Capital Markets Quarterly - July 2024

Howse William’s Capital Markets Quarterly aims to provide you an overview of the various regulatory and market updates in the second quarter of 2024, with summaries of some of the key amendments in the rules and guidelines, as well as important decisions made by the regulatory authorities in Hong Kong. We will also highlight some of the major market transactions over the last 3 months.


A) Regulatory Update


The Stock Exchange of Hong Kong Limited (the "Exchange")


Amendments to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules")


Treasury shares


The proposals of the "Consultation Conclusions on Proposed Amendments to Listing Rules Relating to Treasury Shares" published on 12 April 2024 have been implemented and amendments to the Listing Rules have been made for the implementation of such proposals. Key changes to the Listing Rules are set out below:


  1. Remove the requirement to cancel repurchased shares, so that issuers may hold the repurchased shares in treasury subject to the laws of their places of incorporation and their constitutional documents;


  1. Resale of treasury shares by an issuer to follow the Listing Rules that currently apply to an issue of new shares;


  1. Maintain fair and orderly market, by mitigating the risk of stock market manipulation and insider dealing, through:


  1. Imposing a 30-day moratorium period to restrict (1) a resale of treasury shares after a share repurchase (subject to certain carve-out provisions); and (2) an on-Exchange share repurchase after an on-Exchange resale of treasury shares; and


  1. Prohibiting a resale of treasury shares on the Exchange (1) when there is undisclosed inside information; (2) during the 30-day period preceding the results announcement; or (3) if it is knowingly made with a core connected person; and


  1. Consequential Listing Rules amendments made as follows:


  1. Allowing new listing applicants to retain their treasury shares upon listing, with any resale of these shares subject to the same lock-up requirement as an issue of new shares;


  1. Requiring issuers (being holders of treasury shares) to abstain from voting on matters that require shareholders' approval under the Rules;


  1. Excluding treasury shares from an issuer’s issued or voting shares under various parts of the Rules (e.g. public float and size test calculations);


  1. Requiring an issuer to disclose in the explanatory statement its intention as to whether any shares to be repurchased will be cancelled or kept as treasury shares; and


  1. Clarifying that a resale of treasury shares by an issuer or its subsidiary includes resale of treasury shares through their agents or nominees.


The Listing Rules amendments in relation to treasury shares took effect on 11 June 2024.


Enhancement of climate-related disclosures under the environmental, social and governance framework


Taking into account the Hong Kong Government’s vision and approach towards developing a comprehensive ecosystem for sustainability disclosure in Hong Kong and the International Sustainability Standards Board’s jurisdictional guide preview, the Exchange published conclusions to its consultation on the enhancement of climate-related disclosures under its environmental, social and governance ("ESG") framework. As stated in the consultation conclusions, the Exchange will continue to modify its proposals to reflect IFRS S2 Climate-related Disclosures ("IFRS S2") more closely. The key features of the new climate-related disclosures requirements ("New Climate Requirements") are set out as follows:


  1. The New Climate Requirements are developed based on IFRS S2. Implementation reliefs including proportionality and scaling-in measures are introduced to address concerns over the reporting challenges that some issuers may face.


  1. The amended Listing Rules will come into effect on 1 January 2025. A phased approach is adopted for the implementation of the New Climate Requirements as follows:


  1. All listed issuers will be required to disclose their scope 1 and scope 2 greenhouse gases (GHG) emissions on a mandatory basis for financial years commencing on or after 1 January 2025.


  1. Hang Seng Composite LargeCap Index constituents ("LargeCap issuers") will be required to make the other climate-related disclosures (the New Climate Requirements, other than scope 1 and scope 2 GHG emissions) on a “comply or explain” basis for financial years commencing on or after 1 January 2025 and on a mandatory basis for financial years commencing on or after 1 January 2026.


  1. Main Board issuers will be required to report in accordance with the New Climate Requirements on a “comply or explain” basis for financial years commencing on or after 1 January 2025.


  1. All GEM issuers are encouraged to report in accordance with the New Climate Requirements for financial years commencing on or after 1 January 2025, on a voluntary basis.




