April eleventh$Zhihu Inc.-W (02390.HK) $A prospectus was submitted to the HKEx to apply for a "dual major listing" on the main board of the HKEx.

Zhihu Inc., a leading online content community, listed on the New York Stock Exchange in March 2021, and U.S. stocks closed on April 13.$Zhihu Inc. (ZH.US) $It traded at $2.15 per share, with a total market capitalization of $1.207 billion.

Dual listing means that both capital markets are the first place to be listed. According to the prospectus, Zhihu Inc. 's American depositary shares are now mainly listed on the New York Stock Exchange and intend to maintain a dual major listing of its Class A common shares on the Stock Exchange.

What's the difference between dual listing and secondary listing?

At present, there are four ways for Chinese stocks to return to Hong Kong for listing, which are mainly divided into: 1) privatization and delisting before coming to Hong Kong to apply for listing; 2) major listing in Hong Kong (dual listing); 3) secondary listing 4) introduction listing. We focus on the more mainstream dual listing and secondary listing.

I. comparison of basic concepts

Conceptually, the dual listing (Dual Primary Listing) chosen by Zhihu Inc. means that the two capital markets are the first place to be listed. In the case of listing in the United States market, listing in the Hong Kong market in accordance with the rules of the local market, the rules to be observed are exactly the same as the requirements of the companies that issue shares in the initial public offering in Hong Kong, and the shares in the two markets cannot be circulated across the market. the performance of the stock price is relatively independent, which may cause a price difference.

BeiGene, Ltd. has been listed in many places. In February 2016, the company landed on NASDAQ in the United States and raised US $182 million; on July 29, 2018, it dual listed in Hong Kong, issuing a total of 65.6 million common shares, accounting for 8.55% of the expanded share capital, and finally raised US $902 million.

On the other hand, secondary listing (Secondary Listing) means that companies list the same type of stocks in the two places and realize the cross-market circulation of shares through international custodian banks and securities brokers, which mainly exists in the form of depositary receipts (Depository Receipts, referred to as DR).

In this mode of issuance, banks first buy a certain amount of shares of foreign companies and trust them all in the bank, and then the banks package the shares together to sell securities that represent this basket of stocks, which in the United States are called ADR.

If the company is re-listed as a financing Dr, the underlying shares will come from the company's newly issued common shares. In terms of pricing, the corresponding DR is converted according to the market price of the company in the original market on the pricing day, and a price is determined by the agreement between the issuer and the underwriter, which is also the secondary listing method chosen by most Chinese stocks such as BABA, Baidu, Inc., NetEase, Inc and so on.

II. Comparison of issuing policies

1. Dual listing

Compared with the secondary listing, dual listing needs to meet the management requirements of listed companies in both places at the same time, and the overall requirements will be much stricter. If an enterprise chooses to make a dual major listing in Hong Kong, the rules to be observed are no different from those required for the initial public offering of shares in Hong Kong. all the relevant listing rules of the HKEx must be complied with, and the newly revised listing rules in 2018 make detailed provisions for the listing of Greater China and overseas companies in Hong Kong.

two。 Secondary listing

If an enterprise only makes a secondary listing in Hong Kong, the SEHK expects that the company's securities will mainly be traded on overseas exchanges and will be subject to the supervision of the regulatory authorities of the major places where they are listed. Therefore, the SEHK will adopt relatively lenient vetting criteria for applicants seeking secondary listing, and there are a number of exemption and preferential policies.

Secondary listing requires listed companies to retain the current VIE structure and different voting structures to meet certain requirements (listed sector, listing time and market capitalization scale), etc., and provide guidance for companies that meet the requirements and want to return to the Chinese market for financing. The details are:

1) must be listed on an eligible listed exchange (New York Stock Exchange, NASDAQ Stock Market or London Stock Exchange main Market) and maintain a good compliance record for at least two full fiscal years

2) the market capitalization is at least HK $40 billion at the time of listing, or at least HK $10 billion at the time of listing, and the income for the most recent audited fiscal year is at least HK $1 billion.

III. Comparison of liquidity

1. Dual listingRefers to the phenomenon that the same company is listed on two different stock exchanges for financing. The typical phenomenon of dual listing in China is "Amush" listing. Dual-listed shares cannot be traded across the market in most cases, but according to Zhihu Inc. 's prospectus, after Class An ordinary shares are listed on the Hong Kong Stock Exchange, Class An ordinary shares registered with the Hong Kong share registrar will be convertible into American depositary shares, and some American depositary shares can also be converted into Class A common shares.

two。 Secondary listingThe ADR (American depositary receipts) issued by Chinese stocks and Hong Kong stocks are fully convertible so that the prices of secondary listed stocks in Hong Kong market are closely linked to those in the United States market. As the shares of the two places are fully convertible and the Hong Kong dollar is pegged to the US dollar, the price difference between the two places is basically negligible after some neglected taxes and fees, as well as friction between trading time and cost.

IV. Discussion on advantages and disadvantages

1. Dual listing

The advantage is that it fully meets the regulatory requirements of the two places, is not much different from local listing, is more easily accepted by international investors, and is more likely to comply with the regulation of the A-share market into the Hong Kong Stock Connect and lay the foundation for the subsequent return to the A-share market for three listings.

For example, BeiGene, Ltd. was officially included in the Hong Kong Stock Exchange on September 4, 2020, and then started the pace of returning to A-shares after a dual listing in the United States and Hong Kong. On January 29, 2021, the Shanghai Stock Exchange formally accepted Baiji's application for listing on Shenzhou Creative Board. BeiGene, Ltd. plans to raise 20 billion yuan, recommended by China International Capital Corporation and Goldman Sachs Group Gaohua. If it succeeds in landing on the Kechuang board, it will become the first innovative pharmaceutical company listed in three places (US stocks + H shares + A shares).

From the company's point of view, dual listing expands its shareholder base and enhances the influence of the global market, so that the company can raise money in other securities markets and further expand its business to other markets.

The disadvantage is that it needs to meet the regulatory requirements of both places at the same time, and the listing process is more complex and takes more time and cost.

two。 Dual listing

The advantage is that the regulatory requirements are relatively simple, compared with dual listing, there are more exemptions and preferential treatment clauses, and the listing cost is lower.

The disadvantage is that the pricing is basically the same as the original market, and if the original market price fluctuates and falls out of the pricing range, the risk of new breakage is higher. Another disadvantage is that it will be difficult to be included in the Hong Kong Stock Connect in the future (the mainland has reached an agreement with the Hong Kong Stock Exchange to exclude secondary listings and companies with weighted voting rights from the list of Shanghai and Shenzhen Stock Connect. Unless the Shanghai Stock Exchange, Shenzhen Stock Exchange and Hong Kong Stock Exchange revise the agreement).

Knowledge card of this issue

• Dual listing and secondary listing: there is a big difference between supervision and cross-border circulation

Analysis of the concept of dual listing and secondary listing: dual listing refers to the phenomenon that the same company is listed on two different stock exchanges for financing, and the typical domestic dual listing phenomenon is "Amush" listing. The second listing refers to the company listing the same type of shares in the two places, through international custodian banks and securities brokers to achieve cross-market circulation of shares, the second listing mainly in the form of depositary receipts.

The biggest difference between the two is: (1) in terms of regulation, dual-listed companies need to fully comply with the regulations of the two exchanges, and secondary listed companies enjoy immunity from some of the rules. (2) Cross-market circulation: dual-listed stocks cannot be circulated across the market, and some stocks listed with depositary receipts are allowed to cancel depositary receipts to achieve cross-market circulation.

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