HKSE Main Board Listings to Require HK$ 80 Million Profits

From January 2022 onwards, the Hong Kong Stock Exchange will raise the listing standards for its Main Board for the first time in almost thirty years. Companies preparing their Initial Public Offering will be required to show at least HK$80 million in profits over a period of three years prior to the listing date. The minimum profit threshold for the year immediately preceding the listing will be raised from HK$20 million to HK$35 million.

The initially proposed amendment to the HKSE listing rules would have required a minimum profit of HK$125 million, more than double the HK$50 million current requirement, but the threshold was lowered after widespread pushback in consultations. The effects of the pandemic and economic downturn on corporate profits were also considered when determining the finalized amendment to the Listing Rules. 

The profit thresholds are being raised in order to safeguard the integrity of the HKSE by ensuring a certain standard of market quality as the volume of listings increases, while discouraging listings from unprepared or insubstantial companies.

A joint statement issued by HKEX and the Securities and Futures Commission indicates that listing applications that appear to be “artificially satisfying the initial listing requirements” may be rejected. The statement lists the following characteristics as suggestive of “problematic IPO’s” that may be subject to further scrutiny:

1. Market capitalization barely fulfills minimum threshold under Listing Rules.
2. High price to earnings (P/E) ratio relative to prospects and peer valuations.
3. Reported listing-related expenses higher than normal.
4. A relatively small number of shareholders holding a high proportion of shares, barely meeting the minimum thresholds.

Any listings applications submitted before the amended rules take effect will likely be subject to extensive review in order to ascertain the long-term value prospects of the company.

About the Author:   Mr. Philip Yu Managing Partner   Mr. Yu holds a Bachelor of Commerce (Hon.) from the University of Toronto and L.L.B. (Hon.) from the University of London, and is a member of the American Institute of Certified Public Accountants, Certified Public Accountants of Australia and the Hong Kong Institute of Certified Public Accountants. Philip is experienced in handling cross border taxation issues, corporate restructuring and other cross border business solutions. He undertakes additional posts as Company Secretary, Authorized Representative and Independent Non-Executive Director for several listed companies on the Hong Kong Stock Exchange. He joined our firm in 2001 and currently the Managing Partner of the firm.

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