Chapter 37 Bonds

Chapter 37 of the Listing Rules contemplates the listing of debt securities on HKEX under a streamlined, market-driven approach that enables corporations, financial institutions, and sovereigns to raise debt capital. These debt securities can be issued one-off or under a note programme, such as a medium-term note programme (“MTN”), and can take any number of forms. Offshore Chinese Renminbi (“RMB”) denominated bonds, known colloquially as “dim sum bonds”, are frequently issued as Chapter 37 bonds.

Philosophy Behind Chapter 37

Chapter 37 bonds must be offered exclusively to professional investors as defined under Hong Kong securities laws. To understand why Chapter 37 is structured the way it is, the regulatory distinction in Hong Kong between retail investors and professional investors must first be understood.

Retail debt listings in Hong Kong (governed by other chapters of the Listing Rules) require the publication of a highly detailed prospectus. That document is subject to stringent regulatory scrutiny by both HKEX and the Securities and Futures Commission (“SFC”) to ensure that everyday investors are fully protected and informed. The process is time-consuming, expensive, and subject to strict liabilities under Hong Kong’s Companies (Winding Up and Miscellaneous Provisions) Ordinance (“CWUMPO”) and the Securities and Futures Ordinance (“SFO”).

Chapter 37 reverses that situation. It operates on the principle that professional investors, such as banks, insurance companies, authorized wealth managers, and high-net-worth individuals with substantial investment portfolios, possess the financial sophistication and resources to evaluate investment risks independently. Because such investors do not require the paternalistic protection of a highly regulated retail prospectus, both HKEX and the SFC step back and do not vet the prospectus for material accuracy or completeness. Instead, the role of HKEX is primarily to ensure that the issuer meets basic eligibility criteria and that the securities are suitably structured for the professional market.

This “light-touch” regulatory approach aligns Hong Kong with other global institutional bond hubs, such as London.

Core Benefits of Chapter 37 Bonds

The enduring popularity of Chapter 37 among both global and regional issuers stems from several distinct competitive advantages.

Unmatched Speed to Market

In the debt capital markets, interest rates and market windows can fluctuate to a material degree within a single week. Issuers need the agility to price bonds exactly when market conditions are optimal. Because HKEX does not review the substantive commercial or financial disclosures of a Chapter 37 prospectus, the approval process is extremely fast. Once an application is submitted, HKEX typically issues its eligibility letter within just five business days. For subsequent drawdowns under an established MTN programme, the turnaround is even faster, often taking just one or two days.

Maximum Flexibility in Disclosure

Under Chapter 37, the issuer and its lead managers dictate the contents of the prospectus based on international market standards rather than a strict checklist prescribed by HKEX. While the document must contain information necessary for an investor to make an informed decision, it avoids the rigid formatting and auditing requirements of a retail prospectus. For example, issuers are broadly free to incorporate their financial statements by reference, reducing the bulk and complexity of the physical (or electronic) document.

Cost-Effectiveness

Bypassing the retail prospectus regime significantly lowers the cost of capital raising. There is no requirement to translate the offering document into Chinese (unless the issuer chooses to do so), saving substantial translation fees. Legal fees associated with negotiating disclosures with regulators are virtually eliminated. Because these are professional investor only offerings, they typically qualify for safe harbour exemptions under CWUMPO (and the SFO), meaning no formal prospectus needs to be registered with the Companies Registry in Hong Kong.

Broad Instrument and Currency Scope

Chapter 37 is entirely agnostic to the currency and structure of the debt. It routinely accommodates US Dollar sovereign bonds, Euro-denominated corporate debt, and, as noted above, Chinese Renminbi denominated bonds. It is the choice for complex hybrid securities, deeply subordinated bank capital (Basel III compliant Tier 2 or AT1 instruments), and the rapidly expanding universe of ESG (Environmental, Social, and Governance) green and sustainability-linked bonds.

Eligibility: Who Can Use Chapter 37?

Whilst the regulatory vetting is light, HKEX maintains strict gateway requirements to ensure that only credible entities can access its platform. To list debt under Chapter 37, the issuer or the securities themselves must meet specific thresholds

Issuer Eligibility

Chapter 37 bond issuers generally must have net assets of at least HK$1 billion (or its foreign currency equivalent) and must produce audited accounts for a minimum of two financial years before the listing application, such accounts to be made up to a date at most 15 months before the intended date of the prospectus.

There are, however, important exemptions to this rule. The following types of issuers can bypass these financial thresholds:

• issuers whose shares are listed on HKEX or another stock exchange,

• special purposes vehicles formed for the listing of asset backed securities,

• issuers with recourse to assets of a real estate investment trust (“REIT”) whose units are listed on HKEX

• state-owned enterprises (“SOEs”) (excluding any entities which are controlled or majority owned by a regional or local authority),

• supranational organizations (like the Asian Development Bank), and

• entities whose debt is guaranteed by an eligible guarantor (such as an SPV issuing debt guaranteed by a parent which meets eligibility criteria as an issuer).

Security Eligibility

Chapter 37 bonds must be freely transferable. As professional investor instruments, Chapter 37 requires the bonds to have a minimum denomination of at least HK$500,000 (or roughly US$65,000) (or the equivalent in another currency) and, except in the case of a tap issue, the issuance size to be at least HK$100 million (or roughly US$12.8 million) (or its equivalent in another currency).