In light of the Listing Rules amendments in relation to treasury shares that took effect on 11 June 2024, the Exchange published FAQs No. 156-2024 to 164-2024 to assist listing applicants and listed issuers to understand and comply with the relevant Listing Rules. The FAQ addresses and clarifies various aspects of the new regime governing treasury shares, including but not limited to, shareholders’ mandate for resale of treasury shares, moratorium period for new issues of shares or resales of treasury shares after a share repurchase, intention statement regarding repurchased shares and implementation of the amended Listing Rules.


Consultation Paper on the Proposed Reduction of Minimum Spreads in the Hong Kong Securities Market


In June 2024, the Exchange published a consultation paper on the proposed reduction of minimum spreads in the Hong Kong securities market, aiming to lower overall transaction costs and boost liquidity.


The Exchange is proposing a reduction of the minimum spreads of equities, Real Estate Investment Trusts (REITs), and equity warrants (collectively, the "Applicable Securities") in Hong Kong’s securities market. Minimum spread is the minimum price change for a stock traded on an exchange and determines the tightest bid-ask spread allowed. With a tighter minimum spread, the Exchange is of the view that investors may be able to enjoy lower overall transaction costs.


A two-phase approach will be adopted to reduce minimum spreads from $0.5 to $50 by 50% to 60%. In Phase 1, the proposal recommends a 50% to 60% reduction in the minimum spreads of price bands between $10 and $50. Subject to the implementation of the proposed changes in Phase 1 and a review of its impact, the Exchange may consider proceeding with the implementation of Phase 2 to reduce the minimum spread for price band between $0.5 and $10 by 50%. It is expected that around 300 and 1,300 Applicable Securities, accounting for nearly 30% and 25% of the average daily turnover of equities, will be included in Phase 1 and 2 respectively[1].


Consultation Paper on Review of Corporate Governance Code and Related Listing Rules


During the same period, the Exchange also published a consultation paper setting out proposed enhancements to the Corporate Governance Code (the "CG Code") and related Listing Rules. The key proposals include:


  1. Board effectiveness improvements –
  1. The designation of a lead independent non-executive director where the board chair is not independent (new code provision).
  2. Annual director training on specific topics, with a minimum of 24 hours of training for first-time directors[2] within the first 18 months of appointment (new rule).
  3. Regular board performance reviews and the disclosure of a board skills matrix (new code provisions).
  4. Capping “overboarding” independent non-executive directors so they do not hold more than six Hong Kong-listed issuer directorships simultaneously (new rule / mandatory disclosure requirement).


  1. Strengthening board independence – independent non-executive directors serving more than nine years ("Long Serving INEDs") will no longer be considered independent (new rule).


  1. Promoting diversity – to require: (i) the nomination committee to comprise directors of different genders (new code provision); (ii) annual reviews of board diversity policy (upgraded to mandatory disclosure requirement); and (iii) a workforce diversity policy (new rule).


  1. Enhancing risk management and internal controls – to require (at least) an annual review of these systems and enhanced disclosures of the review and findings (upgraded to mandatory disclosure requirement).


  1. Better capital management – to require enhanced disclosures of an issuer’s dividend policy and its board’s dividend decisions (new mandatory disclosure requirement).


The proposed amendments will apply to corporate governance reports for financial years commencing on or after 1 January 2025, with a three-year transition period for the proposals on overboarding and Long Serving INEDs.


Enforcement Bulletin (April 2024)


The April 2024 edition of the Enforcement Bulletin published by the Exchange focuses on issues relating to ill-considered loans, advances and similar arrangements made by listed issuers, and provide practical tips to help directors and issuers better understand what is expected of them and how they can fulfil their duties.


It is noted that there has been an increase in the number of investigations involving listed issuers providing loans, advances, and similar financial arrangements in recent years. These arrangements can be part of the listed issuer's core money lending business, a new diversification effort, or a way to earn interest income from idle cash reserves. The Exchange highlighted some red flags of such lending arrangements, during the pre-loan stage, post-loan stage and recovery stage.


