Presently, domestic enterprises are developing "overseas plans" and actively engaging in the expansion of their operations into international markets. For those enterprises that have been listed, a considerable amount of time has often been spent cultivating the domestic market, during which they have developed sophisticated technology and accumulated valuable experience. This experience provides a foundation upon which overseas investment can be made. In the initial phase of overseas expansion, domestic enterprises must prioritize the expansion of overseas markets and the attraction of overseas capital. For domestic enterprises that have already been listed on a stock market, it is an optimal strategy to enter the overseas stock market through a secondary listing. This approach facilitates the international business expansion of the domestic company and enables a rapid increase in its popularity in the overseas market. In light of the aforementioned considerations, this article presents an overview of alternative secondary listing pathways that domestic enterprises may pursue as a point of reference.
I.
Introduction to the "secondary listing" regime
(i) Overview
A secondary listing refers to the listing of shares or depositary receipts of an enterprise that has been listed on one stock exchange on a different stock exchange. In this context, the shares of the two exchanges are interconnected and can be exchanged in both directions for cross-market circulation. At the same time, there is only one primary listing place, and the listed company mainly follows the disclosure rules and jurisdictional laws of the exchange of the primary listing place. Concurrently, there is only one primary listing, and listed companies primarily adhere to the disclosure regulations and legal framework of the primary listing exchange and its jurisdiction. The listing conditions for a secondary listing are typically contingent upon the fulfillment of the prerequisites for a primary listing. Additionally, a secondary listing may often be exempt from certain disclosure requirements.
A secondary listing is often confused with the concept of a "dual listing," as it may appear to be completed on two different stock exchanges. A dual listing is a "dual primary listing," which is distinct from a secondary listing in that the issuer has a primary listing on disparate stock exchanges. In terms of the distinction between a secondary listing and a dual listing, it is notable that, from the perspective of stock trading, the shares of dual-listed companies, which are listed on two different stock exchanges, cannot be traded in both directions and cannot be exchanged for each other. From the perspective of securities trading regulation and listing requirements, a dual primary listing of a listed company is required to comply with the listing and disclosure requirements of both stock exchanges. Exemptions are generally not permitted.
A secondary listing is a listing on a stock exchange that is distinct from a primary listing. The stock exchange where a company is listed as primary is considered its primary market. This is where the company issues, regulates, and discloses its shares. In contrast, the secondary market is a market where companies can re-list their shares. It recognizes the regulation and disclosure of the primary market, allowing for exemptions from disclosure rules. This makes the process of listing and the disclosure requirements of the secondary listing relatively simple. Conversely, a secondary listing is contingent upon a primary listing. Consequently, if a stock is delisted from its primary listing, it will no longer be eligible to continue trading in the secondary market. In contrast, a dual listing can better accommodate the inherent uncertainties associated with a single market. This is because the company is also primary listed in the secondary listing, and its trading in one stock market is not affected by the liquidity of other stocks. However, the listing process is correspondingly more complex, and the listing and disclosure requirements are typically more rigorous.
(ii) Forms of "secondary listing" share circulation
The manner in which shares are traded on different stock exchanges can be broadly classified into two main categories: ordinary shares and depositary receipts. The specific form of share circulation employed by a given exchange is dependent upon the particulars of its "secondary listing" system.
Secondary listings on the Singapore Exchange and the Hong Kong Stock Exchange are predominantly in the form of "ordinary shares." In these exchanges, a listed company may issue new ordinary shares and list them for trading, or the original ordinary shares may be listed by way of introduction.
A depository receipt (Depository Receipt) is a type of security issued by a depository bank. It represents the stock of a company in a specific location as the underlying security, with the stock certificates held by the depository bank as trustee. The depository bank then issues and trades the depository receipts in the capital market. Each depository receipt represents a specific number of underlying securities, and holders of depository receipts enjoy the corresponding rights associated with the underlying securities. Each depository receipt represents a specific number of underlying securities, and investors in possession of depository receipts are entitled to the corresponding underlying securities. The collusive relationship between depositary receipts and equity securities in foreign stock markets has led to the widespread use of depositary receipts in the interconnection of different stock markets. Consequently, depository receipts have been employed as a means of "secondary listing," whereby listed companies may issue domestic base stocks in their primary listing location while simultaneously entrusting the corresponding base stocks to a depository bank for custody. Additionally, they may issue depository receipts abroad, which, as securities that circulate directly in overseas stock exchanges, correspond to the shares of domestic companies, thereby enabling investors to realize the benefits associated with the listed company's stocks. As securities that circulate directly in overseas stock exchanges, depository receipts correspond to the shares of a domestic company, thereby enabling the indirect listing of that company's shares on overseas stock exchanges. Consequently, the aforementioned collocation allows for the exchange of the shares of listed companies in the primary listing place with the depositary receipts in the secondary listing place, thereby facilitating interconnection and interoperability.
