One The purposes for setting up the Growth Enterprise Market
As a gateway to Mainland China and with close trading and business links to other Asian economies, Hong Kong is strategically placed in a high growth region. Over the years, Hong Kong has developed into an internationally recognized financial center and has provided many Asian and multinational companies with fund-raising opportunities. Growth enterprises particularly those emerging ones, i.e. enterprises that have good business ideas and growth potential, however, may not always be able to take advantage of these opportunities. A great number of them do not fulfil the profitability record requirements of existing market of the Stock Exchange of Hong Kong (i.e. main board of the Exchange) and are therefore unable to obtain a listing. The GEM is designed to bridge this gap.
GEM offers growth enterprises an avenue to raise capital.The GEM does not require growth companies to have achieved a record of profitability as a condition of listing. This removal of entry barrier enables growth enterprises to capitalize on the growth opportunities of the region by raising expansion capital under a well-established market and regulatory infrastructure. Besides the listing of local and regional enterprises, international growth enterprises can enhance their business presence and raise their product profile in China and Asia by listing on GEM.
GEM offers investors an alternative of investing in “ high growth, high risk” businesses. The future performance of growth companies particularly those without a profit track record is susceptible to great uncertainty. Because of the higher risks involved, GEM is designed for professional and informed investors. It works on the basis of caveat emptor or buyers beware.
GEM provides a fund raising venue and a strong identity to foster the development of technology industries in Hong Kong and the region. GEM is opened to growth companies big and small engaged in all industries. Technology companies in particular should find it attractive to align themselves with the strong growth theme of the market. In providing a fund raising venue and a strong identity to technology companies, GEM complements and supports the HKSAR Government’s initiative to promote the development of technology industries in Hong Kong.
GEM promotes the development of venture capital investments. GEM provides both an exit ground and a venue for further fund raising for investments made by venture capitalists. This facilitates more and earlier investments to be made by the venture capitalists in support of the growth of the industry.
Two Regulatory Philosophy and Major Features of GEM
GEM operates on the philosophy of “buyers beware” and “let the market decide” based on a strong disclosure regime. Its rules and requirements are designed to foster a culture of self-compliance by listed issuers and sponsors in the discharge of their respective responsibilities. The following major feaures are to support this philosophy:
Greater, More Frequent and Timely Disclosure
GEM requires a listing applicant to disclose in detail its past business history and future business plans which are key components of the listing documents. After listing, a GEM issuer is required to make half yearly comparison of its business progress with the business plan for the first 2 financial years, publish quarterly accounts in addition to half yearly and annual accounts and a shorter period is allowed to make available these information to the public. To allow market participants easy access to information, GEM has a separate website which provides comprehensive information covering all aspects of the market including company announcements and other information of the market including company announcements and other information of listed issuers, trade prices and market statistics.
GEM Sponsor Scheme
In recognition of the pivotal role that a GEM sponsor plays in the listing process, a GEM sponsor is required to satisfy a set of detailed eligibility criteria and assume clear responsibilities in the discharge of its duties. Amongst its duties, a GEM sponsor is required to conduct due diligence and to satisfy itself, to the best of its knowledge and belief and having made due and careful enquiries, that proper disclosures have been made. For details of the GEM Sponsor Scheme, please go to About Sponsor.
Corporate Governance
From the time of listing, an issuer is required to establish a strong corporate governance base to facilitate its compliance with the GEM Listing Rules and adherence to proper business practices. These measures include the appointment of a qualified accountant to supervise its finance and accounting functions, designating an executive director as the compliance officer, appointment of 2 independent directors and the establishment of an audit committee. In the first 2 years after listing, a GEM issuer is also required to retain a sponsor to advise and assist the company and its directors in the discharge of their listing obligations.
Role of the Exchange
At the time of listing the Exchange reviews the listing documents of an applicant to ensure that they comply with the requirements of the Companies Ordinance and the GEM Listing Rules. However, the Exchange does not assess the commercial viability of any applicant. The Exchange similarly reviews all public announcements made by an issuer after it has been listed. However, the responsibility for the correctness, quality and sufficiency of the disclosed information made by an issuer rests ultimately with the issuer and its directors.
In addition, the Exchange actively monitors the trading of securities on GEM and the compliance with the GEM Listing Rules by issuers and sponsors. It will undertake strong enforcement and institute appropriate disciplinary actions if necessary where breaches of the GEM Listing Rules are identified.
Three How to Become Listed
Principal Listing Requirements
The information set out below is a summary of the listing requirements as contained in the Rules Governing the Listing of Securities on the substitute for the GEM Listing Rules. Since this is a summary, it does not contain all the information that may be important to you. You should read this summary in conjunction with the full text of the GEM Listing Rules as the information referred to below is expanded or qualified in the GEM Listing Rules.
