Hong Kong Exchanges and Clearing Limited
Enhancing Corporate Governance
and Market Quality
1
Corporate Governance Notifiable Transactions
2
General
• New Main Board Chapters on notifiable transactions (Chapter
14) and connected transactions (Chapter 14A)
– Structure and format based on existing Chapters 19 and 20
of GEM Rules
• New section on “Options” in Chapters 14 and 14A
• New section on “Financial Assistance” in Chapter 14A
– Based on:
•
•
•
•
Consultation Conclusions
Policy directions of Listing Committee
Codification of existing practices and interpretations
Further enhancement of transparency
• Existing Practice Note 13 of Main Board Rules repealed
– Merged into new Chapters 14 (Notifiable Transactions) and 13
(Continuing Obligations)
3
Major Rule amendments
•
•
•
•
•
Definition of “transactions”
Classification of transactions
Reverse takeovers
Size test computation
Notification, publication and shareholders’ approval
requirements
• Contents of announcements
• Contents of circulars
4
Definition of “transactions”
R14.04(1)
• See Chart 1: Definition of “transactions”
• Definition of “transactions” excludes:
- Issue of securities by issuers for cash only*
- In line with current Main Board practices
- GEM Rules are amended in line with Main Board Rules
• See Chart 2: Classification of transactions
* Under the new Rules, these transactions fall under the definition of
“transactions” for the purpose of connected transactions.
5
This chart does not form part of the Listing Rules
Definition of “transactions”
under R14.04
A transaction
Chart 1
Rule 14.04(1)( g)
Is the transaction of a revenue nature in the ordinary and usual course of business of the listed issuer? *
No
Yes
Granting of financial assistance?
Yes
No
An operating
lease?
Yes
With a
significant
impact on the
listed issuer?
Rule 14.04(1)(d)
Yes
No
Intra-group
financial assistance?
Yes
No
Rule 14.04(1)(e)
Does not fall under
the definition of
“transaction”
under R14.04
A transaction that is not of a
revenue nature in the ordinary
and usual course of business of
the listed issuer and does not
involve granting of financial
assistance, includes:
(Non-exhaustive list)
• Acquisition or disposal of assets
(R14.04(1)(a))
• Writing, accepting, transferring,
exercising or terminating an
option to acquire or dispose
of assets or to subscribe for
securities (R14.04(1)(b))
• Entering into or terminating
finance leases (R14.04(1)(d))
• Formation of a JV (R14.04(1)(f))
No
Rule 14.04(1)(g)
Does not fall under the definition
of “transaction” under R14.04
Falls under the definition of “transaction” under R14.04
* Granting of financial assistance by a banking company in its ordinary and usual course of business
will not be treated as a transaction for the purpose of notifiable transactions.
6
Chart 2
This chart does not form part of the Listing Rules
Classification of “transactions” (R14.06(1) to (5), 14.08)
Pre-existing thresholds
Revised thresholds
Share transactions
Less than 15%
Less than 5%
Discloseable
transactions
15% or more, but less than 50%
5% or more, but less than
25%
Major transactions
50% or more
25% or more,
but less than 100% for
acquisitions and less than
75% for disposals
VSAs
Main Board: 100% or more
100% or more
GEM: - 200% or more; or
- 100% or more and the target business is
different from the current principal
activities of issuer; or
- 100% or more and there is an intention
to make a major change in the principal
activities of issuer.
VSDs
Not applicable
75% or more
7
Reverse takeovers (1)
Treated as a deemed new listing (R14.54)
• Comply with new listing requirements under
Chapter 8
Revised definition (R14.06(6)):
• Acquisitions involving a change in control and
triggering VSA threshold
• Acquisitions within 24 months after a change in
control which individually or together trigger VSA
threshold
Modified basis of computing the classification that
applies during the 24 month period
8
Reverse takeovers (2)
R14.55
• Outgoing controlling shareholder cannot vote for
acquisition of assets from incoming shareholder if:
- there is a change in control; and
- outgoing controlling shareholder disposes of his shares
to any person
R14.92 & 14.93
• Restriction on disposal of existing business (at the
time of change in control) within 24 months after
change in control:
- Treated as a new listing if disposal within the restriction
period
- Do not apply if assets acquired after change in control
can meet R8.05
9
Classification
• See Chart 3: Classification of notifiable transactions
10
Chart 3
This chart does not form part of the Listing Rules
What is the nature of the transaction?
• Disposal of assets
• Writing, accepting,
transferring or exercising
an option to dispose of
assets
• Termination of a finance
lease or operating lease
Yes
No
A transaction under R14.04
Financial
assistance
Rule 14.06(6)(a)
Involve a change in control and trigger
VSA threshold ?
Classification of notifiable transactions
• Acquisition of assets
• Writing, accepting,
transferring or exercising
an option to acquire assets
• Entering into a finance
lease or operating lease
• Formation of a JV
(a) Acquisitions of assets from the
incoming controlling shareholder or its
associates within 24 months of such
controlling shareholder gaining control
of the listed issuer; (b) such change in
control was not treated as a reverse
takeover; and(c) trigger VSA threshold ?
No
Rule 14.06(6)(b)
Yes
Rule 14.06(6)
Yes
Circumvent the new listing requirements? Yes Reverse
takeover
No
Involve issue of shares as consideration?
Rule 14.08
Yes
No
Share transaction
Go through the classification Rules
All the percentage ratios are less than 5%?
Yes
No
Any of the percentage ratios is 5% or more but all the percentage ratios are less than 25%?
Rule 14.06(1)
Not subject to notifiable
transaction provisions unless
it is a share transaction
Yes
Discloseable
transaction
Yes
Major
transaction
Rule 14.06(2)
No
Any of the percentage ratios is 25% or more but all the percentage ratios are less than
100% (for acquisition) or 75% (for disposal) ?
Rule 14.06(3)
No
Yes
A disposal transaction and any of the percentage ratios is 75% or more?
No
An acquisition transaction and any of the percentage ratios is 100% or more?
Yes
VSD
Rule 14.06(4)
11
VSA
Rule 14.06(5)
Size test computation
Five size tests (R14.07)
•
Total assets test - replaces the existing net assets test
•
Consideration to market capitalisation test- replaces the existing
consideration to net assets test
•
Revenue test - as a new stand-alone test
•
Profits test (No change)
•
Equity capital test (No change)
Aggregation of transactions (R14.22, 14.23)
•
if transactions are all completed within 12 months
•
if transactions are related
Factors for aggregating transactions are set out in Rule 14.23
12
Total assets test (1)
R14.07(1), 14.09 to 14.12, 14.16, 14.18 and 14.19
Assets test = Total assets (the subject of the transaction)
Total assets of the listed issuer
Total assets = current assets + non-current assets
+ fixed assets + intangible assets*
(R14.04(12))
* Includes goodwill (whether positive or negative)
13
Total assets test (2)
Nature of the transaction
Subject matter
Acquisition
Equity capital
(Rules 14.09, 14.16,
14.27)
Higher of:
(a) Book value (*) (R14.27(1)(a)); and
(b) Book value (*) adjusted for the latest published
valuation(**) if the valuation is published after the issue
of the accounts (R14.27(1)(b)).
Disposal
(*) Where the equity capital being acquired or disposed of is
listed on the Exchange, the listed issuer should adjust the
book value for the latest published information e.g.
dividend declared and completed transactions
(R14.16(1))
(**) Normally applies to valuation of properties, vessels and
aircraft (R14.16(2)/ R14.27(1)(b)).
Not equity capital
Applicable only if book value
of assets ascertainable
Book value of the assets
14
Consideration test (1)
• R14.07(4), 14.15
• Consideration test = Fair value of the consideration
Total market capitalisation
of listed issuer
• Determination of fair value of the consideration (R14.15(1))
• Calculation of total market capitalisation (R14.07(4))
15
Consideration test (2)
• Where the transaction involves establishment of a joint venture
 aggregate total capital commitment and any guarantee or
indemnity provided (R14.15(2))
• Where the issuer discharges or assumes any actual or contingent
liabilities of the vendor  add the total liabilities assumed or
discharged to the consideration (R14.15(3))
• Where the issuer pays or receives consideration in the future
 Consideration = maximum total consideration payable or
receivable under the agreement (R14.15(4))
16
Revenue test
R14.07(3), 14.14 and 14.17
• Revenue = Revenue generated by the target
Total revenue of the listed issuer
• “Revenue” means:
– revenue arising from the principal activities of a
company
– excludes revenue and gains that arise incidentally
17
Figures used in total assets, profits and revenue calculations
Use the
figures
shown in the
latest
published
annual
report
If the listed issuer
publishes an
interim report after
the issue of the
annual report, use
the figures shown
in the interim
report
Adjustment for the
value of a transaction
if adequate
information has been
published and the
transaction is
completed
Other adjustments
Total assets
(R14.16, 14.18
and 14.19)
Yes
Yes
Yes
• Issuer must adjust for the proposed or declared
dividend (which has not been recorded in the
accounts) and latest published valuation after the
publication of the latest published annual report
or interim report.
