Hong Kong Exchange cracks down on backdoor listings

HKEX is also targeting companies that remain listed but do very little business.

The Hong Kong Exchanges and Clearing Limited (HKEX) is seeking to tighten rules on backdoor listings and ‘shell’ companies in an effort to weed out problematic corporate behaviour and maintain the quality of the market. 

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Shell companies are firms who turn to IPOs and remain listed on the bourse but do very little business.

The market operator published a consultation paper on the proposed changes and is seeking market feedback. HKEX aims to tighten the suitability review of new applicants, enhance the listing criteria for listed issuers to deter the creation of listed shells and tighten reverse takeover rules to prevent any further backdoor listings.

“Whilst shell activities are limited to a small segment of our market, they undermine investors’ confidence and overall market quality. At this point there is a need to formalise our guidance into the Rules, and to make Rule amendments to address some issues in a more effective manner,” said David Graham, HKEX head of listing.

Under the proposal, there will be a transitional period of 12 months for issuers to take corporate action to comply with rules.

The HKEX is inviting market feedback for the proposals in the consultation paper with deadline for responses on August 31.