News and Views
Transaction & Advisory | July 2018
Listing an Australian incorporated company on an overseas stock exchange
Peggy Ching, Partner, Deutsch Miller
Recently, we advised Top Education Group Limited (a company incorporated in Australia) which listed on the Hong Kong Stock Exchange. Before this IPO, only one other company that was incorporated in Australia listed on the Hong Kong Stock Exchange. As this transaction structure is relatively novel, there is limited regulatory guidance on how Australian laws should interact with Hong Kong laws in these circumstances. This article offers an insight into the key learnings from this transaction.
1. Relevance of Australian laws
One of the immediate questions was: if an Australian company lists on an overseas stock exchange, does it still need to comply with Australian law going forward? It sure does. This is because that company remains an Australian incorporated company that is bound by Australian laws. That company would need to also comply with the listing rules of the overseas stock exchange.
It soon became apparent that there would be circumstances where Australian laws would be different to or conflict with Hong Kong laws. There is currently no regulatory guidance on how Australian companies (or other companies incorporated outside of Hong Kong) listed on the Hong Kong Stock Exchange should the navigate the legal systems of both countries. Each scenario needs to be dealt with on a case-by-case basis.
2. Prospectus disclosure
A company may offer its securities in different countries. The key question to assessing whether Australian prospectus disclosure requirements apply is whether the offer of securities is received in Australia. If it is, and an exemption does not apply, the prospectus disclosure requirements under Australian law apply. If it is not, or an exemption applies (for example the offering is only made to sophisticated or professional investors), the prospectus disclosure requirements under Australian law do not apply. Lawyers need to engage with the managers to work this out early on in the transaction to avoid last minute reviews of the prospectus.
3. FIRB requirements
Even if securities in an Australian incorporated company are only offered outside of Australia, an investor may need to seek the approval of the Treasurer of Australia (as advised by the Foreign Investment Review Board) if the applicable thresholds are met. This is because an investor is acquiring securities in an Australian entity; it does not matter where the offer of securities is received.
4. Ongoing compliance matters
After listing, there are ongoing legal compliance matters to be considered. That is perhaps where the fun for lawyers really begins. Interesting scenarios include:
- The company becoming a foreign person: After a raising overseas and foreign persons becoming shareholders, the Australian company could itself become a “foreign person” for the purposes of Australia’s foreign investment policy and regulations. Even though the company is incorporated in Australia with business in Australia, it may need to seek the approval of the Treasurer of Australia before acquiring shares or businesses in the future.
- Audit requirements: Australian law may require a company to provide audited financial statements that conform with Australian Accounting Standards. The listing rules of Hong Kong require a listed issuer to provide annual financial statements that conform with Hong Kong Financial Reporting Standards or International Financial Reporting Standards. Accountants would need to manage the sign off processes for the accounts to ensure these standards are met. The deadlines for submitting financial statements to the relevant regulators may also differ and need to be managed.
- Takeover scenarios: Australia’s takeover prohibition and regime applies to listed companies and unlisted companies with more than 50 members. This means that although an Australian company may be listed overseas, it would still need to comply with Australian takeover laws. Compliance with the regimes in both jurisdictions could become very complex:
- A transaction that would trigger the takeover threshold in Australia may not trigger the takeover threshold in another country (for example, Australia has a 20% takeover threshold whereas Hong Kong has a 30% takeover threshold).
- Australian law focuses on “voting power”, “relevant interests” and “associates” whereas Hong Kong has similar concepts but there are differences in the definitions; and
- Exceptions under the takeover laws may be different.
It would be interesting to see whether any regulatory relief could be granted if a takeover scenario were to arise in the future.
5. Tips for future similar transactions
From our experience on this transaction, our top tips for future similar transactions are:
- ensure directors understand the ongoing obligations of the company in both Australia and the country of listing;
- ask the managers very early on whether an offer of securities will be made in Australia – work closely with other advisors and proactive and ask questions to ensure that a proposed action item does not breach Australian law; and
- where there is no express guidance on a matter, go back to first legal principles.