• The Exchange may require inclusion of
contingent assets.
Profits
(R14.17)
Yes
No
No
Revenue
(R14.17)
Yes
No
No
May exclude the profits or revenue from the
operation that have been discontinued during the
previous financial year if the listed issuer has
separately disclosed the profits and revenue from
the discontinued operations in its accounts in
accordance with HKFRS and IFRS.
Since profits and revenue figures are standalone
figures for a specific financial period, no
adjustment should be made for valuation and/or
information on latest published transactions.
18
Exceptions to classification rules
R14.20
• If any of the size tests produces anomalous results
→ provide appropriate alternative tests (if any) to
the Exchange
– e.g. number of employees, production capacity
and any industry-specific ratios
→ alternative profits test which compares
profitability
19
Notification, publication and shareholders’
approval requirements
• See Chart 4: Summary of notification, publication
and shareholders’ approval requirements
20
This chart does not form part of the Listing Rules
Chart 4
Summary of notification, publication and
shareholders’ approval requirements (1)
Notification to
the Exchange
Short
suspension of
dealings
Publication of an
announcement
Circular to
shareholders
Shareholders’
approval
Accountants’
report and /or
financial
information on the
subject matter of
the transaction
(Chapter 4)
Share
transaction
Yes
Yes
Yes
No
No
No
No
Discloseable
transaction
Yes
No, unless
it is pricesensitive
Yes
Yes
No
No
No
Major
transaction
Yes
Yes
Yes
Yes
Yes
Yes
No
VSD
Yes
Yes
Yes
Yes
Yes
Yes
No
VSA
Yes
Yes
Yes
Yes
Yes
Yes
No
Reverse
takeover
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Treated as a
new listing
applicant
21
Shareholders’ approval requirements (1)
General voting requirements (R14.46, 14.49, 14.55)
• All shareholders can vote unless:
– have a material interest in the transaction (Existing
requirements)
– are associates of a shareholder with a material interest
(Codification of existing practices)
• Voting by way of poll if a shareholder needs to abstain from
voting (R13.39)
22
Shareholders’ approval requirements (2)
Definition of “material interest” (R2.15, 2.16)
• Applicable throughout the Listing Rules
• No financial or monetary benchmark
• Determined on a case-by-case basis
• Key factors (non-exhaustive) to consider:
– The shareholder is a party to the transaction
– Receives economic or other benefits not available to other shareholders
Disclosure of control over the voting rights of shareholders that
are required to abstain from voting (R2.17)
23
Written shareholders’ approval
• Acceptable for major transactions* (R14.44) if:
– no shareholder is required to abstain from voting; and
– written approval is obtained from a shareholder or a closely
allied group of shareholders holding more than 50% interest
entitled to vote.
• Definition of “closely allied group of shareholders”
(R14.45)
• Not acceptable for:
– VSDs and VSAs (R14.49)
– Reverse takeovers (R14.55)
* In any event, a written shareholders’ approval will not be acceptable if the reporting
accountants give a qualified opinion in the accountants’ report on the acquisition of
business or companies (R14.86).
24
Other announcement requirements
• Announcements required (R14.36) on:
– termination of transactions
– material variation of terms
– material delay in the completion of the agreement
25
Contents of announcements
• Confirmation of independence of the counterparty and its
ultimate beneficial owner from the issuer and connected persons
(R14.58(3))
• Book value and valuation (if any) of the target asset (R14.58(6))
• Name of the shareholders giving written shareholders’ approval
approving major transactions, number of securities held by each
such shareholder and the relationship between the shareholders
(R14.60(5))
• Profit forecast (R14.62) :
– Principal assumptions
– Letter from auditors or reporting accountants
– Report from financial advisers
26
Contents of circulars (1)
• Competing interests of each director and his associates
(R14.64(8))
• Statement of working capital sufficiency (R14.66(4))
– For both major acquisitions and disposals, VSAs, VSDs and
reverse takeovers
• Management discussion and analysis:
– on the target (major acquisitions) (R14.66(5))
– on the remaining group (VSDs) (R14.68(3))
– on the enlarged group (VSAs) (R14.69(7))
27
Contents of circulars (2)
• Prepare a business valuation report or traffic study report where
the subject matter of a major transaction, VSA, VSD or reverse
takeover is an interest in an infrastructure project or an
infrastructure or project company (R14.71)
– All fundamental underlying assumptions
– Sensitivity analysis
– If the business valuation is based on a profits forecast,
• report by auditors or reporting accountants
• report by financial advisers
• For reverse takeovers, listed issuers must comply with the
prospectus disclosure requirements.
28
Application of new Rules
Scenarios
•
•
•
•
•
•
Application of Rules
Agreement entered into before 31
•
March 2004
•
Announcement and circular to be
published on or after 31 March 2004
Further material amendments to
material terms of the agreement on or
after 31 March 2004
Classify transactions under new Rules
Disclosure requirements for
announcement and circular under new
Rules apply
Agreement entered into before 31
•
March 2004
Announcement and circular to be
•
published on or after 31 March 2004
No further material amendments to
material terms of the agreement on or
after 31 March 2004
Classify transactions under existing
Rules
Disclosure requirements for
announcement and circular under
existing Rules apply
29
Corporate Governance Connected Transactions
30
General
New Main Board Chapter 14A on connected transactions
• New section on “Options”
• New section on “Financial assistance”
• New definitions e.g. “controller”, “transactions”,
“listed issuer”
A “connected transaction” can also be a notifiable
transaction – Main Board Chapter 14/ GEM Chapter
19 applies
31
Major Rule amendments
•
•
•
•
•
•
Definition of “connected persons”
Definition of “associates”
Definition of “connected transactions”
Classification of connected transactions
De minimis thresholds
Continuing connected transactions
32
Definition of “connected persons”
• See Chart 5: Category 1 of “connected persons”
• See Charts 6 to 8: Categories 2A & B of “connected persons”
– non wholly owned subsidiaries
• See Chart 9: Deemed associates
• See Chart 10: “Associates” of a connected person
33
This chart does not form part of the Listing Rules
Definition of “connected person” (1)
Chart 5
Category 1
“Connected persons” include:
Rule 14A.11(1)
Directors, chief executive
and substantial shareholders*
of the listed issuers and any
of its subsidiaries**
Rule 14A.11(2)
Directors within the
preceding 12 months
Rule 14A.11(3)
Promoter and
supervisor of a
PRC issuer
Rule 14A.11(4)
Associates
Rule 1.01
* For GEM issuers, a “connected person” also includes management shareholders.
** Under pre-existing GEM Rules, directors, chief executive or substantial shareholders of the issuer’s subsidiaries are not treated as
connected persons. The GEM Rules have now been amended along the same lines as the Main Board Rules.
34
This chart does not form part of the Listing Rules
Definition of “connected person” (2)
Chart 6
Category 2A: Non wholly owned subsidiaries
• Any non wholly owned subsidiary of the listed issuer in which the connected
person(s) (at the listed issuer’s level) hold(s) 10% or more interest (R14A.11(5))
•
Any subsidiary of such non wholly owned subsidiary (R14A.11(6))
Listed Co.
>50% or
have “control”
under HKFRS
or IFRS
Company A
(a non wholly owned subsidiary of
Listed Co.) and its subsidiaries
(wholly owned or non wholly owned)
Director B of
Listed Co.
10% or more interest
Company A and its subsidiaries are
connected persons of Listed Co.
because Director B is a connected person
at the listed issuer level and he holds 10%
or more interest in Company A.
35
Chart 7
This chart does not form part of the Listing Rules
Definition of “connected person” (3)
Non wholly owned subsidiary - not a connected person under R14A.11(5)
Listed Co.
Director C of
Company D
10% or more but
less than 30% and
does not control
board
composition
>50% or
have “control” under
HKFRS or IFRS
Company D
(a non wholly owned subsidiary
of Listed Co.)
Director C is a connected person
of Listed Co. at the subsidiary level.
There is no connected
person at the issuer level holding
10% or more interest in Company D.
In addition, Company D is not an
associate of Director C under R1.01.
Company D is therefore not a
connected person of Listed Co
under Chapter 14A, but any
transactions between Director C
and Listed Co. will be treated as
connected transactions.
36
Chart 8
This chart does not form part of the Listing Rules
Definition of “connected person” (4)
Category 2B: Non wholly owned subsidiary as a connected person under R1.01
Listed Co.
