportunity this year. The marketplace will definitely improve with the global and geo-political and commercial environment improving over time.
How has China's recent data security measures impacted the IPO market?
Disclosure requirements related to data security issues are heightened, especially in the overseas listing market. Nowadays, before China-based companies go public overseas, they have to evaluate whether they are subject to cybersecurity review. If they are, they have to get clearance on cybersecurity review which will take, in the worst scenario, up to 90 business days. Even if they decide they are not subject to such review, the overseas listing regulators would still ask them to disclose the reasons that they think they are not subject to such review, and whether they have complied with those data security requirements even if they are not subject to such review. These new measures have caused prolonged delays on deal execution.
Are you seeing a trend for companies to go public in the Hong Kong or mainland China rather than the US? What are the benefits?
Due to the latest Chinese regulatory measures, the US Securities and Exchange Commission (SEC) is delaying (or in some cases have suspended) the review process for China-based companies’ IPO applications . As the Chinese regulatory measures are still developing over time, the US SEC is taking a conservative approach. This has brought a new wave of IPO listings to the Hong Kong and mainland China stock exchanges.
The root of this issue traces back to 2021 when the US SEC adopted final amendments to its rules implementing the Holding Foreign Companies Accountable Act of 2020 (HFCAA). As a result of this, China-based companies are having to disclose more information to the US SEC, the general market interprets see this as a specific threat imposed after China-based companies. While Hong Kong and Mainland China exchanges do not share the same HFCAA issue.
Any other notable observations?
It seems the US SEC is considering reboot reviewing China-based companies’ IPO applications. It will be interesting to see what happens next.
Haikuo Weng (翁海阔)
Business Development Director
T +86 15001900346