II
Main routes for secondary listing of domestic enterprises
In the context of a secondary listing, the issuer is primarily bound by the regulatory norms and listing requirements of the primary listing venue. The system is predicated on the trust of the stock exchange of the secondary listing venue in the regulation of the primary listing venue. Consequently, the stock exchange of the primary listing venue is typically recognized as the exchange of the secondary listing venue before its listed companies can undertake a secondary listing. Presently, secondary listings on stock exchanges, including SEHK and SGX, are predominantly concentrated in developed jurisdictions such as the United States, Hong Kong, China, Singapore, London, Australia, and Switzerland. Consequently, if a domestic enterprise is listed on a "recognized stock exchange," such as the New York Stock Exchange (NYSE), the NASDAQ Stock Market, the Hong Kong Stock Exchange (SEHK), or the Singapore Exchange (SGX), it fulfills the fundamental prerequisites for a secondary listing on a foreign stock exchange. At present, the most frequently utilised secondary listing venues for such enterprises include the Hong Kong Stock Exchange and the Singapore Exchange.
For companies listed on the A-share market in China, the stock exchanges in China are not considered "recognized stock exchanges," such as the Stock Exchange of Hong Kong and the SGX-ST. Consequently, companies listed on the A-share market are unable to achieve a secondary listing by issuing ordinary shares or by way of introduction of a listing on these markets. Nevertheless, as early as October 2018, the Shanghai Stock Exchange (SSE) established the "Shanghai-London Stock Connect" interconnection mechanism with the London Stock Exchange. This enables eligible SSE-listed companies to issue Global Depository Receipts ("GDRs") in the United Kingdom and list on the LSE. Subsequently, in 2022, the scope of domestic stock exchanges will be expanded to include the Shenzhen Stock Exchange. Additionally, the interconnection mechanism will be expanded to include the China-Europe Stock Connect. Furthermore, overseas stock exchanges will be expanded to include major European stock exchanges such as the SIX Swiss Exchange and the Frankfurt Stock Exchange in Germany.
In conclusion, the existing second listing pathways for A-share listed companies and domestic companies listed overseas are distinct and are outlined below:
(I) Secondary listing of A-share listed companies in Europe through GDR issuance
A-share companies that issue GDRs for a secondary listing utilize domestic A-share stocks as the underlying securities, subsequently listing and trading the depository receipts on overseas stock exchanges. At present, the London Stock Exchange and the SIX Swiss Exchange constitute the listing venues of existing successful cases. Following the 2022 agreement between the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE), and the SIX Swiss Exchange, the majority of A-share listed companies elected to utilize the SIX Swiss Exchange as their secondary listing venue.
As of August 13, 2024, a total of 23 A-share listed companies have completed GDR issuance and listed on the London Stock Exchange or the SIX Swiss Exchange. Of these, 17 have elected to issue GDRs on the SIX Swiss Exchange to achieve a secondary listing, while 6 have chosen to issue GDRs on the London Stock Exchange. The details are provided below:
All of the aforementioned 23 companies were granted approval by the CSRC to issue GDRs in accordance with domestic regulatory and approval procedures. In February 2023, with the full implementation of the registration system, the CSRC issued the Trial Measures for the Administration of Overseas Issuance of Securities and Listing by Domestic Enterprises. This unified the filing administration of the direct and indirect overseas listing activities of domestic enterprises and adjusted the approval procedures of the CSRC for the issuance of GDRs by domestic enterprises, moving from a previous approval system to a filing system. Following the implementation of the filing system for overseas listing, as of August 13, 2024, no domestic enterprise has issued GDRs through the filing of overseas issuance and listing. Nevertheless, Sanhua Zhikong (002050), a company listed on the SZSE, has announced its intention to issue GDRs and list on the SIX Swiss Exchange. The company is currently undergoing the CSRC's filing and review process.
