Ways available for domestic enterprises to list in HK

The year 2018 witnessed a new record in the number of domestic enterprises that listed in Hong Kong in recent years. This column describes the main ways available for domestic enterprises to list in Hong Kong and the principle factors to consider when selecting the different ways that are helpful for domestic enterprises and investment institutions in their decision-making when they are on the verge of investing in Hong Kong’s capital market.

Red chips method. Red chips are divided into “small red chips” and “big red chips”, and both need an offshore company serving as the proposed listing entity. The offshore company will generally be established in the Cayman Islands or other jurisdiction with a certain tax haven function. The key that distinguishes a small red chip from a big red chip is whether the proposed listing entity is a Chinese-entity-invested holding enterprise. If it is a Chinese-entity-invested holding enterprise, then a big red chip is constituted and compliance with the relevant provisions of the Notice of the State Council on Further Strengthening the Administration of the Offering and Listing of Shares Overseas is required.

If a Chinese-entity-invested holding enterprise is not involved, a small red chip is constituted and compliance mainly with such regulations as the Provisions for the Acquisition of Domestic Enterprises by Foreign Investors, the Notice of the State Administration of Foreign Exchange on Issues Relevant to Foreign Exchange Administration in Connection with Offshore Investment/Financing, and Round-trip Investment by Domestic Residents Through Special Purpose Vehicles, is required.

Yu Yan is a partner at Tian Yuan Law Firm. He can be contacted on +86 10 5776 3888/+86 138 1175 9539 or by email at yuyan@tylaw.com.cn