Introduction

On 29 October 2021, the Securities and Futures Commission (“SFC”) published the consultation conclusions on (i) the Proposed Code of Conduct on Bookbuilding and Placing Activities in Equity Capital Market and Debt Capital Market Transactions and (ii) the “Sponsor Coupling Proposal” ((i) and (ii) are hereinafter collectively referred to as the “New Code Provisions”). The New Code Provisions will come into effect on 5 August 2022 and will apply to capital market intermediaries (“CMI”) that engage in bookbuilding and placing activities, such as an initial public offering (“IPO”) of shares on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) involving a placing tranche (“New Listing”).

On 22 April 2022, the Stock Exchange published an information paper outlining the consequential changes (“Listing Rules Changes”) to the Rules Governing the Listing of Securities on the Stock Exchange (“Listing Rules”) which will complement the New Code Provisions. The Listing Rules Changes will apply to New Listing applications to be submitted (or refiled) on or after 5 August 2022.

The major changes brought about by the New Code Provisions and the Listing Rules Changes on a New Listing application are summarised below.

Two months before the submission of a New Listing application (the “A1 submission”): appointment of a sponsor-overall coordinator

In addition to the appointment of a sponsor, the listing applicant must also appoint a sponsor-overall coordinator not less than two months before the A1 submission. In order to duly appoint a sponsor-overall coordinator, a sponsor-overall coordinator must be appointed as a sponsor and an overall coordinator at the same time. If the appointments are not made at the same time, the entity being appointed would only be regarded as a sponsor and an overall coordinator for the IPO, but not a sponsor-overall coordinator.¹

If the engagement of a sponsor-overall coordinator is terminated (regardless of whether it remains as a sponsor) and such sponsor-overall coordinator is the sole sponsor-overall coordinator, the listing applicant must file a new listing application not less than two months from the date of the formal appointment of a replacement sponsor-overall coordinator.² Any initial listing fee paid will be forfeited under such circumstances.³

No later than two weeks after the A1 submission: appointment of other overall coordinators

All other overall coordinator(s) shall be appointed no later than two weeks following the date of the A1 submission (the “Two-week Period”).⁴

The written engagement agreement of an overall coordinator (including the sponsor-overall coordinator) must at least specify the following:⁵

• the roles and responsibilities of the overall coordinator;
• the fee arrangement (including the fixed fees to be paid to the overall coordinator as a percentage of the total fees to be paid to all syndicate capital market intermediaries⁶ (“CMIs”));
• the time schedule for payment of the fees to the overall coordinator;
• (for a sponsor-overall coordinator only) the obligation of the new applicant and its directors to provide the information in the Listing Rule 9.11(23a) to the sponsor-overall coordinator for its submission to the Stock Exchange within the required timeframe; and
• (for a New Listing) the obligations of the new applicant and its directors to provide certain assistance to the overall coordinator.

If an overall coordinator appointed within the Two-week Period resigns after the Two-week Period has lapsed, the new applicant can no longer appoint another overall coordinator to replace the resigned overall coordinator and can only proceed with its New Listing application with the remaining overall coordinators (which at least include the sponsor-overall coordinator).⁷ 

At A1 Submission and appropriate time after the A1 Submission: publish an OC announcement

A new applicant is required to publish an announcement on the Stock Exchange’s website (the “OC Announcement”):

• on the same day when it submits its A1 submission to set out the name(s) of all overall coordinator(s) appointed by it as at the date of the OC Announcement;
• no later than the first business day after a new overall coordinator is appointed during the Two-week Period to (i) disclose the new appointment and (ii) set out the names of all overall coordinator(s) appointed by it as at the date of the announcement; and
• no later than the first business day after the appointment of an overall coordinator has been terminated to (i) disclose the termination and (ii) set out the names of all overall coordinator(s) appointed by it as at the date of the announcement.

For the avoidance of doubt, the new applicant does not need to publish the OC Announcement on its own website.

Four clear business days prior to the hearing: the sponsor-overall coordinator should provide the stipulated information to the SFC

The sponsor-overall coordinator should provide a written confirmation containing the following information to the SFC by no later than four clear business days prior to the Listing Committee hearing:⁸

• the name of each overall coordinator participating in the offering;
• the fixed fees to be paid by the issuer to each overall coordinator;
• the total fees (as a percentage of the gross amount of funds raised) in respect of both the public subscription and the placing tranches to be paid to all syndicate CMIs; and
• the ratio of fixed and discretionary portions of the total fees to be paid to all syndicate CMIs (in percentage terms).