In the Exchange's investigations of any loans, advances and other similar arrangements, they typically focus on directors' duties, internal controls and disclosure obligations. Directors are expected to critically assess the commercial rationale for entering into money lending transactions. This includes assessing whether the terms are fair and reasonable, and whether the use of issuers’ funds is in the best interest of the company. The Exchange emphasised that for money lending transactions, proper steps must be taken to assess and manage the exposure of the issuer, including but not limited to, conducting proper due diligence, background checks and credit assessments on the borrowers and assets purportedly owned by the borrower which are proposed to be pledged, assessing the enforceability of any pledges offered by borrowers, regular review and monitoring of the loan portfolio, taking proactive and appropriate measures in the event of a default of delay in payment to minimise risks, and renew its risk assessment before granting any renewal or extension of a loan.


Issuers and directors should also ensure that they have appropriate and effective internal control systems to assess and manage their credit risk exposure, identify the need for any impairment, and perform timely and accurate internal and external reporting, including announcements and financial statements. Issuers are also expected to keep records of the commercial assessment and approval process for the provision of loans and advances.


Issuers are reminded of their obligations under Chapters 14 and 14A of the Listing Rules to make timely disclosures and, if necessary, obtain shareholders’ approval, especially when the loans are material, or where the advances are being made to connected parties. Provision of advances or financial assistance may also trigger obligations under Chapter 13 of the Listing Rules.


The Exchange’s Disciplinary Actions


In the second quarter of 2024, the Exchange published sanctions in 6 cases which involve (i) transactions involving connected parties or failure to disclose and comply with procedural requirements, (ii) directors’ failure to safeguard listed issuer’s interests and cooperate in investigations, (iii) inaccurate and incomplete disclosure of financial information or delay in publication of financial results and (iv) deficiencies in the listed issuer’s internal controls and risk management systems. Listed issuers should exercise caution and put in place proper check and balance, and transaction monitoring mechanisms.


News release date

Issuer/ directors involved – summary of conduct



25 June 2024

Orient Victory Smart Urban Services Holding Limited (Stock Code: 265) and a Current Director

  • The listed issuer conducted two top-up placings in 2019. Prior to each placing, an executive director, who is also the chairman and chief executive officer of the listed issuer, presented to selected participants in online meetings that the listed issuer’s controlling shareholder would give those participants one free additional share for every placing share they took up.
  • Given the nature and relevance of the free share arrangement to the top-up placings, the listed issuer should have disclosed it to the market. However, no information about the free share arrangement was disclosed in the listed issuer's announcements of the placings.
  • The executive director failed to take steps to procure the listed issuer’s compliance with its disclosure obligations.
  • The listed issuer and the executive director were criticised.
  • The executive director was further directed to attend trainings on regulatory and legal topics including Listing Rule compliance, including at least three hours on each of (i) directors’ duties and (ii) the Corporate Governance Code; and two hours on the Listing Rule requirements for Rule 2.13.

17 June 2024

Four Former Directors of Enviro Energy International Holdings Ltd (Stock Code: 1102)

  • From 2018 to 2019, the former chairman and the former chief executive officer were involved in several problematic transactions without the knowledge of the rest of the board. These included the entry by listed issuer subsidiaries into:
  1. loan agreements which were major and/or connected transactions, without complying with the applicable Listing Rule requirements; and
  2. an arrangement under which the subsidiaries guaranteed a debt originally provided by the former chief executive officer to an entity owned by the former chairman. This arrangement gave a personal benefit to both of them and was not in any way in the listed issuer’s interest. Following a default, the guarantee resulted in arbitration against the subsidiaries and the freezing of the subsidiaries’ bank accounts.
  • A report prepared in August 2019 identified multiple internal control deficiencies including in relation to board approvals, cash and treasury management, and connected transactions.
  • The former chairman was at the centre of further misconduct from 2019 to 2020.
  1. First, he kept secret from the listed issuer that he had been prosecuted in China for suspected misappropriation of public funds. This is information he was required to provide to the listed issuer so that it could comply with its disclosure requirements under Rule 13.51.
  2. Second, in June 2020, his shareholding was transferred to a creditor by way of enforcement of a share charge. The board convened to discuss whether this should be disclosed to the public. He had a clear conflict of interest on this matter, but he did not abstain from voting and instead used his casting vote as chairman to resolve that the listed issuer should not publish any announcement.
  3. Third, in late June 2020, and once his prosecution had been discovered, the board resolved to suspend his duties as a director. He then immediately caused the listed issuer to publish unauthorised and misleading announcements. The listed issuer had to take immediate action, which included a suspension of trading, to remedy the situation.
  • Two former directors were aware of the former chairman’s conflict of interest in relation to the enforcement of the share charge, but did nothing to manage the situation. Instead, they blindly followed the chairman’s lead to vote for non-disclosure of the matter.
  • The former chairman and the two directors failed to cooperate in the Exchange’s investigation.
  • Censures and Director Unsuitability Statements were imposed against the former chairman and the two former directors.
  • A Prejudice to Investors' Interests Statement and censure were imposed against the former chief executive officer.