Director F of
Company E
>50% or
have “control” under HKFRS
or IFRS
30% or more interest
Company E
(a non wholly owned subsidiary
of Listed Co.)
Director F is a connected person
of Listed Co. at the subsidiary level.
Although there is no connected
person at the issuer level holding
10% or more interest in Company E,
Company E is a connected person
of Listed Co under Chapter 14A
as it is an associate of Director F
under R1.01.
37
This chart does not form part of the Listing Rules
Chart 9
Definition of “connected person” (5)
Category 3
“Deemed associates”
Where the connected
person is an individual
Close family
(R14A.11(4)(b))
Persons cohabiting
as a spouse, parents,
brothers, sisters and
children
Other close family (R14A.11(4)(c))
whose association with the connected
person is such that, in the opinion
of the Exchange, the proposed
transaction should be subject to
the requirement of Chapter 14A
Where the substantial
shareholder is a company
Other parties (R14A.11(4)(a))
Any person or entity with whom the
connected person has entered, or
proposes to enter, into any agreement,
arrangement, understanding or
undertaking, whether formal or
informal and whether express or
implied with respect to the
transaction which is such that, in the
opinion of the Exchange, that person
or entity should be considered a
38
connected person
This chart does not form part of the Listing Rules
“Associates” of a connected person (R14A.11(4)(c))
Close family
M
Great-grandparents Great-grandfather
“Deemed associates” where their
association with the connected
person is such that, in the Exchange’s
opinion, the transaction should be
subject to the connected transaction
provisions
Great-grandmother
M
Grandparents
Great-aunt
Grand-father
Great-uncle
Grand-mother
M
Parents
Uncle
M
Aunt
Mother
M
father
Cousin
Sister-in-law
Brother-in-law
Mother-in-law
Brother (and step-brother) Connected
person
Sister (and step-sister)
Spouse
Nephew
Niece
Son-in-law
Brother-in-law/
Sister-in-law
M
M
Children
Father-in-law
M
M
Cousin
Chart 10
M = is married to
Daughter
(and
Step-daughter)
Son (and
Step-son)
Daughter-in-law
M
Grand-children
Grandson
Granddaughter
Great-grandchildren
Great-grandson
Grandsonin-law
39
Great-granddaughter
Definition of “associate” (1) – See also Chart 11
Existing definition
Extension of existing definition
In relation to an individual (R1.01(a))
1.
His spouse
5.
A trustee-controlled company and its
subsidiaries (together “trustee interests”)
2.
His family interests
3.
Trustees, acting in their capacity as
such trustees, of any trust of which
he or any of his family interests is a
beneficiary
6.
A holding company of the trustee-controlled
company and a subsidiary of any such
holding company
4.
A company in the equity capital of
which he and/or his family interests
taken together are directly or
indirectly interested so as to
exercise or control the exercise of
30% or more of the voting power at
general meetings or control the
composition of a majority of the
board, and any other company
which is its subsidiary or holding
company or a fellow subsidiary of
any such holding company
7.
A company in the equity capital of which he,
his family interests, any of the trustees (see
(2)) and/or trustee interests (see (5)) taken
together are directly or indirectly interested
so as to exercise or control the exercise of
30% or more of the voting power at general
meetings or control the composition of a
majority of the board, and any other
company which is its subsidiary or holding
company or a fellow subsidiary of any such
holding company
40
This chart does not form part of the Listing Rules
Chart 11
“Associates” of an individual who is a connected person
Settlor and Protector
Individual
Other
beneficiaries
Trustee
(1.01(a)(iii))
Company F
(1.01(a)(iv))
Family interest
(1.01(a)(i) and (ii))
Acting in its
capacity as such
trustee, holds
30% or more or
controls the board
composition
> 50% or have
control under
HKFRS or IFRS
Company G
and its
subsidiaries
(1.01(a)(iv))
Note 1
Associates under the pre-existing Rules
Company A
and its subsidiaries
(1.01(a)(v))
Together hold
30% or more interest
or control board composition
Extension of “Associates” under the new Rules
Note1:
Individual or any of the Family interest is a
beneficiary of the Trust or, in the case of a
discretionary trust, is a discretionary object.
For this purpose, interest of the Individual and his
Family interest include all beneficial interest
directly or indirectly held (e.g. a company
beneficially controlled by the Individual, which is
the beneficiary of a trust)
> 50% or have
control under HKFRS
or IFRS
Company B
(1.01(a)(v))
> 50% or have
control under
HKFRS or IFRS
Company E
and its
subsidiaries
(1.01(a)(iii))
“Individual” means directors, chief
executive, substantial shareholders or
(in the case of a GEM issuer) management
shareholders of a listed issuer and its subsidiaries
30% or more or
controls board
composition
Company D
(1.01(a)(v))
Company H
and its subsidiaries
(1.01(a)(v))
Company C
and its subsidiaries
(1.01(a)(v))
Company I
(1.01(a)(v))
> 50% or have
control under
HKFRS or IFRS
Company J
and its subsidiaries
41
(1.01(a)(v))
Definition of “associate” (2) – See also Chart 12
Existing definition
Extension of existing definition
In relation to a corporation (R1.01(b))
1.
A subsidiary or holding company of
the corporation, or a fellow
subsidiary of any such holding
company or any company in the
equity capital of which the
corporation and/or any such other
companies taken together are
directly or indirectly interested so
as to exercise or control the
exercise of 30% or more of the
voting power at general meetings or
control the composition of a
majority of the board
2.
Trustees, acting in their capacity as such
trustees, of any trust of which the
corporation is a beneficiary
3.
A trustee-controlled company and its
subsidiaries (together “trustee interests”)
4.
A holding company of the trustee-controlled
company and a subsidiary of any such
holding company
5.
Any other company in the equity capital of
which the corporation, such other companies
referred to in (1), any of the trustees referred
to in (2) and/or any trustee interests taken
together are directly or indirectly interested
so as to exercise or control the exercise of
30% or more of the voting power at general
meetings or control the composition of a
majority of the board and any other company
which is its subsidiary or holding company
or a fellow subsidiary of any such holding
company
42
This chart does not form part of the Listing Rules
Chart 12
“Associates” of a corporation which is a connected person
> 50% or have
control under
HKFRS or IFRS
Settlor and Protector
Other
beneficiaries
Trustee
(1.01(b)(ii))
Company F
(1.01(b)(iii))
Acting in its
capacity as such
trustee, holds
30% or more or
controls the board
composition
> 50% or have
control under
HKFRS or IFRS
Company G
and its
Subsidiaries
(1.01(b)(iii))
Note 1
Associates under the pre-existing Rules
> 50% or have
control under HKFRS
or IFRS
Company A
and its subsidiaries
(1.01(b)(i))
Company B
and its subsidiaries
(1.01(b)(i))
Together hold
30% or more interest or
control board composition
Company D
(1.01(b)(i))
Together hold
30% or more interest
or control board composition
Extension of “Associates” under the new Rules
Note 1: The Corporation is a beneficiary of the
Trust or, in the case of a discretionary trust,
is a discretionary object. For this purpose,
interest of the Corporation include its
subsidiaries (e.g. a subsidiary of the
Corporation, which is the beneficiary of a
trust)
> 50% or have
control under
HKFRS or IFRS
Corporation
Company E
and its
Subsidiaries
(1.01(b)(ii))
“Corporation” means substantial shareholders
or (in the case of a GEM issuer) management
shareholders of a listed issuer and its subsidiaries
Company C
(1.01(b)(i))
Company I
(1.01(b)(iv))
> 50% or have
control under
HKFRS or IFRS
Company H
and its subsidiaries
(1.01(b)(iv))
Company J
and its subsidiaries
43
(1.01(b)(iv))
Connected transactions
• See Chart 13: Definition of “connected transaction”
• See Chart 14: Classification of connected transactions
• See Chart 15: De minimis thresholds
• See Chart 16: Classification of connected transactions not
involving financial assistance
44
Chart 13
This chart does not form part of the Listing Rules
Definition of “connected transaction” under R14A.13
A transaction under R14A.10(13) which is not a financial assistance
Is the counter-party a connected person?
Yes
No
R14A.13(1)(a)
R14A.13(5)
R14A.13(6)
R14A.13(1)(b)
Yes
Falls under the definition of
“connected transaction”
Fall under any of the following categories?
