BEN & PARTNERS Advocates and Solicitors A BRIEF GUIDE TO CHOOSING YOUR LISTING DESTINATION (A COMPARISON BETWEEN LISTING ON BURSA MALAYSIA AND HONG KONG STOCK EXCHANGE) 25 February 2015 BEN & PARTNERS 7-2, Level 2, Block D2 Dataran Prima Jalan PJU 1/39 47301 Petaling Jaya Selangor Darul Ehsan Tel No.: (603) 7805 2922 Fax No.: (603) 7805 3922 Email: general@benpartners.com Website: http://www.benpartners.com/ DISCLAIMER: The contents of the articles, views and opinions are intended to provide general information only and should no be construed as legal advice or legal opinion. The firm bears no responsibility and we do not warrant its accuracy or completeness or accept any liability for any loss or damage arising from any reliance on the information contained therein. Please do not reproduce, transmit or distribute the content therein in any form or any means without our prior written permission or from the firm. INTRODUCTION The business environment is dynamic with opportunities always available to businessmen who have the adequate level of capital not only to sustain its daily operational requirements but more importantly, be able to capitalise on such opportunities to create value for all stakeholders. One of the options opened to any business is to tap the capital markets for funds to support its growth initiatives be it through organic means or via mergers and acquisitions. An initial public offering (IPO) is an option to position the business to tap funds from the capital market, given that cost of funds are cheaper with more avenues to raise capital compared to sourcing of financing from the traditional channels where personal guarantee is normally the norm. A listed company with its inherent benefits such as, perceived to be more transparent, visible to all stakeholders and acting as a barometer for the worth of the business can be tapped further to scale the business higher by exploiting the capital markets for additional funds or even use the listed securities as an option to finance mergers and acquisition. This article is intended to give you an option to consider listing your business on the Main Market in Malaysia and Hong Kong. Should you have any query, we would be most pleased to address them. 1
THE LISTING REQUIREMENTS A brief comparison on the listing requirements between Malaysia and Hong Kong. Malaysian IPO (Main Market) ( MIPO ) Hong Kong IPO (Main Board) ( HKIPO ) (A) Financial Requirements (A) Financial Requirements 1. Profit (a) Profit after tax ( PAT ) of at least RM20 million in the last 3 to 5 financial years; and (b) PAT of at least RM6 million for the most recent full financial year 1. Profit (a) PAT of at least HK$50 million in the last 3 financial years; and (b) PAT of at least HK$20 million for the most recent full financial year 2. Market Capitalization (a) Upon listing total market capitalization of at least RM500 million; and (b) Generated operating revenue for at least 1 full financial year prior to submission 2. Market Capitalization and Revenue (a) Upon listing total market capitalization of at least HK$4 billion; and (b) Total revenue of at least HK$500 million for the most recent audited financial year 3. Market Capitalization, Revenue and Cashflow (a) Not applicable in Malaysia 3. Market Capitalization, Revenue and Cashflow (a) Total market capitalization of HK$200 million upon listing; and (b) Total revenue of at least HK$500 million for the most recent audited financial year; and; (c) Positive cashflow from operating activities of at least HK$100 million in aggregate for the 3 preceding financial years 4. Infrastructure (a) Right to build and 4. Infrastructure (a) Right to build and A Comparison Between Listing on Bursa Malaysia And Hong Kong Stock Exchange 2
Project Corporation operate infrastructure project, with project costs of not less than RM500 million; and (b) Remaining concession period of at least 15 years Project Corporation operate infrastructure project, with project costs of not less than HKD1 billion; and (b) Remaining concession of at least 15 years (B) Operating History and Management Requirement 1. With an identifiable core business which it has majority ownership and management control 2. At least 3 full financial years of continuity of substantially the same management 3. Applicant under the Capitalization must be able to sustain the same management since the commencement of operations (if less than 3 full financial years) (B) Operating History and Management Requirement 1. Ownership continuity and control for at least the most recent audited financial year 2. At least 3 preceding financial years of management continuity 3. Applicant under the Market Capitalization and Revenue, the Stock Exchange of Hong Kong Limited ( HKEx ) will accept a shorter trading record period if the directors and management have sufficient and satisfactory experience of at least 3 years of business and industry of the applicant and the new applicant has management continuity for the most recent audited financial year (C) Public Float (C) Public Float 1. At least 25% of total listed shares (excluding treasury shares) must be held by public 1. At least 25% of the issuer s total issued share capital must at all times be held by the public 2. Where expected market capitalization is over HK$10 billion upon listing, HKEx may accept a lower percentage in between 15% and 25% (D) Spread of Shareholders (D) Spread of Shareholders 1. Minimum of 1,000 public shareholders holding not less than 100 shares each 2. On best effort basis allocate to Bumiputera investors 50% of the public spread requirement 1. Minimum 300 public shareholders 2. Not more than 50% of the securities in public hands upon listing A Comparison Between Listing on Bursa Malaysia And Hong Kong Stock Exchange 3
As a summary to the above, the listing requirements for MIPO and HKIPO is relatively similar, save as disclosed below:- (A) Financial Requirement (a) marginally higher PAT requirement for HKIPO and a shorter track record period; (b) market capitalization, revenue and cashflow test is only applicable to HKIPO. (B) Operating History and Management Requirement (a) MIPO requires an identifiable core business which it has majority ownership and management control, whereas HKIPO requires ownership continuity and control for at least the most recent audited financial year; (b) in addition to the management continuity which is applicable to both the MIPO and HKIPO, for applicants under the Market Capitalization and Revenue HKEx will accept a shorter trading record period if the directors and management have sufficient and satisfactory experience of at least 3 years of business and industry of the applicant. (C) Public Float (a) HKEx may accept a lower percentage in between 15% and 25% if the expected market capitalization is over HK$10 billion upon listing; (D) Spread of Shareholders (a) MIPO requires a minimum of 1,000 public shareholders holding not less than 100 shares each, whereas HKIPO only requires a minim of 300 public shareholders; (b) it is on the best effort basis to allocate 50% of the public spread to Bumiputera investors for MIPO, whereas HKIPO has no such requirement. Apart from the abovementioned, there are certain flexibility in respect of listing of mineral companies in HKEx (for further information, please refer to our article LISTING OF MINERAL COMPANIES IN HKEx ). A Comparison Between Listing on Bursa Malaysia And Hong Kong Stock Exchange 4
IPO LISTING REQUIREMENTS PRICE EARNING RATIO LIQUIDITY AND OTHER CONSIDERATIONS OF MARKET Above are the key considerations to be taken into account upon deciding your listing destination. A Comparison Between Listing on Bursa Malaysia And Hong Kong Stock Exchange 5
CONCLUSION- WHY HONG KONG THE VENUE OF CHOICE? HKEx is one of the largest stock exchanges in the world, has successfully raised a total equity funds amounted to approximately HK$936 billion in 2014. As of 31 December 2014, HKEx (including the Main Board and GEM) has 1,752 listed companies with an aggregate market capitalisation of over HK$25 trillion. Hong Kong is strategically placed in a high growth region and providing an ideal platform for issuers to achieve exposure in the investors pools of the rapidly growing People s Republic of China. Apart from the aforesaid, it is important to highlight on the advanced clearing and settlement infrastructure in Hong Kong. The Hong Kong Monetary Authority s US Dollar Clearing System allows financial institutions in Hong Kong to settle US dollars transactions real time in the Asian time zone against the delivery of HK dollars and thus reduces the foreign exchange settlement risk caused by the time gap between the settlement of HK dollars and US dollars. The development of the new Listing Rules for mineral companies via Chapter 18, together with the proximity to resource markets, has undoubtedly increased the interest of the mining sector towards HKEx. Below are inter alia, companies with Malaysian assets and operations which have been listed in HKEx:- 1. Media Chinese International Limited (Stock Code 685) 2. Tan Chong International Limited (Stock Code 693) 3. CVM Minerals Limited (Stock Code 705) 4. Genting Hong Kong Limited (Stock Code 678) 5. V.S. International Group Limited (Stock Code 1002) 6. Parkson Retail Group Limited (Stock Code 3368) 7. CAA Resources Limited (Stock Code 2112) 8. Nirvana Asia Limited (Stock Code 1438) A Comparison Between Listing on Bursa Malaysia And Hong Kong Stock Exchange 6