6 June 2024

China Haisheng Juice Holdings Co., Ltd. (Delisted, Previous Stock Code: 359) and Five Directors

  • On 13 October 2021, the listed issuer announced that its subsidiary had entered into an agreement to dispose of its interest in a company. The listed issuer noted that the disposal would be a major transaction and was therefore subject to requirements under the Listing Rules, including an obligation to obtain shareholders’ approval as a condition precedent to completion.
  • Nevertheless, just one week later on 20 October 2021, the listed issuer completed the disposal without complying with the Listing Rules.
  • On 3 November 2021, the listed issuer made a further announcement regarding the steps to be taken to obtain the requisite shareholders’ approval. This announcement was misleading. It did not tell investors that the disposal had already been completed.
  • On 6 December 2021, the listed issuer announced that the completion had already taken place but that it intended to take remedial steps and seek shareholders’ ratification. This announcement was also misleading. The listed issuer admitted during the Exchange’s investigation that it was at the time experiencing serious financial problems and that it would unlikely be able to take the steps it described.
  • The directors were involved in the disposal but failed to take action to ensure that the listed issuer complied with the requirements under the Listing Rules. They also failed to use their best endeavours to ensure the accuracy and completeness of the information in the announcements published in November and/or December 2021.
  • Censures were made against the listed issuer and five directors.
  • The Exchange further directed the five directors to attend 20 hours of training as a pre-requisite of any future appointment as a director of any company listed or to be listed on the Exchange.

16 May 2024

Link Holdings Limited (Stock Code: 8237) and Two Former Directors

  • In June 2020, the listed issuer raised approximately $25 million by issuing some new bonds. The announced purpose for raising these funds was to redeem certain old bonds that were maturing in November 2020. However, most of the funds were instead used to repay a shareholder loan made by the former chairman to the Company. The listed issuer did not then have sufficient funds to redeem the old bonds and accordingly defaulted.
  • There was no announcement of the change in use of the funds raised in the new bond issuance. The listed issuer also failed to announce the default. Investors were kept in the dark.
  • The former chairman and another former executive director were responsible for the decision on how to use the raised funds. They are brothers-in-law. The decision to repay the former chairman instead of redeeming the old bonds raised a conflict of interest. However, both of them did not take any steps to avoid this conflict.  They did not even inform the other directors.
  • Both of them failed to discharge their directors’ duties. The former executive director also failed to discharge his duties as the listed issuer’s compliance officer.
  • Censures were made against the listed issuer.
  • In addition to a public censure, a Prejudice to Investors' Interests Statement was imposed against each of the former chairman and the former executive director.
  • The Exchange further directed an independent review of the listed issuer’s internal controls for procuring compliance with the continuing obligations under Chapters 17 and 18 of the GEM Listing Rules.

