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.

 

专家洞察：2022年大中华区IPO展望

2021年，香港交易所（HKEX）表现强劲，有超过90家上市企业融资超过3,180亿港元。上海证券交易所也支持了大量在上交所科创板的新股上市，以及科创板和主板的重大交易。 许多新经济企业将香港地区和中国大陆视为中国公司最喜欢的上市目的地。

 

我们采访了中伦律师事务所的资本市场律师丁文昊，了解了最新的上市要求以及地缘政治环境对IPO市场的影响。

丁文昊律师，您有为中国/亚洲的IPO提供咨询的经验。可以跟大家说一下您的背景和法律实践吗？

我是中伦律师事务所的合伙人，目前主要为A股上市和海外上市提供咨询。

我在中国的北京外国语大学获得法学学士学位，并在美国的凯斯西储大学获得法学博士学位。

新冠疫情对IPO市场有什么明显的影响吗？

自从新冠疫情发生后，在大中华区和全球范围内的旅行受到很大限制。尽管如此，我们已经整理出了一些替代计划，例如视频采访和远程尽职调查。视频有助于取代面对面的互动，而这种互动一直是尽职调查过程中的一个关键部分。借助一些合适的技术平台，如Intralinks虚拟数据室（VDR）等，交易人只需点击几下就可以轻松导入、整理并保护他们的视频文件。

香港交易所对其上市架构有什么明显的新改进吗？

香港交易所正在考虑修改其上市规则，允许收入前和盈利前的科技公司在香港交易所上市。以前这项规则只适用于生物技术公司，但现在港交所正在考虑将该规则扩展到其他行业。

您对2022年的内地的IPO市场有什么看法？

自去年9月以来，港股表现不佳，加上美国市场的不确定性，我相信今年内地市场将面临更大的机遇。随着时间的推移，全球、地缘政治以及商业环境的改善，市场肯定相应会有所改善。

中国最近的数据安全措施对IPO市场有什么影响？

与数据安全问题有关的披露要求提高了，特别是在海外市场。现在，中国企业在海外上市之前，必须评估是否需要接受网络安全审查。如果是，他们必须获得网络安全审查的许可，最长可能需要长达90个工作日。即使他们决定不接受此审查，海外上市监管机构仍然会要求他们披露不接受此审查的原因，以及即便他们不接受此审查，他们是否已经遵守了这些数据安全要求等。这些新措施导致交易执行长期拖延。

您是否有看到企业选择在香港或中国大陆上市，而不是在美国上市这一趋势？在香港或中国大陆上市的好处是什么？

由于中国最新的监管措施，美国证券交易委员会（SEC）正在推迟（或在某些情况下暂停）对中国企业的IPO申请的审查过程。由于中国的监管措施仍在不断发展，美国证券交易委员会正在采取保守做法。这为香港和中国内地的证券交易所带来了新一轮IPO上市浪潮。

这个问题的根源可以追溯到2021年，当时美国证券交易委员会通过了对其实施《2020年外国公司问责法案》（HFCAA）的最终修正案。因此，中国企业必须向美国证券交易委员会披露更多信息，一般市场认为这是对中国企业施加的特定威胁。而香港和中国内地的交易所并不存在同样的HFCAA问题。

还有其他值得注意的点吗？

美国证券交易委员会似乎正在考虑重新启动审查中国企业的IPO申请。我们看看接下来会发生什么，应该会很有意思。