Listing VIE Structures on the Hong Kong Stock Exchange: A Brief Guide for Listing Applicants Using VIE Structures

Sullivan & Cromwell LLP - September 10, 2012
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A variable interest entity (“VIE”) structure is commonly used by listing applicants in industry sectors that are subject to certain PRC legal and regulatory restrictions (for example, foreign ownership limitations). A VIE structure generally involves PRC founders establishing a foreign holding company (which will normally become the listing vehicle) which holds a subsidiary in the PRC (the “WFOE”). The WFOE will enter into certain contractual arrangements (the “Contractual Arrangements”) with operating companies established in the PRC (the “OPCOs”) and wholly owned by PRC domestic entities or natural persons (the “OPCO shareholders”). The Contractual Arrangements allow the WFOE to obtain control over and consolidate into its financial results, substantially all of the economic benefits from, the OPCOs.

The Stock Exchange of Hong Kong Limited (the “SEHK”) generally allows listing applicants using VIE structures to list in Hong Kong but adopts a heightened standard of review as set out in its Listing Decision HKEx-LD43-3. The SEHK has recently revised its decision to impose additional requirements on listing applicants using VIE structures.