No profit requirement
In recognition that promising growth enterprises may not always have achieved a past profit record, the GEM Listing Rules does not impose a profit requirement on listing applicants.
Sponsor and sponsorship period
A listing applicant must appoint a GEM Sponsor to submit its listing application and the appointment must continue for a fixed period covering at least the period comprising the remainder of the financial year in which listing takes place and the 2 full financial years thereafter (the “Period”).
Acceptable jurisdictions
The new applicant must be incorporated under the laws of Hong Kong, the PRC, Bermuda or the Cayman Islands.
Operating history
The new applicant must:
1 demonstrate at least 24 months of Active Business Pursuits immediately preceding the date of submission of the listing application.
Note: in the case of a newly formed project company, natural resource Exploitation Company, or in exceptional circumstances acceptable to the Exchange, this requirement of 24 months of Active Business Pursuits may be relaxed subject to the Exchange’s approval.
2 have actively pursued a focused line of business;
3 be under substantially the same management and ownership over the period of Active Business Pursuits;
4 Control the board of the subsidiary or subsidiaries and have an effective economic interest of not less than 50% of that subsidiary or those subsidiaries, if the active business is carried out by its subsidiary or subsidiaries;
5 Have an accountants’ report covering at least 2 full financial years immediately prior to the date of listing document at least the 12 month period from the commencement of its Active Business Pursuits.
Future prospects
The new applicant must set out its business objectives and explain how it proposes to achieve them over the Period.
Minimum public float
The new applicant must meet the following requirements:
1. for companies with a market capitalization of not exceeding HK$4 billion, the minimum public float is 25% subject to a minimum of HK$30 million;
2. for companies with a market capitalization of over HK$4billion or above, the minimum public float is the higher of HK$2 billion or 15%;
3. the new applicant must have not less than 100 public shareholders at the time of listing.
Corporate governance
The new applicant must have:
1 appointed competent personnel to fill the following positions: Company secretary, qualified accountant, compliance officer and authorized representatives;
2 appointed at least 2 independent non-executive directors;
3 established an audit committee.
Underwriting
Underwriting is not compulsory at the time of the initial public offering.
Others
Initial management shareholders and significant shareholders of the new applicant must collectively hold not less than 35% of its issued share capital at the time of listing.
Listing Procedure
The following flow chart provides an overview of the listing procedures and is for reference purpose only. You should consult a GEM Sponsor, other professional advisers or contact us for more information n the listing process.
|
The company decides to make a listing application |
↓
|
The company appoints a GEM sponsor and
Other relevant professional advisers |
↓
|
The Company makes a listing application which is
Supported by a listing document in anticipated final form and all other required documents
(at least 25 clear business days before the date of hearing) |
↓
↓
|
The GEM listing committee approves the application |
↓ 10 to14 days later normally
|
Listing effective and dealing commences |
Initial cost of listing
The following major categories of the initial cost of listing are for indicative purpose only and are by no means exhaustive. They may vary depending on the circumstances of each case. You should consult a GEM Sponsor or other professional advisers for more information.
The major categories of the initial cost of listing normally include the following:
1 Professional fees
sponsor fee
company’s legal adviser fee
sponsor’s legal adviser fee
reporting accountants fee
property valuation fee
public relation adviser fee
2 Cost of publications
prospectus, application forms, share certificates and other printing fee
translation fee
3 Marketing expenses
4 Others
share registrar fee
receiving banker fee
underwriting commission, if applicable
initial listing fee
transaction levy
trading fee
Except the initial listing fee, transaction levy and trading fee, all the other fees set out above are negotiable between the new applicant and the relevant parties and are subject to market forces.
The initial listing fee, which normally accounts for a small portion of the total initial cost of listing, is payable to the Exchange at the time of the submission of a listing application. It is non-refundable and is calculated by reference to the proposed market capitalization of the listed securities. The details of the initial listing fee are set out in Appendix 9 of the GEM Listing Rules. A summary of the initial listing fee is shown in the table below.
Initial Listing Fee
Monetary value of the equity securities to be listed Fee payable (HK$)
Not exceeding HK$100 million 100,000
Not exceeding HK$1,000 million 150,000
Over HK$1,000 million 200,000
The transaction levy payable by the new applicant to the Exchange is 0.0035% of the value of the securities to be issued by the new applicant. In addition, the trading fee payable by the new applicant to the Exchange is 0.0025% of the value of the securities to be issued by the new applicant. For details, please refer to Appendix 9 of the GEM Listing Rules. |