Chapter 37 bonds may be convertible into shares or depositary receipts listed on HKEX or another stock exchange or other assets approved by HKEX

The Listing Process

While the regulatory timeline is short, listing Chapter 37 bond still requires meticulous orchestration among a syndicate of professionals, including the manager (investment bank), legal counsel for both the issuer and the manager, auditors, and trustees.

Phase 1: Preparation and Drafting

Once key professionals have been identified, the issuer and its legal counsel draft the prospectus. Chapter 37 requires the prospectus to contain information that investors would “customarily expect”.

If the issue will be a standalone bond, the prospectus describes the specific terms of the issue. If the issuer is setting up an MTN programme, they will draft a base prospectus and a pricing supplement. During this phase, accountants provide comfort letters on the financial data, and lawyers conduct due diligence to ensure all material risks are disclosed.

Phase 2: Submission to HKEX

Once the draft prospectus is substantially complete and the issuer obtains necessary internal authorisations to make a listing application, the listing agent (usually the legal counsel representing the issuer) submits the listing application to HKEX. At a minimum, this package includes:

• A form of application;

• The draft prospectus;

• The issuer’s audited financials (not necessary to separately submit them if the required financial statements are disclosed in the prospectus); and

• The draft formal notice of listing.

Applications for guaranteed bonds and convertible bonds are subject to additional requirements.

Phase 3: The Five-Day Review

The Listing Division of HKEX reviews the submission to confirm that the issuer and the issue itself meet eligibility criteria. If all criteria are met, HKEX issues an eligibility letter approving the listing. For routine applications, HKEx aims to issue eligibility letters 5 business days after it received the application. The eligibility letter is valid for 3 months from the date of issue.

Phase 4: Pricing and Closing

Armed with the eligibility letter and the draft prospectus reviewed by HKEX, the managers takes the Chapter 37 bonds to market, conducting roadshows and building an order book among institutional investors. Once the final yield and size are determined, the deal is “priced”.

The issuer must not issue the prospectus in final form until the HKEX has confirmed that the issuer may issue it. After the final prospectus is printed (usually only electronically), the listing agent has to circulate the formal listing application to HKEX (basically the same as the package mentioned at phase 2, but with pricing terms inserted). The issuer is also required to pay a listing fee, based on the tenor and size of bond (from HK$10,000 to HK$39,000), to the HKEX.

A few days later, the transaction “closes” (the debt securities are deposited into clearing systems like the CMU in Hong Kong and subscription monies are paid). The issuer (or listing agent) must publish the formal notice before listing.

Phase 5: Formal Listing

On the business day following the closing, the Chapter 37 bonds officially commence trading on HKEX. The listing is announced via HKEX’s formal dissemination network, providing the issue with a recognized global presence.

MTN Programmes

HKEX approval of an MTN programme is valid for 1 year after the date of the prospectus. An issuer must submit a pricing supplement for each issue under the programme before 2pm of the business day before listing is required to become effective and must not issue the pricing supplement until HKEX has confirmed that the issuer may issue it. HKEX will approve the listing of all securities under a valid programme subject to the issuer notifying HKEX of the final terms of each issue, confirming the securities have been issued and paying the appropriate listing fee.

Post-Listing: Continuing Obligations

One of the most attractive features of Chapter 37 bond is that the administrative burdens are limited. The continuing obligations are intentionally minimal, focused on ensuring that investors are aware of major, market-moving events affecting the debt’s value or the issuer’s ability to repay. For this purpose, Chapter 37 bond issuers must comply with SFO requirements to disclose material price sensitive information. Thus, an issuer must announce information which may have a material effect on its ability to meet its obligations under the bonds. Equally, an issuer must announce information which may be necessary to avoid a false market in its bonds and any structural changes to its bonds (e.g. change of trustee).

[Crucially, whilst standard corporate issuers under Chapter 37 are required to provide annual accounts and any interim financial statements when those are issued, they are generally not required to publish their financial statements on HKEX’s website, provided they do not also have their equity listed on HKEX. This gives private companies and foreign entities a degree of financial privacy not available in retail or equity listing environments.]

The Strategic Role of Chapter 37 in the Global Market

The Chapter 37 route is a vital artery for global capital flows. For mainland Chinese issuers, Chapter 37 bonds serve as a reliable offshore financing channel, allowing them to raise US Dollars or offshore RMB efficiently. For international issuers, Chapter 37 bonds offer a means to tap the growing capital pool in Hong Kong diversifies their creditor base away from purely US or European markets.

In keeping with the growing focus on RMB capital flows, Chapter 37 bonds offer a regulatory light touch means to issue RMB denominated bonds to match that appetite.

Furthermore, Chapter 37 offers flexibility to accommodate innovation debt capital markets. This flexibility has, for example, supported the rise of sustainable finance. HKEX has actively promoted its Sustainable and Green Exchange (“STAGE”), and the vast majority of sustainable debt instruments listed on STAGE initially come to market via Chapter 37. The simplicity of the rules allows issuers to integrate complex, bespoke green frameworks and second-party opinions into their offering documents without tripping over rigid, legacy regulatory architectures.

In an era where capital mobility and execution speed are paramount, Chapter 37 bonds stand as a testament to practical, market-oriented regulation. By placing the onus of risk assessment on professional investors and clearing the regulatory runway, Hong Kong has ensured its debt capital markets remain competitive, deep, and continuously open for business.