Hong Kong: H shares: no longer a class of their own

by Jane Moir, ACGA

8 March 2023

Holders of H shares are to lose their treatment as a separate class of shareholder under imminent rule changes which will bring the Hong Kong listing regime in line with new PRC regulations.

There will be an end to separate class meetings whereby domestic shareholders and H share investors have an individual say on issues, primarily regarding the issuance of new shares or repurchase of stock.

Hong Kong Exchanges and Clearing (HKEX) will drop the distinction of shares in PRC issuers as being either “domestic” or “foreign.’’ H shares will no longer referred to as “overseas listed foreign shares,’’ instead being known as “shares of a PRC issuer listed on the Exchange.’’ The revisions will come into effect after 31 March 2023.

In tandem with the rule changes, HKEX is proposing to remove separate mandate limits for domestic and H shares. Under current rules, for general mandates the limit is set at 20% each of domestic shares and H shares; for a scheme mandate the limit is 10% for each class. HKEX plans to set the limits at 20% and 10% respectively of the total issued shares of a PRC issuer.

“Given domestic shares and H shares are the same class of shares, the dilution impact of an issuance of domestic shares or H shares is the same to shareholders and accordingly, the mandate limits should be referenced to the total issued shares of the PRC issuer,’’ the Exchange says in a consultation paper.

This is despite the bourse itself recognising that an H share float may drop to a low level if a PRC issuer opts to only issue new A shares after listing, potentially reducing relative liquidity and investor interest in the H share market, which “consequentially, (may) affect the long term development of the H share market.’’

The rule changes stems from new regulations for PRC issuers introduced by the China Securities Regulatory Commission (CSRC) and the State Council on 17 February 2023. According to HKEX, China issuers will be required to bring their Articles of Association (AoA) in line with PRC Guidelines on AoA and holders of domestic shares and H shares will no longer be deemed as different classes of shareholders. The new PRC Regulations also introduce a new filing regime for mainland companies seeking listings overseas.

About the Author(s)

Jane Moir
Head of Research, ACGA

Jane Moir
 joined ACGA as a Research Director focussed on Hong Kong. Prior to joining ACGA, she worked as a barrister and financial journalist, including 11 years at the South China Morning Post covering legal and regulatory issues. Jane has also worked as a part-time lecturer in law at HKU Space and was a contributing writer for Lexis-Nexis on securities law, corporate crime and money laundering.

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