All overall coordinators are jointly and severally liable for ensuring the information provided to the Stock Exchange is accurate and complete and the information is provided within the required timeframe.

As soon as practicable and in any event at least four clear business days prior to the hearing: the new applicant and its directors should provide the stipulated information to all syndicate members

The new applicant and its directors should provide the following information to all syndicate members (including the sponsor-overall coordinators, all overall coordinators and syndicate CMIs):⁹

1. a list of the directors and existing shareholders of the new applicant, their respective close associates and any persons who are engaged by or will act as a nominee for any of the foregoing persons to subscribe for, or purchase, equity securities or interests in connection with the New Listing;
2. any material changes to information provided under sub-paragraph 1) above as soon as it becomes known to the new applicant and its directors; and
3. all necessary consents for the provision of the information referred to in sub-paragraphs 1) and 2) above by syndicate members to any distributor.

The above information is crucial for each syndicate member in connection with a New Listing to identify investors to whom the allocation of equity securities or interests would be subject to restrictions or require prior consent from the Stock Exchange under the Listing Rules, and for each syndicate CMI to meet its obligations and responsibilities under the New Code Provisions.

Issue of the prospectus: disclosure of the fee arrangements

A new applicant will be required to disclose in the listing document:

• the total amount of fees paid or payable to the sponsor;^10,11
• the aggregate of the fees (as a percentage of the gross amount of funds proposed to be raised in the subscription tranche and/or the placing tranche) paid or payable to all syndicate members;¹² and
• the ratio of fixed and discretionary fees paid or payable to all syndicate members.¹³

Before dealings commence: confirmation of no rebate

Each overall coordinator, syndicate member (other than an overall coordinator) and distributor (other than a syndicate member) involved in the New Listing must certify in writing to the Stock Exchange via Form D in Appendix 5 to the Listing Rules that the consideration payable by each placee directly or indirectly to the issuer for each share of the issuer subscribed for or purchased by them is the same as the final offer price determined by the issuer, in addition to any brokerage, Financial Reporting Council (“FRC”) transaction levy, SFC transaction levy and trading fee payable.¹⁴

Before dealings commence: declaration regarding allocation of discretionary fees

A new applicant will be required to declare to the Stock Exchange via Form F in Appendix 5 to the Listing Rules that the allocation of discretionary fees (i.e. the absolute amount to be paid) and the time schedule for the payment of the total fees payable to each syndicate CMI have been determined and communicated in writing to each syndicate CMI.¹⁵

Allotment results announcement: confirmation of no rebate

The allotment results announcement should include a confirmation from the new applicant’s directors that no rebate has been, directly or indirectly, provided by the issuer, its controlling shareholder(s), directors or syndicate members to any placees or the public (as the case may be) and the consideration payable by them for each share of the issuer subscribed for or purchased by them is the same as the final offer price determined by the issuer, in addition to any brokerage, FRC transaction levy, SFC transaction levy and trading fee payable.¹⁶

Going forward

Given that the New Code Provisions and the Listing Rules Changes will be effective soon (i.e. 5 August 2022), both potential New Listing applicants and the CMIs should familiarise themselves with the new listing requirements brought about by the New Code Provisions and the Listing Rules Changes to ensure compliance with the Listing Rules Changes and a smooth progress for the upcoming New Listing applications.

1. No. 5 of the Frequently Asked Questions No. 077-2022
2. Main Board Listing Rules 3A.45
3. Main Board Listing Rules 3A.45
4. Main Board Listing Rules 3A.37
5. Main Board Listing Rules 3A.35 and 3A.36
6. For the definition of a syndicate capital market intermediary, please refer to the Frequently Asked Questions No. 077-2022
7. No.7 of the Frequently Asked Questions No. 077-2022
8. Main Board Listing Rules 9.11(23a)
9. Main Board Listing Rules 3A.46[Text of footnote 4]
10. Paragraph 3A of Appendix 1A to the Main Board Listing Rules
11. This paragraph in the Main Board Listing Rules is a codified version of a similar existing requirement on the disclosure of the sponsor’s fees in the Guidance Letter GL56-13 published by the Stock Exchange 
12. Paragraph 3B of Appendix 1A to the Main Board Listing Rules
13. Paragraph 3B of Appendix 1A to the Main Board Listing Rules
14. Note 2 to Rule 12.08 and Form D in Appendix 5 to the Main Board Listing Rules
15. Paragraph 10A of Form F in Appendix 5 to the Main Board Listing Rules
16. Note 2 to Rule 12.08 and Form D in Appendix 5 to the Main Board Listing Rules