(ii) Second listing route for Chinese enterprises with offshore listings
The primary listing venues for Chinese domestic enterprises that have been listed overseas include the United States, Hong Kong, and other regions. The current practice of secondary listing primarily encompasses the re-listing of Chinese stocks previously traded on the Hong Kong Stock Exchange on the United States Stock Exchange, and the listing of enterprises from the United States or Hong Kong on the Singapore Exchange. The specifics are as follows:
1. In relation to the secondary listing on the Hong Kong Stock Exchange
From the passage of the Foreign Corporation Accountability Act by the U.S. Senate in May 2020 to the passage of the Accelerated Foreign Corporation Accountability Act in June 2021, the regulatory posture of overseas securities markets towards U.S.-listed Chinese stocks has become increasingly stringent. In response, many domestic companies have begun to seek a path of return in order to cope with the potential impact of delisting. In comparison to the A-share market, the Hong Kong market is characterised by a more relaxed regulatory regime, with the secondary listing route offering a greater number of exemptions and a more straightforward approval process than the primary listing. Furthermore, the Hong Kong Stock Exchange permits the submission of an application for the conversion of a secondary listing to a primary listing. This is an appropriate transitional link for the return of U.S.-listed companies or an alternative securities market following a delisting in the United States. Furthermore, with regard to the listing regime, the Hong Kong Stock Exchange amended the rules on secondary listing under Rule 19C of the Listing Rules in 2018. This amendment allows overseas-listed domestic companies whose business focuses on the Greater China region to apply for a secondary listing in Hong Kong. Additionally, the amendment grants certain exemptions from the rules to enterprises adopting the WVR and VIE structures. This amendment thus clears up the institutional hurdles. Consequently, the Hong Kong Stock Exchange is typically the most preferred secondary listing route for domestic Chinese companies that are already listed overseas. Notable domestic enterprises such as Ctrip, Beili, Baidu, Jingdong, NetEase, Alibaba, and others have established secondary listings on the Hong Kong Stock Exchange.
2. On the secondary listing on the Singapore Exchange
The SGX's secondary listing regime is comparatively more flexible and relaxed, with a streamlined and efficient secondary listing framework. This framework exempts companies listed on the exchanges of recognized jurisdictions in developed regions of Singapore from additional continuing listing obligations for their secondary listings. In practice, the time required for approval of secondary listings is typically shorter. A secondary listing in Singapore can facilitate the involvement of international investors, circumvent geopolitical risks, and position the SGX as an optimal choice for domestic companies seeking to enhance their brand and visibility in Southeast Asia.
In examining recent instances of domestic companies pursuing a secondary listing on the SGX-ST, two cases warrant particular attention. The first case is that of Helens (HK.9869), a company with a primary listing on the Hong Kong Stock Exchange. On July 19, 2024, it was announced that the company had successfully secured a secondary listing of its ordinary shares on the SGX-ST by way of an introductory listing. Hailunji is the inaugural enterprise to pursue a secondary listing on the SGX through a filing with the China Securities Regulatory Commission (CSRC) subsequent to the enactment of the Trial Measures for the Administration of Overseas Issuance of Securities and Listing by Domestic Enterprises, which was successfully passed on June 27, 2024.
Another noteworthy case is that of Azalea Motors, which was listed on the New York Stock Exchange in the United States in September 2018. Subsequently, in March 2022, Azalea Motors underwent a second listing on the Hong Kong Stock Exchange by way of introduction. In May 2022, Azalea Motors successfully underwent a second listing on the SGX-ST, also by way of introduction, thus becoming a triple-listed company.
In both instances, an introductory listing was utilized. As introduction listings do not entail the issuance of new shares, the shares in circulation are primarily derived from the original group or stock exchange. The listing process is more straightforward and the level of scrutiny is less rigorous. In particular, for many Chinese companies, whose primary objective is to hedge against potential delisting risks, introduction listing represents an optimal choice for a secondary listing, as it can effectively circumvent further dilution of shareholdings and successfully complete secondary listings in multiple locations.
3. Secondary listing practices of other domestic enterprises
Among the recent cases of secondary listings, one stands out as particularly noteworthy. Fuxing Zipper, a company listed on the Singapore Exchange Securities Trading (SGX-ST), has submitted an application to the Nasdaq Stock Exchange for a secondary listing on the U.S. stock market. In contrast with the aforementioned Chinese companies that have returned from the U.S. stock market, Fuxing Zipper's route to a secondary listing was entirely reversed. Its listing on the main board of the SGX-ST commenced in September 2007, followed by a confidential SEC prospectus filing in September 2023 and a filing with the China Securities Regulatory Commission (CSRC) in May 2024, all of which were initiated by Fuxing Zipper.