Any transaction between a listed issuer and a person
who is not a connected person and the transaction involves:
(i) the listed issuer acquiring or disposing of an interest in a company where
a substantial shareholder of that company is, or is proposed to be, a
controller or is (or will become) an associate of the controller
(R14A.13(1)(b)(i));
(ii) the listed issuer acquiring an interest in a company (or an option to
acquire such interest) of which a controller (or its associate) is,
or will become, a shareholder where the interest being acquired is:
(A) of a fixed income nature; or
(B) on less favourable terms than those to controller; or
(C) of a different class from those held by the controller (R14A.13(1)(b)(ii));
(iii) the controller subscribing on more favourable terms shares in a company
in which the listed issuer is a shareholder (R14A.13(1)(b)(iii));
(iv) the controller subscribing shares in a company in which the listed issuer
is a shareholder but which are of a different class of shares
(R14A.13(1)(b)(iv)).
No
Does not fall under the definition of
“connected transaction”
45
Exemption for R14A.13(1)(b)
Before the acquisition of 60% interest in Company A
Independent
third party
Director of
Company A
40%
60%
Company A
After the acquisition of 60% interest in Company A
Listed Co.
Director of
Company A
40%
60%
Company A
46
This chart does not form part of the Listing Rules
Chart 14
Classification of connected transactions (R14A.16)
Connected transaction provisions apply to:
One-off connected transactions
Continuing connected transactions
•
Transactions exempt from announcement, reporting and shareholders’ approval
requirements (Fully exempt transactions)
•
Transactions exempt from shareholders’ approval requirements
•
Transactions subject to shareholders’ approval requirements
- Establish an independent board committee (IBC) with INEDs only
- Appoint an IFA to advise IBC and shareholders on the terms of the transaction
47
This chart does not form part of the Listing Rules
Chart 15
De minimis thresholds
Pre-existing (based on the net
assets test and consideration test)
Exemption from
announcement,
reporting and
shareholders’approval
requirements
(De minimis
threshold 1)
•
•
Revised (based on the new size tests
except for profits test)*
The consideration or value of
the transaction is less than the
higher of:
HK$1 million; and
0.03% of the net tangible assets
of the listed issuer.
•
The consideration or value of
the transaction is less than the
higher of:
HK$10 million; and
3% of the net tangible assets of
the listed issuer.
•
•
R14A.31(2), R14A.33
Exemption from
shareholders’
approval requirement
(De minimis
threshold 2)
R14A.32, R14A.34
•
•
•
Each of the size tests (except for
the profits test) is less than 0.1%**;
or
Each of the size tests (except for
the profits test) is equal to or more
than 0.1% but less than 2.5%** and
the consideration*** is less than
HK$1 million.
Each of the size tests (except for
the profits test) is less than 2.5%**;
or
Each of the size tests (except for
the profits test) is equal to or more
than 2.5% but less than 25%** and
the consideration*** is less than
HK$10 million.
* All size tests (except for profits test) apply for classification of the transaction to the extent applicable.
** Determined on an annual basis for continuing connected transactions.
*** Annual consideration for continuing connected transactions.
48
This chart does not form part of the Listing Rules
Chart 16
Classification of connected transactions not involving financial assistance
A connected transaction that does not involve financial assistance
Fully exempt transaction
under R14A.31(1), (3) to (8)?
Yes
No
On normal commercial terms?
Yes
Below de minimis threshold 1?
Yes
No
R14A.31(2)
No
R14A.32
Below de minimis threshold 2?
Yes
Fully exempt
Subject to disclosure &
reporting requirements
No
Subject to disclosure, reporting &
shareholders’ approval requirements
49
Fully exempt connected transactions (1)
• Intra-group transactions (R14A.31(1))
– unless the non wholly owned subsidiary is a connected person
• Pro-rata issue of securities (R14A.31(3)(a))
• Issue of securities under share option schemes (R14A.31(3)(b))
• Underwriting or sub-underwriting rights issue or open offers
(R14A.31(3)(c))
• Top-up placing (R14A.31(3)(d))
– up to the number of securities placed by the connected person
• Certain Stock Exchange dealings (R14A.31(4))
• Purchase of own securities (R14A.31(5))
50
Fully exempt connected transactions (2)
• Directors’ service contracts (R14A.31(6))
• Consumer goods or consumer services (R14A.31(7))
• Sharing of administrative services (R14A.31(8))
- Repealed current exemption (existing Main Board Rule
14.24(2)) for transactions between 2 or more issuers or
their subsidiaries that involve sharing of services provided
by one or more of such companies on normal commercial
terms and in the ordinary and usual course of business of
both companies → will need to comply with continuing
connected transaction requirements
51
Financial assistance
• See Chart 17: Classification
• See Chart 18: Financial assistance to an issuer
• See Chart 19: Financial assistance by an issuer
• See Chart 20: Financial assistance by an issuer which is a
banking company
• See Chart 21: Financial assistance by an issuer which is not a
banking company
52
This chart does not form part of the Listing Rules
Chart 17
Financial assistance - classification
A connected transaction involving financial assistance
Financial assistance to an issuer by:
(a) a connected person (R14A.13(2)(b)(i)); or
(b) a company in which the issuer and
connected person(s) (at the issuer level
but not at the subsidiary level) are
shareholders and the connected person(s),
individually or together, hold(s) 10% or
more interest (R14A.13(2)(b)(ii)).
Financial assistance by an issuer to:
(a) a connected person (R14A.13(2)(a)(i)); or
(b) a company in which the issuer and
connected person(s) (at the issuer level
but not at the subsidiary level) are
shareholders and the connected person(s),
individually or together, hold(s) 10% or
more interest (R14A.13(2)(a)(ii)).
Go to Chart 18
Go to Charts 19 to 21
53
This chart does not form part of the Listing Rules
Chart 18
Financial assistance to an issuer
Financial assistance to an issuer by:
(a) a connected person (R14A.13(2)(b)(i)); or
(b) a company in which the issuer and
connected person(s) (at the issuer level
but not at the subsidiary level) are
shareholders and the connected person(s),
individually or together, hold(s) 10% or
more interest (R14A.13(2)(b)(ii)).
Meet both of the following 2 conditions:
(a) on normal commercial terms (or better to the listed issuer); and
(b) no security over the listed issuer’s asset?
Yes
Fully exempt under R14A.65(4)
No
Subject to disclosure, reporting &
shareholders’ approval under R14A.63
54
This chart does not form part of the Listing Rules
Chart 19
Financial assistance by an issuer (1)
Financial assistance by an issuer to:
(a) a connected person (R14A.13(2)(a)(i)); or
(b) a company in which the issuer and
connected person(s) (at the issuer level
but not at the subsidiary level) are
shareholders and the connected person(s),
individually or together, hold(s) 10% or
more interest (R14A.13(2)(a)(ii)).
Financial assistance provided by the issuer
in its ordinary and usual course of business?
Yes
No
The issuer is a banking company.*
The issuer is not a banking company.
Go to Chart 20
Go to Chart 21
* A “banking company” means a bank, a restricted licence bank or a deposit taking company as defined in the
Banking Ordinance or a bank constituted under appropriate overseas legislation or authority.
55
This chart does not form part of the Listing Rules
Chart 20
Financial assistance by an issuer (2)
Financial assistance by an issuer,
which is a banking company, to:
(a) a connected person (R14A.13(2)(a)(i)); or
(b) a company in which the issuer and
connected person(s) (at the issuer level
but not at the subsidiary level) are
shareholders and the connected person(s),
individually or together, hold(s) 10% or
more interest (R14A.13(2)(a)(ii)).
On normal commercial terms?
R14A.65(1)
Yes
No
Below de minimis threshold 1?
R14A.65(2)(a)
R14A.65(3)(a)
Yes
No
Below de minimis threshold 2?
Yes
No
R14A.66(1)
Fully exempt
Subject to disclosure &
reporting requirements
Subject to disclosure, reporting &
shareholders’ approval requirements
56
This chart does not form part of the Listing Rules
Financial assistance by an issuer (3)
Chart 21
Financial assistance by an issuer, which is not a banking company, to:
(a) a connected person (R14A.13(2)(a)(i)); or
(b) a company in which the issuer and connected person(s) (at the issuer level
but not at the subsidiary level) are shareholders and the connected person(s),
individually or together, hold(s) 10% or more interest (R14A.13(2)(a)(ii)).
Yes
On normal commercial terms or better to the issuer ?
No
Financial assistance to a connected person?
No
Yes
Financial assistance is provided in
proportion to the issuer’s equity
interest in the R14A.13(2)(a)(ii)
company and any guarantee given
by issuer is on a several basis?
No
Below de minimis threshold 1?
Yes
R14A.65(3)(b)(i)
R14A.65(2)(b)
Yes
No
R14A.65(3)(b)(ii)
Below de minimis threshold 2?
