SFC relaxes OBOR listing requirements for HKEX

Hong Kong regulators and the Stock Exchange of Hong Kong are making a push to win more Belt and Road related business, and are reviewing their listing rules in order to make it easier for infrastructure companies to raise capital.

On April 11 the Securities and Futures Commission (SFC) issued a statement which sets out factors the SFC will take into account when reviewing the proposed listing of infrastructure project companies in Hong Kong. It said that the factors are designed to address potential country and related risks, with the objective of maintaining the overall quality of the market whilst providing a pathway for infrastructure project companies to achieve a listing.

While the Stock Exchange of Hong Kong sets the listing rules, it acts under the overall guidance of the SFC.

The SFC statement noted that there is a high level of interest in the investment return potential of infrastructure projects based in developing markets, including under the Belt and Road Initiative. Development banks and others have pointed to the need to mobilize large pools of savings, including those in Asia, to close a significant infrastructure financing gap. It said that Hong Kong is uniquely positioned to facilitate infrastructure investment initiatives, such as the Belt and Road, through its capital markets.

The statement said that infrastructure project companies can give rise to special investment risks that reflect the nature of the project or its location. There would always need to be prominent disclosure of such risks in the prospectus. If, in spite of these risks, there are sufficient risk mitigation factors, the SFC will take this into account when reviewing the proposed listing. All infrastructure project companies seeking a listing in Hong Kong will be able to refer to these factors, which will be relevant for many Belt and Road infrastructure projects.

According to the SFC, when assessing applications from listed companies or listing applicants, it may not be possible to adequately address the level of risk to the investing public solely by risk disclosure. But, there are factors that may mitigate the level of perceived risk sufficiently such that the SFC would be less likely to use its powers of objection.

Examples of these factors would be: a large shareholding by a relevant Chinese state-owned enterprise, sovereign wealth fund, substantial listed company or substantial and globally-active institutional investor; a sizeable Chinese, Development or International Bank committed to providing ongoing project finance; a direct involvement or shareholding by the relevant state government (i.e. where the project assets are located).

The SFC noted that, generally speaking, the more of these factors are present the lower the perceived level of potential risk to the investing public.

“Hong Kong’s international profile and reputation as a venue for capital raising put it in an excellent position to take advantage of the opportunities presented by the Belt and Road Initiative,” commented Ashley Alder, the SFC’s Chief Executive Officer. “The SFC has a pivotal role to play in helping to establish investor confidence in large-scale Belt and Road projects and we look forward to working with the industry to make them a success.”

Photo courtesy of HKEX.