9 May 2024



Former Director of Suchuang Gas Corporation Limited (Delisted, Previous Stock Code: 1430)

  • A former executive director caused a subsidiary of the listed issuer to enter into a guarantee involving an exposure to the group of RMB137.5 million. She did not report the guarantee to the other directors on the board, even though she was required to do so under the listed issuer’s framework of internal controls.
  • The guarantee was a discloseable transaction, but her failure to report it led to the listed issuer breaching the Listing Rule requirement to announce the guarantee at the time it was entered into.
  • After ceasing to be a director, she continued to cause the group to enter into a series of transactions which were not known to the board, and which were only discovered by the listed issuer’s auditors in September 2021.  The late discovery of these transactions led to a substantial delay in the despatch of the listed issuer’s 2021 interim report, as the report had to be revised to reflect the financial impact of the transactions.
  • Censures were made against the former executive director.
  • The Exchange further directed 18 hours of training on regulatory and legal topics and compliance with the Listing Rules for her as a prerequisite of any future appointment as a director of any company listed or to be listed on the Exchange.

25 April 2024


China Ecotourism Group Limited (formerly known as China LotSynergy Holdings Limited) (Stock Code: 1371) and Seven Directors

  • The Exchange’s investigation revealed that, between 2014 and 2018, the listed issuer’s group entered into loans and a subscription agreement involving significant outflows of monies from the group. The then executive directors were involved in the approval of those transactions.
  • With the assistance of the Securities and Futures Commission (SFC), evidence was obtained showing that parts of the loan proceeds were transferred to individuals and/or entities related to two former executive directors, and part of the subscription money for the investment was transferred to the personal account of one of the directors’ husband. These fund flows raised concerns as to whether there were some other arrangements involving the relevant directors and borrowers.
  • Furthermore:
  1. The loans were purportedly granted with a view to the development of the listed issuer’s lottery business in China and in the Philippines. However, there was no evidence that the loan proceeds were used for this purpose, and all the borrowers defaulted.
  2. The investment was intended to be for shares in a company owned by a Ms Kang to facilitate adoption of blockchain technology in the lottery business. The subscription monies were not paid to the vendor, but to a third party at the instruction of Ms Kang. No shares were delivered, and Ms Kang then became uncontactable.
  • The loans and investment were entered into without sufficient due diligence, risk analysis or credit assessment. They were prejudicial to the listed issuer’s interest and put the listed issuer’s assets in jeopardy. For the financial years ended 2018 and 2019, the listed issuer respectively recognised HK$66.1 million and HK$407 million impairment loss on the loan receivables, and fully impaired the HK$35 million investment.
  • Between 2014 and 2017, the board repeatedly represented to the listed issuer’s auditors that the loans were fully recoverable, and that no impairment was required, even when borrowers had defaulted on repayments and, in some cases, contact with the borrowers had been lost. There was insufficient scrutiny of these representations, including by three independent non-executive directors, who were members of the audit committee and should have questioned the representations to ensure the integrity of the listed issuer’s financial statements.
  • All the directors were aware of the listed issuer’s practice of granting loans to procure business opportunities but they failed to ensure that the listed issuer established and maintained an adequate internal controls and risk management system.
  • Censures were made against seven directors.
  • In addition to a public censure, Prejudice to Investors' Interests Statements were imposed against three executive directors.
  • The Exchange also criticised the listed issuer.
  • The Exchange further directed (i) an independent review of the listed issuer’s internal controls for procuring compliance with Chapters 14 and 14A of the Listing Rules; (ii) an independent non-executive director to attend 21 hours of training on regulatory and legal topics including Listing Rule compliance; and (iii) a former executive director and a former independent non-executive director to attend 21 hours of training as a pre-requisite of any future appointment as a director of any company listed or to be listed on the Exchange.
  • A Director Unsuitability Statement was imposed against another former independent non-executive director on 9 November 2023 in relation to his conduct as a director of a company delisted from the Exchange in 2021.


Securities and Futures Commission (the “SFC”)

Takeovers Bulletin No. 69

New Practice Note 26 on treasury shares


A new practice note (PN26) was published by the SFC on 24 May 2024 to explain the treatment of treasury shares under the Codes on Takeovers and Mergers and Share Buy-backs ("Takeovers Codes"). Following the introduction of the new treasury shares regime under the Listing Rules, market participants should take note that any voting rights attached to treasury shares are excluded from the definition of voting rights under the Takeovers Codes, and are thus disregarded in the calculation of the related threshold percentages. The voting rights percentage calculated under the Takeovers Codes might differ from the level of interests in voting shares required to be disclosed under Part XV of the Securities and Futures Ordinance.