Yes
No
R14A.66(2)
Fully exempt
Subject to disclosure &
reporting requirements
Subject to disclosure, reporting &
57
shareholders’ approval
Written shareholders’ approval
• Acceptable (R14A.43) if:
– no shareholder is required to abstain from voting if a
general meeting is convened; and
– written approval is obtained from a shareholder or a
closely allied group of shareholders holding more
than 50% interests entitled to vote.
58
Continuing connected transactions (1)
• Codifies Main Board existing practices and
interpretations – along the same lines as GEM Rules
• Exempt continuing connected transactions (R14A.33
and 14A.34)
• For any non-exempt transactions,
– Enter into a written agreement
• Must be for a fixed period which must not exceed 3
years (except for special cases) (R14A.35(1))
– A maximum annual monetary cap, the basis of
which must be disclosed (R14A.35(2))
– Annual review by INEDs (R14A.37)
– Annual auditors’ confirmation (R14A.38)
59
Continuing connected transactions (2)
• Revised GEM Rules:
– In line with new Main Board Rules
– Major amendments:
• No longer subject to annual shareholders’ approval at
AGM
• Introduces de minimis threshold for exempting
continuing connected transactions from shareholders’
approval (i.e. disclosure and reporting only)
60
Contents of announcements
• INEDs’ views on transactions exempt from shareholders’
approval (R14A.56(1))
• For acquisition of assets, the original purchase cost to the
connected person (R14A.56(5))
• For disposal of assets held by an issuer for 12 months or less,
the original acquisition cost of the asset to the issuer
(R14A.56(6))
• Name of the shareholders giving written shareholders’
approval approving connected transactions, number of
securities held by each such shareholder and the relationship
between the shareholders (R14A.56(7))
61
Contents of circulars (1)
• Annual cap and basis of calculation for continuing connected
transactions (R14A.59(9))
• Competing interests of each director and his associates
(R14A.59(11))
• For acquisition of assets, the original purchase cost to the
connected person (R14A.59(14))
• For disposal of assets held by an issuer for 12 months or less,
the original acquisition of the asset to the issuer
(R14A.59(15))
62
Contents of circulars (2)
• Prepare a business valuation report or traffic study report
where the subject matter of the transaction is an interest in an
infrastructure project or an infrastructure or project company
(R14A.59(17))
– All fundamental underlying assumptions
– Sensitivity analysis
– If the business valuation is based on a profits forecast,
• report by auditors or reporting accountants
• report by financial advisers
63
Implementation
For existing waivers with a fixed period:
• Waiver will continue to apply until the earlier of:
– the expiry of the waiver
– failure to comply with waiver conditions or renewal or
material changes to terms of the agreement
For existing waivers with an indefinite period:
– Appropriate steps to be taken to comply with the new Rules
as soon as practicable
64
Application of new Rules
Scenarios
•
•
•
•
•
•
Application of Rules
Agreement entered into before 31
•
March 2004
•
Announcement and circular to be
published on or after 31 March 2004
Further material amendments to
material terms of the agreement on or
after 31 March 2004
Classify transactions under new Rules
Disclosure requirements for
announcement and circular under new
Rules apply
Agreement entered into before 31
•
March 2004
Announcement and circular to be
•
published on or after 31 March 2004
No further material amendments to
material terms of the agreement on or
after 31 March 2004
Classify transactions under existing
Rules
Disclosure requirements for
announcement and circular under
existing Rules apply
65
Accounting issues
66
Major areas
• Accountants’ reports
• Pro-forma financial information
• Financial reporting
67
Accountants’ reports (1)
When required
• New listing (R4.01(1))
• Offer of securities to public for subscription or
purchase as required by s38(1) or s342(1) of the
Companies Ordinance (R4.01(2))
• Major acquisitions (R4.01(3))
– On the target company or business
68
Accountants’ reports (2)
When required
• VSAs (R4.01(3))
– on the target company or business*
• Reverse takeovers (R4.01(3)) – new requirement for
Main Board
– on the target company or business*
* The existing GEM Rules require an accountants’ report on the enlarged
group. This will be amended along the same line as the Main Board
Rules.
69
Accountants’ reports (3)
When required
• VSDs (R4.01(4) and 4.06A) – new requirement
– on the existing group
– separate disclosure of financial information of the
company or business disposed of
70
Pro-forma financial information for notifiable transactions
R4.25 to 4.27
Subject matter
Major
Acquisition
VSD
VSA and
reverse takeover
Revenue
generating assets
which have an
identifiable net
income stream or
valuation
Pro forma net assets
statement of the
enlarged group for
the latest financial
year
(R14.67(4)(b)(ii))
Pro forma net assets
statement and profit and
loss statement of the
remaining group for the
latest financial year
(R14.68(2)(b)(ii))
Pro forma net assets
statement and profit and
loss statement of the
enlarged group for the
latest financial year
(R14.69(4)(b)(ii))
Businesses or
companies
Pro forma net assets
statement of the
enlarged group for
the latest financial
year
(R14.67(4)(a)(ii))
Pro forma income
statement, balance sheet
and cash flow statement of
the remaining group for
the latest financial year
(R14.68(2)(a)(ii))
Pro forma income
statement, balance sheet
and cash flow statement of
the enlarged group for the
latest financial year
(R14.69(4)(a)(ii))
71
Pro-forma financial information for new listing
(R4.28)
• Acquisition or proposed acquisition of any businesses or
companies since the date to which the latest audited
accounts have been made up; and
• Such businesses or companies acquired constitute a “major
subsidiary” (i.e. 5% or more under any of the size tests)
– Aggregation of all acquisitions or proposed
acquisitions.
72
Disclosure of pro-forma financial information (1)
R4.29(1) – general principle
R4.29(2) – for illustrative purpose
R4.29(3) – presentation and basis of preparation
73
Disclosure of pro-forma financial information (2)
Examples
Financial information covering the
following periods
Year ended
31 March
Year ended
30 September
Year ended
31 December
Most recently completed financial
period (R4.29(4)(b))
Year ended
31.3.03
Year ended
30.9.03
Year ended
31.12.03
Most recent interim period
(R4.29(4)(c))
6 months ended
30.9.03
N/A
N/A
Current financial period (R4.29(4)(a))
May cover
forecast for year
ending 31.3.04
or stub period in
accountants’
report
May cover
forecast for
year ending
30.9.04 or stub
period in
accountants’
report
May cover
forecast for
year ending
31.12.04 or
stub period in
accountants’ 74
report
Disclosure of pro-forma financial information (3)
R4.29(5) – Source of unadjusted information
R4.29(6) – Adjustments
R4.29(7) – Report by auditors or reporting accountant
R4.29(8) – pro forma earnings per share information
75
Financial Reporting
Major amendments:
• Abolition of two-phased publication approach for
results announcements
• New disclosures in annual and half-year results
announcements
• New disclosures in annual report and summary
financial report
• New disclosures in interim reports and summary
interim reports
• Recommended disclosures
76
Abolition of two phased publication arrangement
• Existing Rules:
– Option 1: Publish a long-form results announcement;
– Option 2: Publish a short-form results announcement and post
the long-form financial results on the Exchange’s website
within 14 days
– Applicable to annual reporting by Main Board and GEM
issuers and half-year reporting by Main Board issuers
• New Rules:
– Two-phased approach abolished
– Disclosure requirements for results announcements (Appendix
16-45, 46) brought into line with those for summary financial
reports (Appendix 16-50) / summary interim reports (Appendix 1651)
77
Results announcements
Appendix 16-45 & 46
• Financial information in annual results announcements
(Appendix 16-45(1), 45A):
– Not required to be audited
– Be “agreed with auditors”
– Should not be materially different from audited results
• Must publish an announcement to explain any material
differences
• Business review in annual and half-year results announcements
(Appendix 16-45(3), 46(3))
– Provide fair review of business development of issuers for
investors to gain understanding of business trends
– But MD & A requirements still apply to annual reports and
interim reports
78
Disclosures in annual reports (1)
• Confirmation of INED’s independence by issuers
– If a newly appointed INED fails to meet any of the
independence guidelines (Appendix 16-12A)
– Annual confirmation of independence of each INED
(Appendix 16-12B)
• Exempt directors’ service contract entered into on or
before 31 January 2004 (Appendix 16-14A)
• Directors’ remuneration on a named basis and
remuneration policy of issuers (Appendix 16- 24,
24A, 24B)
79
Disclosures in annual reports (2)
• Confirm compliance with:
– Model Code for directors’ dealings (Appendix 16-34(2))
– Minimum number of INEDs (Appendix 16-34(3))
– Appointment of an INED with professional qualifications
or accounting/ financial management expertise
(Appendix 16-34(3))
– Establishment of an audit committee (Appendix 16-34(4))
– Connected transaction provisions (Appendix 16-8)
• Public float sufficiency statement (Appendix 14-34A)
80
Summary financial reports (annual)
Appendix 16-50
• Confirm compliance with:
– Code of Best Practice in Appendix 14
– Minimum number of INEDs
– Appointment of an INED with professional
qualifications or accounting/ financial management
expertise
– Establishment of an audit committee
81
Interim Reports
• Disclosure requirements (Appendix 16-44):
– Confirm compliance with:
• Model Code for directors’ dealings
• Minimum number of INEDs*
• Appointment of an INED with professional qualifications
or accounting/ financial management expertise*
• Establishment of an audit committee*
• Introduction of summary interim reports (R13.48,
Appendix 16-51)
* also required to be disclosed in summary interim reports
82
Recommended disclosures
for annual and interim reports
Appendix 16-52
• Non-mandatory provisions on MD&A
– for transparency
• Examples:
–
–
–
–
Efficiency indicators for last 5 years
Industry specific ratios for last 5 years
Corporate strategies
Corporate policies and performance on community, social
and ethical issues
83
Transitional arrangements
• All new disclosure requirements for results
announcement and financial reports effective for
accounting periods commencing on or after 1 July 2004
• Abolition of two-phased arrangements effective for
accounting periods commencing on or after 1 July 2004
– Early adoption is encouraged
84
Corporate Governance –
Other Provisions
85
Major Rule amendments
•
•
•
•
•
•
•
•
•
•
•
•
•
Directors and board practices
Model Code for directors’ dealings
Voting by controlling shareholders
Application of size tests in other parts of Listing Rules
Profits forecast
Articles of Association
Rights issues and open offers
Restrictions on share repurchase
Restriction on grant of share options
Issues of securities within 6 months of listing
Withdrawal of listing
Publication of supplemental information
Publication of HKEx’s website
86
Directors and board practices
• Appointment of INEDs
• Independence of INEDs
• Audit committee
• Qualified accountant
87
Appointment of INEDs
• A minimum of 3 INEDs* (R3.10(1))
• At least 1 INED with appropriate professional
qualifications or accounting or related financial
management expertise* (R3.10(2))
• Notify the Exchange and publish announcement if the
issuer fails to comply with Rule 3.10* (R3.11)
* A transitional period of 6 months from 31 March 2004.
