While the new listing regime will offer more opportunities for investors to participate in new economy companies, these emerging and innovative companies, such as pre-revenue biotech startups, involve high investment risks. Also, companies with weighted voting rights (WVR) structure present additional risks to investors pertaining to shareholders’ rights and corporate governance. Therefore, necessary measures must be in place to protect the investors and to mitigate the additional risks.

Biotech startups

Although these companies are not required to meet the Financial Eligibility Tests of the Main Board, they must meet the specific criteria including business, market capitalisation, working capital, enhanced disclosure requirements, in order to be eligible for listing. In response to the risks associated with biotech startups, Hong Kong Exchanges and Clearing Limited (HKEX) has put the following protections measures in place for investors:

  • Simplified delisting procedure: HKEX may cancel the listing of the company if the company falls short on assets or is unable to sustain operation. HKEX will give the company a period of up to 12 months to re-comply with the requirements to maintain its listed status.

  • Restrictions on change of primary business: Without the prior approval of HKEX, biotech startups cannot conduct acquisitions, sale or transactions that may fundamentally change their primary business. This measure, together with the simplified delisting procedure, can prevent these companies from turning into shell companies before they can actualise their business plans.

  • Strengthened disclosure: In addition to fulfilling the general disclosure requirements of listed companies, biotech startups are also required to disclose certain significant matters, including research and development progress, as well as measures to retain key management or technical staff, such that investors can have an adequate understanding about the circumstances of these companies. These companies must also issue alerts regarding their core products, pointing out that products may not be successfully developed and marketed.

  • Stock marker: These companies must be prominently identified through a unique stock marker “B” at the end of their stock name.

In future, when biotech startups begin to record revenues and profits and are able to pass the Financial Eligibility Tests, the abovementioned requirements of stock marker, simplified delisting procedure and restrictions on change of primary business will no longer be applicable.


WVR companies

The WVR structure deviates from the "one share, one vote" principle and weakens shareholders’ rights. Considering this, there are measures in the new listing regime to strengthen protection for shareholders and enhance corporate governance.

  • Sunset: The higher voting power of the WVR beneficiaries such as the company founders will not exist indefinitely. When certain specific events take place, such as in the event of the demise of the founder, or if the founder is no longer a director of the company, is unable to perform the duties of a director, or no longer complies with the requirements on directors under the Listing Rules, their higher voting power will become void.

  • Important resolutions are decided on a "one share, one vote" basis: For certain major resolutions - such as the appointment and removal of Independent Non-Executive Directors (INEDs), or voluntary liquidation of a company - the voting of "one share, one vote" will be adopted, such that shareholders can exert their power to vote for or against major events. Voting power of WVR shares are not more than ten times of the voting power of ordinary shares.

  • Strengthened corporate governance: Every listed company must have a board of INEDs, who are responsible for monitoring the company’s most senior executives and the senior management. They are accountable to all shareholders of the company. For WVR companies, the appointment and removal of INEDs must be resolved by the "one share, one vote" basis to ensure the independence of INEDs. A corporate governance committee composed entirely of INEDs and chaired by an INED must also be set up. The corporate governance committee is responsible for monitoring whether the company has been acting in accordance with the interests of all shareholders, as well as review and monitor any conflict of interest or connected transactions between the company and the founder. It is a measure to prevent the interest of minority shareholders from being damaged.

  • Strengthened disclosure: There must be a warning “A company controlled through weighted voting rights” on the front page of all listing documents, periodic financial reports, circulars, notifications and announcements.

  • Stock marker: These companies must be prominently identified through a unique stock marker “W” at the end of their stock name.



18 July 2018