Counsel: Exercise caution when relisting in Hong Kong

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Chinese companies taken private in the US may consider relisting in Hong Kong as an attractive option, but beware the pitfalls, legal experts involved in the recent WuXi Biologics’ relisting in Hong Kong have warned.

WuXi Biologics recently completed its US$510 million global offering and initial public offering (IPO) on the Main Board of the Stock Exchange of Hong Kong Limited, marking the second Chinese company to relist in Hong Kong after going private in the US.

Compared to re-listing in mainland China, one of the major attractions of Hong Kong is the certainty on timing and procedural transparency, said Colin Law, the head of Greater China and Asia capital markets group team leader at Shearman & Sterling in Hong Kong.

“The long waiting period for A-share IPOs is often a big put-off for many companies, while the HKEX [Hong Kong Exchanges and Clearing Limited] vetting process is more predictable and manageable,” he said. “Hong Kong as a global financial centre still appeals to international investors, particularly for companies with a global reach, such as Wuxi Biologics.”

WuXi Biologics, a Shanghai-based company, is an open-access biologics technology platform offering end-to-end solutions for interested parties to develop biologics from conception of an idea through to manufacturing.

Another advantage of listing in Hong Kong is related to management of US tax issues. Law said that in preparation for an A-share listing, an issuer should have its existing offshore holding structure removed, especially when a variable interest entity (VIE) structure is involved. “More often than not, this will result in significant US tax implications, in the form of capital gains tax,” he added. “The implications can sometimes be better managed with a Hong Kong listing, in part through business and corporate restructuring opportunities.”

However, those who have gone private from the US should also be aware of the challenges when seeking to relist in Hong Kong. Law said it was not uncommon that US-delisted companies needed to battle with class actions. “Companies seeking a relisting in Hong Kong with past, ongoing or potential class actions will be heavily scrutinized,” he said.

Law said that ownership and control continuity was a basic eligibility requirement (except for mining companies) for Hong Kong listing. “US-listed Chinese companies taken private are typically led by a consortium comprising third-party financial investors and sometimes the management,” he said. “For Hong Kong purposes, there could well be significant changes to ownership and control, which could well have a significant bearing on the listing timetable.”

Legal counsel: In the WuXi Biologics Hong Kong IPO, Shearman & Sterling advised the underwriters on Hong Kong and US law, with the team led by Hong Kong capital market partners Colin Law, Paloma Wang, Matthew Bersani and US tax partner Laurence Crouch. Jingtian & Gongcheng advised the underwriters on PRC law.

The issuer’s counsel included Wilson Sonsini Goodrich & Rosati (Hong Kong and US law), Fangda Partners (PRC law), and Maples and Calder (Cayman Islands law).