88
Independence of INEDs (1)
• Additional guidelines on independence of INEDs
(R3.13)
• Guidelines only - a non-exhaustive list
89
Independence of INEDs (2)
• Key factors to consider:
– Shareholding interest >1% (R3.13(1))
– A professional adviser, with a cooling-off period of 1 year
(R3.13(3)) – including employees of the professional adviser
who has been involved in the provision of services
– Material interest in any principal business activity or
involved in any material business dealing with the listed
issuer, its holding company, their subsidiaries or connected
persons (R3.13(4))
– Connected with “connected person” of the listed issuer with
a cooling-off period of 2 years (R3.13(6))
– An executive or director (excluding INEDs) of the listed
issuer, its holding company, their subsidiaries or connected
persons, with a cooling-off period of 2 years (R3.13(7))
– Financially dependent on the listed issuer, its holding
company, their subsidiaries or connected persons (R3.13(8))
90
Independence of INEDs (3)
• If an INED fails to meet any of the independence
guidelines  disclose why he is considered
independent in the announcement of his appointment
and the next annual report (R3.13)
• Annual confirmation of independence of INEDs in the
annual reports (R3.14)
• Existing INEDs must submit independence
confirmation on or before 30 September 2004 (R3.15)
– If existing INEDs fail to meet the new independence
guidelines, must be replaced by new ones.
91
Audit committee
• As a mandatory requirement* (R3.21):
– Comprise non-executive directors only
– A minimum of 3 members
– A majority of INEDs
– At least 1 INED with appropriate professional qualifications
or accounting or related financial management expertise
– Chaired by an INED
• Notify the Exchange and publish announcement if the
issuer fails to comply with Rule 3.21* (R3.23)
* A transitional period of 6 months from 31 March 2004
92
Qualified accountant (R3.24)
• Must be a member of senior management (preferably
an executive director)
• Must be a qualified accountant
• Must be a member of HKSA or other recognised
accounting bodies
• Responsible for overseeing:
– Financial reporting procedures
– Internal controls
– Compliance with Listing Rules relating to financial reporting
and other accounting-related issues
93
Model Code for directors’ dealings
•
•
•
•
•
•
Status of Model Code
Definition of “dealings”
Black-out period
Notification of directors’ dealings
Dealing under exceptional circumstances
Disclosure in annual and interim reports
94
Status of Model Code
• Mandatory requirements
• Breach of Listing Rules - if non-compliance with the
required standards
• Issuers may adopt its own code on terms no less
exacting than those in the Model Code
95
Definition of “dealings” (Paragraph 7(a))
•
Subject matter (“Securities”):
– any securities of the listed issuer, or
– any entity whose assets solely or substantially comprise securities of the
listed issuer
•
Transactions or an agreement (whether or not for consideration)
involving:
–
–
–
–
•
any acquisition, disposal or transfer of Securities
offer to acquire, dispose of or transfer Securities
creation of pledge, charge or any other security interest in Securities
grant, acceptance, acquisition, disposal, transfer, exercise or discharge
of any option (whether call, put or both) or other right or obligation,
present or future, conditional or unconditional, to acquire, dispose of or
transfer Securities, or any interest in Securities
Exemptions set out in paragraph 7(d)
96
Black-out period* (Rule A.3)
Unless the circumstances are exceptional, 1 month
immediately preceding the earlier of :
• date of board meeting (as such date is first notified
to the Exchange) for approval of financial results;
and
• deadline for publishing the results announcement
and ending on the date of the results announcement.
* At any time, directors must not deal in listed issuers’ securities
if they are privy to any price-sensitive information.
97
Notification of directors’ dealings
Rule B.8 to B.9
• Prior to dealings:
– Notify the Chairman or a designated director in
writing
– Receive a written consent to deal
• Maintain a written record of directors’ dealings
98
Dealings under exceptional circumstances
Rule C.14
• Disposal of the issuer’s securities during the
restriction period is only allowed under exceptional
circumstances e.g. pressing financial commitment.
* In any event, directors must not acquire the issuer’s securities during
the restriction period.
• Must notify the Exchange in writing
– Explain why the issuer considered the circumstances are
exceptional
• Must publish an announcement
– State that the chairman or designated director is satisfied
that the circumstances were exceptional
99
Disclosure in annual and interim reports
Rule D.15
• whether the issuer has adopted a code of conduct regarding
securities transactions by directors on terms no less exacting
than the Model Code
• having made specific enquiry of all directors:
– whether its directors have complied with the Model Code
and its own code
– whether there has been any non-compliance with the Model
Code and its own code
• details of any non-compliance with the Model Code and an
explanation of the remedial steps taken by the listed issuer to
address such non-compliance
100
Voting by controlling shareholders (1)
• Controlling shareholders* and their associates must abstain
from voting even if they have no material interest for:
– Second and subsequent refreshment of general mandate
during the year (new requirement) (R13.36)
– Withdrawal of primary listing (existing requirement)
(R6.12)
– Rights issues or open offers that increase issued share
capital or market capitalisation by more than 50% (existing
requirement) (R7.19 and 7.24)
– Fundamental change in principal business activities shortly
after listing (existing requirement) (R14.90)
* The Exchange reserves the right to require shareholders who are former
controlling shareholders at the time of making the decision to enter into the
transaction and their associates to abstain from voting at general meeting.
101
Voting by controlling shareholders (2)
• Such controlling shareholders and their associates will be
allowed to vote against the resolution → intention to vote
against must be disclosed in listing documents or circulars.
• Where there are no controlling shareholders, directors (other
than INEDs)*, chief executive * and their associates must
abstain from voting.
• Procedures adopted to record that any parties that must abstain
or intend to vote against have done so at general meeting.
* The Exchange reserves the right to require shareholders who are former directors (excluding INEDs)
and chief executive at the time of making the decision to enter into the transaction and their associates,
to abstain from voting at general meeting.
102
Application of size tests in other parts of Listing Rules (1)
Existing
percentage ratio
using net assets
as the basis of
comparison
Existing percentage
ratio using profits as
the basis of
comparison
Revised Percentage ratio
using the same size
tests as those used
to classify
notifiable
transactions
PN15-3(e)(1)
Shareholders’ approval for spin off
requirements (Main Board only)
where the transaction represents:
50% of net
tangible assets of
the listed issuer
50% of profits of the
listed issuer
25%
R13.25(2)
Definition of “major subsidiary” –
a subsidiary represents:
15% of net
tangible assets of
the listed issuer
15% of pre- tax
trading profits of the
listed issuer
5%
R18.07(2)
Despatch of a circular by a listed
issuer proposing to explore for
natural resources where the
proposed transaction represents:
33% of net assets
of the listed
issuer
33% of pre-tax
trading results of the
listed issuer
10%
R13.13
General disclosure obligation that
will arise from advance to an entity
that represents:
25% of net assets
of the listed
issuer
N/A
8%
Profits test, revenue
test and equity capital
test are not applicable.