For enterprises that are already listed on foreign stock exchanges, the option of a "secondary listing" in the U.S. is available to them because they are eligible for listing on a "recognized stock exchange." Adopting a secondary listing represents an optimal strategy for achieving the objective of entering the U.S. securities market without experiencing a delisting.
III
Domestic Approval Process and Key Legal Issues of Concern for Secondary Listings
1. Approval process
In accordance with the Trial Measures for the Administration of Overseas Issuance of Securities and Listing of Domestic Enterprises, Chinese domestic enterprises are obliged to comply with the filing procedures set forth by the CSRC in the event of their direct or indirect issuance of securities abroad or listing of securities for trading abroad. This encompasses the issuance of equity securities, including stocks and depository receipts. Consequently, the secondary listing of a domestic enterprise on an overseas stock exchange is subject to the filing procedures to be performed by the CSRC.
According to the available data, since the filing system for overseas issuance and listing of domestic enterprises came into effect in February 2023, a total of 318 domestic enterprises have submitted applications for the aforementioned procedures by August 9, 2024. Of these, three domestic enterprises were involved in the secondary listing of domestic enterprises on overseas stock exchanges, as detailed below:
As evidenced by the aforementioned cases, the aggregate number of secondary listings by domestic enterprises abroad currently represents a relatively minor proportion of all overseas issuances and listings. However, it also encompasses the principal categories of secondary listings, including GDR issuance by A-share enterprises and the secondary listings of overseas-listed companies on the SGX-ST. In the aforementioned case, as Sanhua Zhikong is a listed company on the SZSE and involves the issuance of additional domestic underlying A-shares and the issuance of GDRs, the issuance of its domestic underlying securities is subject to the examination and approval of the SZSE and the registration of the CSRC, in addition to the filing of the issuance and listing with the CSRC.
2. Main legal concerns
In light of the aforementioned cases, the following serves to summarize the legal issues that are typically of concern to the auditing body when a domestic enterprise performs the domestic approval procedures for a secondary listing.
IV
Summary
The approval process for domestic share issuance for financing for A-share listed companies is typically longer, and the review is more uncertain due to refinancing policy factors. In the event that GDRs are issued on overseas stock exchanges for financing purposes, the review and approval period is typically shorter, and the utilization of the funds is more flexible. At present, there are no definitive restrictions on the utilisation of funds raised through GDRs in a number of significant target stock markets. Furthermore, the Swiss Exchange serves as an illustrative case, wherein GDRs can be traded following their listing and redeemed after a period of 120 days. Additionally, there is no lock-up requirement for the shares, and the trading restrictions are fewer. It can be reasonably deduced that A-share companies with financing needs and plans to expand their operations overseas should consider the second listing path of issuing GDRs on overseas exchanges. For overseas-listed domestic companies, the selection of a secondary listing can assist in the avoidance of potential delisting risks, facilitate the expansion of the capital market territory, and provide support for the company's international business layout. Concurrently, a secondary listing can be integrated with an introduction listing, thereby achieving a multi-location listing without the dilution of shareholdings. Furthermore, the vetting procedures and information disclosure requirements are typically more straightforward, aligning better with the listing requirements of these companies.
It is important to note that there have been instances in which the secondary listing was terminated due to the failure to pass the domestic audit. For domestic enterprises requiring a secondary listing, it is also essential to consider the domestic approval procedures and the significant legal issues that may be of concern to the auditing body.
作者简介
林敏 律师
业务领域：资本市场
联系电话：8610 8541 9666
电子邮箱：min.lin@chancebridge.com
林敏律师为卓纬律师事务所资本市场部律师，其执业领域主要集中于证券与资本市场领域，并能提供重大投资、并购重组等项目的法律服务。
尹嘉仪 律师助理
业务领域：资本市场、公司合规
联系电话：8610 8541 9666
电子邮箱：jiayi.yin@chancebridge.com
尹嘉仪于2024年加入卓纬，职业领域主要集中在证券和资本市场、股权投资、并购重组、上市公司投融资及公司合规等领域。
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