VIE regulation from perspective of a HK listing

Due to the existence in the domestic regulatory environment of restrictions limiting access by foreign investors to certain industries, the variable interest entity (VIE) structure was born as a versatile means to resolve the difficulty of such industries listing abroad to raise financing. As Hong Kong is an international finance centre adjacent to mainland China, mainland enterprises have intrinsic geographical advantages and financing advantages in this regard. For example, the Xiaomi Group recently erected a VIE structure and submitted a listing application to the Stock Exchange of Hong Kong (HKEx). Its market valuation is expected to reach US$60-80 billion.

However, HKEx has tough requirements regarding the oversight of VIE structures, of which listing applicants wishing to use a VIE structure to list in Hong Kong should be aware. This column analyses the issues requiring particular attention in erecting a VIE structure from the perspective of a Hong Kong listing.

A VIE structure differs from the traditional method where equity serves as the umbilical cord linking the contemplated listed entity and the domestic operating company, in that it involves using a series of agreements and arrangements to achieve actual control and financial consolidation between the contemplated listed entity and the operating company.

Zhang Bin is a partner at Jingtian & Gongcheng. He can be contacted on +86 10 5809 1060 or by email at zhang.bin@jingtian.com

Hu Binhan is an associate at Jingtian & Gongcheng. He can be contacted on +86 10 5809 1371 or by email at hu.binhan@jingtian.com