R13.14
General disclosure obligation that
will arise from increasing advance
to an entity by an amount
representing:
10% of net assets
of the listed
issuer
N/A
3%
Profits test, revenue
test and equity capital
test are not applicable
Equity capital test is
not applicable.
103
Application of size tests in other parts of Listing Rules (2)
Existing percentage
ratio using net
assets as the basis of
comparison
Existing
percentage ratio
using profits as the
basis of
comparison
Revised Percentage ratio
using the same
size tests as those
used to classify
notifiable
transactions
R13.16
General disclosure obligation that
will arise from advance to an
affiliated company that represents:
25% of net assets of
the listed issuer
N/A
8%
Profits test, revenue
test and equity capital
test are not applicable.
App16-15 Note 2
5% of net tangible
assets of the listed
issuer
N/A
1%
Profits test, revenue
test and equity capital
test are not applicable.
App16-23
Disclosure of information relating to
properties held for development
and/or sale or for investment
purpose that represent:
15% of net tangible
assets of the listed
issuer
15% of pre-tax
operating profits of
the listed issuer
5%
Equity capital test is
not applicable.
App16-36
Definition of “financial
conglomerate” – financial business
of a listed issuer represents:
15% of net assets of
the listed issuer
15% net profit
attributable to
shareholders of the
listed issuer
5%
Equity capital test is
not applicable.
Definition of “contract of
significance”
104
Application of size tests in other parts of Listing Rules (3)
R13.25(1)(d) and (e)
Notifying the Exchange upon
possession of or sale by any
mortgagee of a portion of the
listed issuer’s assets, or the
making of any final judgement,
declaration or order by any court
or tribunal of competent
jurisdiction which may adversely
affect the listed issuer’s
enjoyment of any portion of its
Existing percentage
ratio using net assets
as the basis of
comparison
Existing percentage
ratio using profits as
the basis of
comparison
Revised –
Percentage ratio using the
same size tests as those
used to classify notifiable
transactions
15% of net tangible
assets of the listed
issuer
N/A
5%
Equity capital
test is not
applicable.
assets that represent:
105
Profit forecasts (1)
Revised definition (R11.17):
• Any forecast of profits or losses
• Any statement explicitly or implicitly quantifying
future profits or losses
• Any estimate of profits or losses for a financial period
expired but for which the results have not yet been
published
• Any assets (except land and buildings) or business
valuation based on discounted cash flows or
projections of profits, earnings or cash flows
106
Profit forecasts (2)
Disclosure requirements (R11.17):
•
•
•
•
Clear and unambiguous statement required
Presented in an explicit manner
Principal assumptions disclosed
Basis of preparation must be consistent with the accounting
policies adopted by issuers
Report of financial advisers or sponsors (R11.17):
• Review of accounting policies and calculations of the forecast
• They are satisfied that the forecast has been made by directors
after due and careful enquiry
107
Articles of Association
•
•
•
•
Nomination of directors
Voting at board meetings
Voting at general meetings
Transitional period
108
Nomination of directors
Appendix 3-4(4): That the minimum length of the period for shareholders to lodge their notice to nominate
a directors shall be at least 7 days.
Appendix 3-4(5): That the period for lodgment of the notices will commence no earlier than the day after the
despatch of the notice of the meeting and end no later than 7 days prior to the date of such meeting.
R13.70:
Must publish an announcement or issue a supplementary circular upon receipt of a notice
from a shareholder to nominate a director at the general meeting where such notice is received
by the issuer after publication of the notice of meeting. The issuer shall include
particulars of the proposed director in the announcement or supplementary circular.
Note: The issuer must assess whether or not it is necessary to adjourn the meeting of the election
to give shareholders at least 14 days to consider the relevant information disclosed in the
announcement or supplementary circular.
Example for AGM
Despatch of
Notice of
Meeting of AGM
Day 0
Day 1
Issuer can at any time from Day 1 to
Day 14 allow shareholders a period of
at least 7 days to lodge a notice for
appointment of directors
(Appendix 3- 4(4))
End of Notice
Period for
Date of
Nomination of
AGM
Directors
At least 7 days
(Appendix 34(5))
Day 14
The Rules do not prevent an issuer accepting a notice for nomination of directors earlier than Day 1.
Day 21
109
Voting at board meetings
• Existing Appendix 3-4(1):
– Directors shall not vote for transactions in which they have
a material interest
• New Appendix 3-4(1):
– Directors shall not vote for transactions in which they or
their associates have a material interest
110
Voting at general meetings
• New Appendix 3-14:
– Where any shareholder is required to abstain from voting or
restricted to vote only for or only against, issuers must not
count the votes cast by or on behalf of such shareholder in
contravention of such requirement or restriction.
111
Transitional period
• Must amend the articles of association at the earliest
opportunity and in any event, no later than the
conclusion of the next AGM
– Where notice of next AGM has been despatched before 31
March 2004 and the next AGM will be convened on or
after 31 March 2004, the articles of association must be
amended at the earliest opportunity after 31 March 2004.
112
Rights issues and open offers (1)
R7.19(6), 7.24(5)
• If issued share capital or market capitalisation increases by
more than 50%:
– controlling shareholders must abstain from voting in favour
– details of proposed rights issue or open offer must be
disclosed e.g. proposed use of proceeds, description of
funds raised in previous 12 months, use of proceeds and
intended use of funds not yet utilised
• Aggregation over previous 12 months:
– with other rights issues, open offers, bonus securities,
warrants or other convertible securities granted as part of
rights issues or open offers
113
Rights issues and open offers (2)
Aggregation rule
Dealings in
Rights Shares
Commence
Rights Issue
announced
Month 0
Issues of Convertible
Securities (assuming
full conversion)
Aggregation
Announcement of
Latest Proposed Right
Issue
Month 12
114
Restrictions on share repurchase (1)
Price (R10.06(2)(a)):
• Cannot repurchase shares if the price is higher by 5%
or more than average closing market price for the 5
preceding trading days
Number of shares:
• Existing 25% limit* under Main Board Rules repealed
*
Under current Main Board Rules, issuers are not allowed to repurchase in
any calendar month more than 25% of total number of shares that were
traded in the preceding calendar month.
115
Restrictions on share repurchase (2)
Restriction period (R10.06(2)(e)):
• In line with the black-out period for directors’ dealings
• Unless the circumstances are exceptional, 1 month
immediately preceding the earlier of:
– date of board meeting for approval of financial
results
– reporting deadline under the Listing Rules
and ending on the date of results announcement
116
Restriction on grant of share options
Restriction Period (R17.05):
• In line with the black-out period for directors’ dealings
• Unless the circumstances are exceptional, 1 month
immediately preceding the earlier of:
– date of board meeting for approval of financial
results
– reporting deadline under the Listing Rules
and ending on the date of results announcement
117
Issues of securities within 6 months of listing
No issues of securities within 6 months of listing (R10.08), except
for **:
• issue of shares pursuant to a share option scheme
• exercise of conversion rights attaching to warrants issued as part
of IPO
• any capitalisation issue, capital reduction or consolidation or subdivision or shares*; and
• issue of shares or securities pursuant to an agreement entered into
before listing and the material terms have been disclosed in the
listing document.
* Existing GEM requirement
** Under GEM Rule 17.29(5), an issue of share or securities convertible into equity securities of the listed issuer is
allowed within 6 months of listing if:
(a)
it is for the purpose of an acquisition (which is not a major transaction, VSA or reverse takeover) of
assets which would complement the listed issuer’s focused line of business;
(b)
it does not result in a controlling shareholder of the listed issuer ceasing to be a controlling
shareholder and must not result in a change in control;
(c)
the listed issuer complies with the shareholders’ approval, disclosure and shareholding requirements.