New Practice Note 27 on severe weather arrangements


In view of the Exchange’s new severe weather trading arrangements announced on 18 June 2024, the SFC published a new practice note[3] (PN27) to provide guidance on matters regulated under the Takeovers Codes in the event of severe weather. As most of the processes involved in an offer may be completed electronically, the Executive of the SFC considers that the timetable of an offer should normally continue to run as usual under severe weather unless a severe weather condition is in effect at noon or thereafter on any of the following cut-off dates: (a) the closing date, the last day for acceptance and the last day for withdrawal; (b) the last day for the offeror to despatch or post relevant share certificates, or make the share certificates available for collection; and (c) the last day for an offeror to settle consideration.


B) Market Update


There were 45 new Main Board IPO applications accepted by the Exchange and 18 IPOs launched in the second quarter of 2024 that consists of a diverse range of businesses. Examples of some of the recent Main Board listings are:




Tianju Dihe (Suzhou) Technology Co., Ltd. - H shares (Stock Code: 2479)

An integrated API-enabled data exchange service provider in China. The company provides standard API services and customised data management solutions to internet companies, telecommunications operators, technology companies and other business and government organisations as well as app developers and technology professionals. Its retail offering was over-subscribed by 601.9 times with an estimated net proceeds from the IPO of approximately HK$349.10 million. To date, its market capitalisation is approximately HK$3.01 billion.

Laopu Gold Co., Ltd. - H shares (Stock Code: 6181)


A Chinese heritage gold jewellery brand accredited by the China Gold Association, with a market share in the heritage gold jewellery market and the gold jewellery market in China of 2.0% and 0.6% respectively, in terms of revenue in 2023. Its retail offering was over-subscribed by 581.2 times with an estimated net proceeds from the IPO of approximately HK$826.64 million. To date, its market capitalisation is approximately HK$6.40 billion.

QuantumPharm Inc. (Stock Code: 2228)


A quantum physics-based, AI-powered, and robotics-driven, innovative research and development platform. Its retail offering was over-subscribed by 102.4 times with an estimated net proceeds from the IPO of approximately HK$896.13 million. To date, its market capitalisation is approximately HK$17.99 billion.

Jiangxi Rimag Group Co., Ltd. - H shares (Stock Code: 2522)


A leading medical group specialised in medical imaging in China. Its retail offering was over-subscribed by 335.3 times with an estimated net proceeds from the IPO of approximately HK$183.48 million. To date, its market capitalisation is approximately HK$3.55 billion.

Autostreets Development Limited (Stock Code: 2443)

The largest used vehicle transaction service provider in China in terms of transaction volume in 2022. Its retail offering was over-subscribed by 432.3 times with an estimated net proceeds from the IPO of approximately HK$90.88 million. To date, its market capitalisation is approximately HK$8.18 billion.

Marketingforce Management Ltd (Stock Code: 2556)

The company provides (i) marketing and sales software solutions to enterprise customers in China by way of Software as a Service (SaaS), and (ii) precision marketing services that help advertising customers to place advertisements on leading media platforms, effectively reaching target audiences. Its retail offering was over-subscribed by 5 times with an estimated net proceeds from the IPO of approximately HK$181.11 million. To date, its market capitalisation is approximately HK$18.90 billion.


[1] Based on the back test result for equities traded between 2021 and 2023.

[2] First-time directors are (a) directors who are appointed as a director of an issuer listed on the Exchange for the first time (i.e. have no prior experience as a director of an issuer listed on the Exchange); or (b) have not served as a director of an issuer listed on the Exchange for a period of three years or more prior to their appointment.

[3] PN27 supersedes the guidance relating to adverse weather set out in Takeovers Bulletin No. 10 (September 2009)



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Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice. Please contact [email protected] if you have any questions about the article.