HK exchange plans raising Main Board profit requirement

On 27 November 2020, the Stock Exchange of Hong Kong Limited published a consultation paper on the minimum profit requirement for a Main Board listing under rule 8.05(1)(a) of the Listing Rules. The exchange proposes to raise the profit requirement with a view to improving the overall quality of Main Board issuers, and curbing shell creation activities. A temporary conditional relief from the proposed profit requirement will also be introduced to facilitate the listing of quality companies with financial results that have been temporarily and adversely affected by the covid-19 pandemic and the economic downturn. The consultation closes on 1 February 2021.

The proposed profit requirement will not only affect new listing applicants, but also: Main Board-listed issuers in the case of spin-offs or chapter 14 reverse takeovers; extreme transactions or material disposals; and Growth Enterprise Market-listed (GEM) issuers, in the case of transfer of listing to the Main Board.

Under the profit requirement, a new listing applicant must have the following minimum amount of profit attributable to shareholders: (1) HK$20 million (US$2.5 million) in the most recent financial year; and (2) HK$30 million in aggregate in the two preceding financial years. The profit requirement has remained unchanged since 1994, while the minimum expected market capitalisation at the time of listing under rule 8.09(2) has increased from HK$200 million to HK$500 million (the market capitalisation requirement”) since 2018.