Hong Kong Listings of U.S. Companies Alan Seem and Robert Treuhold June 2015
Advantages of an Overseas Listing Growing trend - Only 2 U.S. companies listed abroad from 1991 to 1999, compared to 75 from 2000 to 2009 Great branding tool, particularly for companies focused on the retail market, like Prada and Coach May be able to reduce regulatory costs, particularly in light of Sarbanes Oxley, as well as legal and other costs Can reduce risk of lawsuits, particularly in jurisdictions where there are no class actions May be appealing for companies seeking to undertake smaller-sized IPOs or companies whose growth prospects are primarily overseas Could be a stepping stone to a later dual listing in the U.S. (but general trend is away from dual listings)
Challenges of an Overseas Listing Different regulatory regime and legal requirements Different accounting requirements (although you can use U.S.GAAP if you are listed in the U.S. and apply for a dual primary listing or a secondary listing in Hong Kong) If already listed in the U.S., then will have increased cost of compliance and coordination in two markets. May need to reconcile different share price ranges in different markets, perhaps through the use of ADRs Need to comply with Regulations S (for offers and sales of securities outside the United States) or Rule 144A (for offers and sales to large institutional investors) to avoid having to register as an SEC-reporting company Travel costs and management time to cover the local investor market, although many non-deal roadshows are already global.
Examples of Hong Kong listings by U.S.-related businesses Company and Rationale for HK Date Type of Listing Samsonite Incorporated in Luxembourg (since 2009) but with roots in Denver, Colorado (1910) Net sales in Asia (China, India, Middle East and Australia) accounted for over 30% of overall net sales in 2010 (with exponential growth rates) P/E 26x June 2011 Primary Listing Coach Listing done to raise brand awareness in China, the company s largest geographic growth opportunity P/E 13x Dec 2011 Secondary Listing by way of Introduction (HDRs)
Examples of Hong Kong listings by U.S.-related businesses Company and Rationale for HK Date Type of Listing 3SBio (leading biotechnology company in China, but previously U.S. listed) Listing sought to raise profile, provide capital, improve liquidity and realize full value Market cap on NASDAQ on May 29, 2013, was US$392m Market cap on HKEx on June 11, 2015, was US$3bn IMAX China Holding Spin-off of IMAX Corp, listed on NYSE Formed to leverage growth in Greater China s theatre industry June 2015 Under review by HKEx Primary Primary sought
Issues for U.S. companies to consider for Hong Kong Listings Eligibility for Listing (Main Board Requirements) 3-year trading history Profits test 3-year track record with profits of US$2.6m in most recent year and US$3.9m in previous 2 years; management continuity for 3 years; ownership continuity for 1 year Market Cap/Revenue/Cash Flow Test Market cap of US$260m; revenue of at least US$65m for most recent year; positive cash flow of at least US$13m for 3 preceding years; management continuity for 3 years; ownership continuity for 1 year Market Cap/Revenue Test Market cap of at least US$516m; revenue of at least US$65m; management continuity for 3 years; ownership continuity for 1 year
Issues for U.S. companies to consider for Hong Kong Listings Primary Listing (including dual primary listings) Full compliance with HK Listing Rules Secondary Listing (available to those on recognized Exchanges) Mandatory tender offer rules not applicable Transaction/connected party disclosure/approval requirements waived No 25% minimum public float requirement NB: Be wary if more than 50% of trading migrates to HK deemed to be primary Introductions (no fundraising on listing where already traded elsewhere) Initial liquidity requirements U.S. flow-back risk could trigger SEC registration requirements NB: low liquidity concerns ex., Vale and Melco Crown
Issues for U.S. companies to consider for Hong Kong Listings States of Delaware and California (both signatories to IOSCO MMOU) are recognized jurisdictions (adequate shareholder protection) but certain differences must be considered: Hong Kong Delaware California AGM: no more than 15 months between AGMs Notice of GMs: HK Law, generally 14 or 21 days (special resolutions) GMs: Members with minority stakes convene GMs: Right to speak and vote for all members (unless conflicted) Listing Rules (appendix 3) articles to comply Bylaws Bylaws 10 to 60 calendar days Bylaws No equivalent No equivalent provisions Company/counsel to review and disclose Bylaws No equivalent provisions Company/counsel to review and disclose
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