Huahong Semiconductor’s listing on Sci-Tech Innovation Board

On 7 August 2023, Huahong Semiconductor, a red-chip company already listed on the Stock Exchange of Hong Kong (SEHK), officially returned to the A-share market as well as debuting on the Science and Technology Innovation Board (STB). The company issued about 408 million shares at this point, bringing the total of outstanding shares to 1.72 billion.

The total funds raised amounted to RMB21.2 billion (USD2.94bn), with a net amount of RMB20.92bn after deducting issuance expenses. This project marked the largest IPO in the A-share market in 2023, and the third-largest on STB to date, behind only SMIC and BeiGene. The issuance also attracted 30 strategic investors.

As legal counsel for the issuer, Llinks Law Offices provided legal services including due diligence, arguing the feasibility of the issuance programme, legal opinions and reports, verification of legal documents and response to inquiries.

Issuer and issuance profile

Huahong Semiconductor is a global leading pure-play foundry with speciality technologies, boasting the industry’s most comprehensive speciality process platform. With a strategic focus on advanced “speciality IC + power discrete”, Huahong Semiconductor provides wafer foundry and related services covering diverse speciality process platforms such as embedded/standalone non-volatile memory (NVM), power discrete, analogue & power management, and logic & RF. According to IC Insights’ 2021 global wafer foundry revenue ranking, Huahong Semiconductor ranked as the second-largest domestic wafer foundry and the sixth-largest globally.

As a subsidiary of Huahong Group, Huahong Semiconductor was registered in Hong Kong and listed on the SEHK in 2014. Its 2023 listing on the STB made it the seventh red-chip company on the Shanghai Stock Exchange.

The RMB21.2bn raised is to be invested in areas such as the Huahong Manufacturing (Wuxi) project, the 8-inch wafer plant optimisation and upgrading project, and speciality process technology innovation and R&D projects.

Huahong Semiconductor aims to leverage this issuance to synergise domestic and international markets and resources, and consolidate and enhance its position as a global leader in speciality wafer foundry enterprises with the support of the listing platform and capital market.

Case analysis

As a red-chip company, Huahong Semiconductor’s return to the A-share market requires compliance with A-share rules for pre-listing enterprise verification and standardisation, while also considering the legal regulations, listing requirements and regulatory status in both its registration and listing locations.

This involves numerous comparisons and co-ordination between the two regions’ rules, as well as obtaining recognition from securities regulatory authorities in both places.

For instance, differences in the form of shareholding and shareholder registration between the two regions pose challenges. The Hong Kong Companies Ordinance usually requires listed companies to issue paper share certificates for their issued shares. If investors wish to hold shares of listed companies electronically, they need to do so through the relevant electronic systems of clearing companies.

However, listed companies can only obtain information about market intermediaries (stockbrokers) through the query services of clearing companies and cannot obtain information about shareholders who invest in the company through market intermediaries via public channels.

According to the requirements of A-share listing review, pre-listing companies need to fully verify the relevant information of shareholders who entered into the company during the specified period before listing application.

Therefore, in the A-share issuance process, it is necessary to spend a considerable amount of effort to carefully verify the shareholders through various means, considering factors such as the different types of shareholders, their basic information, methods of entry into the company, and the registration methods for shares.

Furthermore, certain differences exist between the corporate governance structure, deliberation mechanism, director qualifications and information disclosure requirements applicable in Hong Kong and in the A-share market. These differences impose higher requirements on securities service institutions.

In Huahong Semiconductor’s A-share issuance process, it is necessary to fully combine the domestic securities regulatory requirements with its previous corporate governance practices in Hong Kong. This can be achieved through revising the articles of association and internal control systems, applying for adjustments to the A-share information disclosure rules, and minimising the impact on Huahong Semiconductor’s established corporate governance practices while complying with domestic securities regulatory requirements.

Leveraging its experience in A-share IPOs and serving dual-listed companies, Llinks Law Offices assisted Huahong Semiconductor in various preparatory work for this A-share issuance project from the beginning. The firm also provided practical opinions and suggestions on key issues of concern to the regulatory authorities, successfully guiding Huahong Semiconductor through the A-share issuance process.

Wayne Chen is a partner at Llinks law offices. He can be contacted by +86 21 3135 8766 or by e-mail at way.chen@llinkslaw.com.
Harriet Li is a partner at Llinks law offices. She can be contacted by +86 21 3135 8796 or by e-mail at harriet.li@llinkslaw.com.