LCQ3: Assisting small and medium enterprises in financing
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Question:
According to the information of the Hong Kong Exchanges and Clearing Limited (HKEX), the average daily turnover of the stock market in Hong Kong fell from about $141.2 billion in August last year to about $83.3 billion in August this year. Moreover, the statistics from an accounting firm have shown that in the first three quarters this year, the number of initial public offerings and the amount of funds raised in Hong Kong decreased by 36 per cent and 81 per cent respectively when compared with the same period last year. There are views that the above data has reflected that the current market downturn is unfavourable for small and medium enterprises (SMEs) to seek listing for financing. In this connection, will the Government inform this Council:
(1) whether it has plans to provide more flexible, balanced and sustainable solutions to broaden the avenues for SMEs to seek listing for financing; if so, of the details; if not, the reasons for that;
(2) as some members of the financial sector have relayed that since quite a number of listed companies have been affected by the epidemic in recent years, resulting in a sharp drop in revenue, persistent business loss or disruption to expansion plans, they have failed to meet the requirement of "carry[ing] out a business with a sufficient level of operations" under Rule 13.24 of the Listing Rules and their listings may be suspended or cancelled by the HKEX, whether the Government will urge the HKEX to be more flexible in enforcing the requirement under that Rule, thereby assisting such SMEs in maintaining their avenues for financing; and
(3) as there are views pointing out that the stock trading of quite a number of SMEs has been sluggish after their listing, failing to attract investors' attention and financial institutions to analyse and promote them, and the situation is unfavourable for the development of such enterprises and their future financing, whether the Government will study the establishment of a more vibrant secondary market trading system with higher liquidity, thereby attracting more enterprises to list in Hong Kong for financing?
Reply:
President,
Thanks for the question from the Hon Robert Lee.
In consultation with the Securities and Futures Commission and the Hong Kong Exchanges and Clearing Limited (HKEX), my reply to the three parts of the question is as follows:
(1) and (3) As a major global listing hub for companies from different jurisdictions, Hong Kong has all along strived to build a vibrant and sustainable fundraising hub regardless of short-term market conditions, so as to broaden the channels for enterprises of different types and backgrounds to raise funds while offering a deep and vibrant fundraising platform. Since 2018, we have implemented a series of reforms to the listing regime to facilitate the listing of new economy companies and overseas issuers in Hong Kong, as well as introduced a new listing mechanism for Special Purpose Acquisition Companies (SPACs), thereby expanding the channels for enterprises to raise funds in Hong Kong. As mentioned by the Chief Executive in his Policy Address last week, we support the HKEX to revise the Main Board Listing Rules next year to facilitate listing of large-scale specialist technology companies that have yet to meet the profit and trading record requirements. The HKEX is consulting the market on the detailed proposals.
In addition, with a view to comprehensively strengthening the competitiveness of Hong Kong as an all-rounded fundraising hub, the Policy Address also stated that the HKEX would explore revitalising GEM (i.e. the second board alongside the existing Main Board) to serve small and mid-sized issuers, providing a more effective fundraising platform for small and medium enterprises (SMEs) as well as start-ups. To this end, the HKEX established a dedicated panel under the Listing Committee to review the functions and positioning of GEM. The work concerned involves many aspects, such as identifying the source of potential issuers which are suitable to raise funds through stock market but could not meet the listing requirements of the Main Board or the existing GEM; assessing the attractiveness and market liquidity of potential issuers, in other words, whether they could attract investors to hold and trade relevant securities continuously; exploring ways to enhance the liquidity of existing stocks; considering relevant risk management measures, etc. Meanwhile, the HKEX will also proactively make reference to the experiences of similar markets in other places, including the development of fundraising platforms for SMEs and innovative enterprises in the Mainland in recent years, including the Science and Technology Innovation Board (STAR Market) of the Shanghai Stock Exchange, ChiNext of the Shenzhen Stock Exchange and the Beijing Stock Exchange.
The HKEX is approaching different stakeholders for views with no predetermined stance on relevant issues. It aims to propose specific measures within the next year upon understanding the market demands as well as considering relevant risks thoroughly, and will further consult the market.
We believe that after the implementation of the above, Hong Kong's listing platform will serve different types of enterprises more effectively, especially offering technology companies and small and mid-sized issuers fundraising channels with greater breadth and flexibility. It will be conducive to promoting market development and bringing more opportunities to the securities and other related industries.
(2) Apart from striving to enhance the breadth and depth of the securities market, we also attach great importance to improving the quality of listed issuers with a view to safeguarding the interest of the investing public. To address market concerns that "shell companies" had led to the emergence of listed companies which did not have substantial operations or business, resulting in speculative activities and increased risks for market manipulation, the HKEX revised Rule 13.24 of the Listing Rules in October 2019 after a market consultation. The revised rule requires listed issuers to carry out a business with a sufficient level of operations and have assets of sufficient value to support its operations.
When implementing the rule, the HKEX will conduct a comprehensive assessment based on the issuer's individual circumstances, including its business model, operating scale and track record, size and diversity of customer base, etc. with reference to the practices and standards of the relevant industry. If an issuer's business is only temporarily curtailed or suspended due to market conditions, it will not be considered as a breach of Rule 13.24.
If the HKEX considers that the issuer has failed to meet the requirements after comprehensive consideration, it will suspend the relevant share trading in accordance with Rule 6.01(3) of the Listing Rules and issue resumption guidance to the issuer. the HKEX will give the issuer up to 18 months to re-comply with the relevant requirements according to the actual circumstances. If the issuer fails to meet the resumption conditions within the time limit, the HKEX will consider delisting its shares. While we consider it necessary to maintain the rule in ensuring market quality and protecting investors' interest, in light of the potential impact of the epidemic on trading resumption of some listed issuers, the HKEX will handle each case flexibly having regard to the special circumstances arising from the epidemic.
Thank you, President.
Ends/Wednesday, October 26, 2022
Issued at HKT 12:58
Issued at HKT 12:58
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