Introduction

The Stock Exchange of Hong Kong Limited (the Exchange) published ‘Consultation Conclusions on Review of Chapter 37 – Debt Issues to Professional Investors Only’ (the Consultation Conclusions) and ‘Guidance on Disclosures in Listing Documents and Continuing Obligations under Chapter 37 – Debt Issues to Professional Investors Only’ (the Chapter 37 Guidance) on 21 August 2020, adopting proposals to enhance the Exchange’s listing regime for debt issues to professional investors only.

The amended rules shall be effective on 1 November 2020. Key changes include:

  • Imposing a higher listing standard for debt issues by raising the minimum net assets requirement of the issuer (except state corporations) to HK$1 billion and introducing a minimum issuance size of HK$100 million;
  • Requiring publication of listing documents on the Exchange’s website on the listing date;
  • Revising the Chapter 37 definitions of 'State Corporation' (excluding entities controlled or majority owned by regional or local authorities) and 'professional investors' (aligning with that under the Securities and Futures Ordinance); and
  • Enhancing the continuing obligations of the issuers and guarantors including mandatory announcement in event of default, winding up and/or liquidation, and trade suspension.

The Consultation Conclusions

The following summarises the key changes introduced by the Consultation Conclusions.

  1. Increasing the net asset value requirement (the NAV Requirement) under Rule 37.05, which originally required an issuer to have minimum net assets of HK$100 million to be eligible for listing its debt securities under Chapter 37 (the Chapter 37 Debts), to HK$1 billion: despite the raising of the NAV Requirement to HK$1 billion, there is recourse for asset-light issuers or special purpose vehicles by having their issue guaranteed by a guarantor that meets or is exempt (i.e., exemption available for state corporations (see below)) from the increased NAV Requirement.

  2. Introducing a minimum issuance size of HK$100 million (or equivalent in other currencies) for Chapter 37 Debts, but such size shall not apply to tap issuances.

  3. Maintaining the current exemption available to state corporations for listing asset-backed securities from the NAV Requirement and the requirement to provide audited accounts for the past two years pursuant to Rule 37.06 (together, the Issuer Eligibility Requirements): though the current exemption is to be maintained, the definition of 'State Corporations' is revised to exclude those controlled or majority owned by regional or local authorities (the Regional State Corporation(s)). In other words, the exemption will only be available for corporations controlled or majority owned by central governments (such as, in the case of the People's Republic of China (PRC), the PRC central ministries and the State-owned Assets Supervision and Administration Commission of State Council). Regional State Corporations will have to comply with the Issuer Eligibility Requirements.

  4. Revising the definition of 'professional investors' under Chapter 37 to include HNW Investors: the definition of “professional investors” under Rule 37.58 is revised to include high net worth corporates, individuals and others as prescribed under section 397 of the Securities and Futures Ordinance (Cap. 571) (the SFO) (the HNW Investors) so that the definition aligns with that under the SFO. Accordingly, issuers will no longer be required to apply to the Exchange for a professional investor waiver.

  5. Requiring publication of listing documents for the Chapter 37 Debts on the Exchange’s website on the listing date: in response to concerns over potential liability for breaching public offering restrictions under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) and the SFO, the Exchange took the view that with the inclusion of an appropriate disclaimer in the announcement publishing the listing document (an example was set out in the Consultation Conclusions), such publication on the listing date (where the primary offer having being completed) would not amount to a public offer. Further, the publication requirement will not apply to an unlisted issuance under a medium-term note programme listed under Chapter 37.

  6. Enhancing the continuing obligations of the issuer and guarantor including the following new requirements:

    1. to respond promptly to enquiries made by the Exchange;
    2. to make an announcement of default (including cross-default of Chapter 37 Debts triggered by a default on other debt obligations of the issuer or guarantor) or matters leading to or involving winding up and/or liquidation or information having a material effect on its ability to meet its obligations under the listed debt securities;
    3. to make an announcement on developments, including developments on matters leading to suspension, after trading suspension (and prolonged suspension) of Chapter 37 Debts; and
    4. in case of guaranteed issues, certain continuing obligations will apply to guarantors as set out in Rule 37.44.

  7. Requiring issuers to state explicitly on the front cover of the listing document that Chapter 37 Debts are intended for professional investors only.

  8. Streamlining the listing application process by:-

    1. replacing the existing requirement to submit copies of constitutional documents and resolutions as part of the listing application documents with a requirement to provide written confirmation by the issuer (or guarantor, as the case may be) in relation to its due incorporation, capacity and authorisation; and
    2. replacing the existing requirement to submit last published financial statements with a new requirement for an issuer (or the guarantor that an issuer relies in fulfilling the Issuer Eligibility Requirements) to submit its audited financial statements to evidence its fulfilment of the Issuer Eligibility Requirements. This requirement shall not apply to an issuer or guarantor who is exempt from the Issuer Eligibility Requirements or where the required audited financial statements are disclosed in the listing document.

The Chapter 37 Guidance

Despite the rule amendments (including the requirement to publish the listing document on the Exchange's website) highlighted above, the Exchange emphasised that it will maintain its current disclosure and vetting approach in relation to listing documents for Chapter 37 Debts and leave the level of disclosures to be decided by the professional parties. The Chapter 37 Guidance is published to complement the existing process and as a reminder of expected standards of disclosure, including risk disclosure, and continuing obligations, with respect to Chapter 37 Debts generally, and those with special features (DSSF(s)). The overriding principle is that the listing document should be commensurate with the customary expectation of its intended investors. The Guidance is available here.