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HKEx Eases Red Tape On BVI Listings

by Phillip Morton, Investors

21 December 2009

The Hong Kong Stock Exchange (HKEx) announced on December 15 that the British Virgin Islands (BVI) has been placed on its list of acceptable jurisdictions for an issuer’s place of incorporation under Chapter 19 of the Listing Rules, paving the way for the listing of BVI-incorporated companies on the exchange.

The decision by the HKEx means that companies wishing to list shares on the exchange can do so under a less stringent process, detailed within a guidance note available on the HKEx's website, rather than applying as an overseas company.

Commenting on the announcement, law firm Conyers Dill and Pearman, which has been involved in over 40 listings on the exchange by BVI companies, said that whilst it would significantly reduce red tape, BVI companies may need to alter their articles of incorporation to enhance shareholder protection to comply with Hong Kong securities legislation. Under the legislation, an applicant must satisfy the following criteria:

  • Amend its memorandum and articles to address certain issues of shareholder protection where the protection afforded to shareholders is considered less stringent than in Hong Kong; and
  • Demonstrate a reasonable nexus between its place of incorporation and its place of business operations.

According to Conyers Dill and Pearman: “the key advantage for British Virgin Islands companies in being able to list directly on the Hong Kong Exchange is there should be no need for an applicant to undertake either (i) a restructuring of its business and operations through the establishment of a new Bermuda or Cayman Islands holding company or (ii) a redomicile of its place of incorporation by way of merger or continuation, prior to listing. This would be of particular benefit for companies incorporated in the British Virgin Islands:

  • with a listing on another exchange who wish to have a secondary listing in Hong Kong and avoid the time, cost and expense of such a restructuring or redomicile; or
  • used as a private equity investment vehicle with complicated convertible preferred share type structures, where a restructuring of the sort described above may not be readily achievable, or only achievable with difficulty, due to the need to obtain multiple preferred shareholder and other approvals.”

“In light of the popularity of British Virgin Islands companies as special purpose vehicles for investments in Asia, and particularly the People’s Republic of China, the Hong Kong Exchange’s decision provides investors in such companies with a further route to exit investments through a listing on a highly regarded, Asian-focused, stock exchange. In addition, for those entities incorporated in the British Virgin Islands with operations in Asia but a primary listing on another stock exchange (i.e. AIM, NASDAQ), a secondary listing on a more market appropriate exchange is now easily within reach.”

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