118
Withdrawal of primary listing (1)
R6.12
• Require controlling shareholders to abstain from
voting in favour
• New approval thresholds:
– Approval by at least 75% of votes of holders of
securities voting at meeting*
– The number of votes cast against resolution is
not more than 10% of the votes of holders that
are allowed to vote *
* Including controlling shareholders voting against the resolution
119
Withdrawal of primary listing (2)
R6.15
• Exemption from shareholders’ approval if:
– exercise of right to compulsory acquisition after a
general offer
– privatisation by way of scheme of arrangement
that is subject to Takeovers Code
• Publish notice of proposed delisting to
shareholders
• Disclosure of the intention to delist in the
circular
120
Withdrawal of secondary listing
R6.16
• Must comply with all rules and regulations of the
jurisdiction of primary listing and incorporation
• Notice period of 3 months to shareholders by way of
announcement
121
Publication of supplemental information
(R13.73)
Where there are any additional material information:
• must publish an announcement or supplementary
circular
• must adjourn the general meeting to give shareholders
at least 14 days to consider the new information
122
Publication on HKEx’s website (R2.07C)
Types of documents
Deadline for submission to HKEx
Issuers
R2.07C(1)(a)
Announcements or notice required under Listing
Rules
No later than 9 pm on the business day last preceding the
day of publication in the newspapers
R2.07C(1)(b)(i)
Other corporate communications to be sent to
shareholders
No later than 9 pm on the business day last preceding the
day on which it is sent
R2.07C(1)(b)(ii)
Prospectus to be registered under the Companies
Ordinance* and application forms
No later than 9 am on the day of registration of the
prospectus
New applicants
R2.07C(1) (c)
Prospectus to be registered under the Companies
Ordinance* and application forms
No later than 9 am on the day of registration of the
prospectus
R2.07C(1)(c)
Prospectus not required to be registered under the
Companies Ordinance and application forms
No later than 9 pm on the business day last preceding the
date of issue
* The issuer must provide a written confirmation of the registration accompanied by a copy of the letter from the Companies
123
Registry confirming the registration, as soon as the issuer has received the letter.
Implementation
• New Rules effective on 31 March 2004
• Transitional arrangements on certain Rule amendments
– Refer to HKEx news release on 30 January 2004
• Rule changes are published on HKEx’s website
124
Code on Corporate Governance Practices &
Corporate Governance Report
125
Background
•
Consultation Conclusions published in January
2003
– Set out the framework and certain key
provisions of the Draft Code and Corporate
Governance Report
•
Latest regulatory practices and developments and
experience in Hong Kong and other jurisdictions
•
Corporate governance working group established
in May 2003
126
Exposure Paper
•
Published on 30 January 2004
•
To allow the market to comment on:
– timing of proposed implementation of the Code
– detailed wording of the draft Code
127
Implementation
•
New Code effective for accounting periods
commencing:
– 1 January 2005 for all the Code provisions and
related disclosure obligations (except for those on
“internal control”)
– 1 July 2005 for the Code provisions on “internal
control” and related disclosure obligations
•
Early adoption encouraged
128
Structure of Draft Code
•
Non–mandatory
•
Two tiers of board practices
– 1st tier: Code provisions – comply or explain
approach
• Non-compliance does not constitute a breach
of the Listing Rules
– 2nd tier: Recommended Best Practices – listed
issuers encouraged to disclose their noncompliance
129
Code Provisions (1)
•
•
Section A: Directors
Section B: Directors’ remuneration
•
Section C: Accountability and Audit
•
Section D: Delegation by the Board
•
Section E: Communication with Shareholders
130
Code Provisions (2)
•
Regular board meetings – at least 4 times a year at
approximately quarterly intervals
•
Conflicted matters should be dealt with by holding
board meetings with INEDs present
•
Separation of the roles of Chairman and CEO
•
Comprehensive and formal induction upon
appointment as a director
131
Code Provisions (3)
•
Establishment of a remuneration committee with a
majority of INEDs
•
Annual review of effectiveness of internal control
•
Duties of an audit committee
132
Major Recommended Best Practices
• INEDs comprising at least one-third of the board
• Establishment of a nomination committee with a
majority of INEDs
• Quarterly reporting for Main Board issuers
• Continuous training for directors
• Disclosure of senior management’s emoluments on a
named basis
133
Corporate Governance Report
• Three levels of disclosure requirements
– 1st level: Mandatory disclosure requirements
– 2nd level: Code provision disclosure – need to
explain non-disclosure
– 3rd level: Recommended disclosure
134
Major Mandatory Disclosure Requirements
•
Whether the Code provisions and the issuers’ own code
are met
•
Details of non-compliance with the Code provisions
•
Details in relation to the board of directors
– e.g. board composition, number of board meetings and
attendance record of directors at board meetings
•
Details of audit committee, remuneration committee and
nomination committee
– e.g. role and functions, composition, number of
meetings and summary of work done during the year
135
Code Provision Disclosure
Disclosure requirements in the Code where non-disclosure
requires explanation in the Corporate Governance
Report
•
Directors’ acknowledgement of their responsibility for
preparing accounts and auditors’ statement about their
reporting responsibility
•
Report on material uncertainties relating to the issuer’s
ability to continue as a going concern
•
Explanation of the different views of the audit committee
and the board on selection, appointment, resignation and
dismissal of the external auditors
136
Recommended Disclosure
•
Share interests of senior management
•
Shareholders’ rights
– to convene an EGM, direct enquiries to the board, put
forward proposals at shareholders’ meetings
•
Investor relations
– e.g. significant changes in articles of association, details
of shareholdings, indication of important shareholders’
dates in the coming year
•
Report on internal controls
•
Division of responsibility between the board and
management
137
Proposed Timetable
•
Comments on or before 31 March 2004
•
Target for publication of Code – end 1st half
2004
138
Amendments to the Listing Rules
Relating to
Initial Listing Criteria
139
Initial listing eligibility criteria
Chapter 8
140
Initial listing eligibility criteria
Track Record (R8.05)
Current requirements:
New requirements:
•
• *Trading record period – maintain
Trading record period
(R8.05(1)(a), (2)(a), (3)(a))
•
Profit requirement
•
Management and
ownership continuity
• Codified existing interpretation of :
*
–
*management continuity for at least the 3
preceding financial years
(R8.05(1)(b), (2)(b), (3)(b))
–
ownership continuity and control for the most
recent audited financial year
(R8.05(1)(c), (2)(c), (3)(c))
can be waived in the case of applications
under market capitalisation / revenue test
141
Initial listing eligibility criteria
Financial Standards
• Profit test (R8.05(1))
• Market capitalisation / revenue test (R8.05(3))
• Market capitalisation / revenue / cash flow test
(R8.05(2))
142
Initial listing eligibility criteria
Market Capitalisation / revenue test
• Market capitalisation
: at least HK$4 billion
(R8.05(3)(d))
• Revenue
: at least HK$500million
for the most recent
audited financial year
(R8.05(3)(e))
• No. of shareholders
: 1,000 (R8.05(3)(f))
“Revenue”
Only revenue arising from the principal activities of the listing
applicants and not items of revenue & gains that arise
incidentally (R8.05(4))
143
Initial listing eligibility criteria
Market Capitalisation / revenue test
• Waiver of 3-financial-year trading record
requirement
(R8.05A)
• Pre-requisites :
– management experience
– management and ownership continuity
144
Initial listing eligibility criteria
Market capitalisation / revenue / cash flow test
•
Market capitalisation
:
at least HK$2billion (R8.05(2)(d))
•
Revenue
:
at least HK$500million
for the most recent audited
financial year (R8.05(2)(e))
•
Positive Cash Flow
:
at least 100million in aggregate
for the 3 preceding financial years
(R8.05(2)(f))
“Revenue”
Only revenue arising from the principal activities of the listing
applicants and not items of revenue & gains that arise incidentally
(R8.05(4))
145
Initial listing eligibility criteria
Market Capitalisation
• Current requirement
–
at least HK$100million
• New Rule (R8.09(2))
–
increased to at least HK$200 million
• Definition of “Market Capitalisation”
(R8.09(2))
–
Expected issue price of securities as basis
(R8.09A)
146
Initial listing eligibility criteria
Public float
•
Current requirement:
– 25% (if market capitalisation does not exceed HK$4
billion)
– floor: 10% (discretionary, if market capitalisation
exceeds HK$4 billion)
•
New Rule: (R8.08(1))
– 25% by reference to aggregate market capitalisation of
all securities of applicant (at least 15% having a market
capitalisation of HK$50 million if more than 1 class of
securities)
– floor: 15% (discretionary, if market capitalistaion
147
exceeds HK$10 billion)
Initial listing eligibility criteria
Number of shareholders
•
increased to 300 (R8.08(2))
•
1,000 for issuers applying to list under the market
capitalisation / revenue test (R8.05(3)(f))
Spread of shareholders (R8.08(3))
•
top 3 public shareholders hold not more than 50% of
public float
•
“shareholders”- refers also to beneficial owners
148
Initial listing eligibility criteria
Working capital sufficiency (R8.21A)
•
Sufficient working capital for an applicant’s present
requirements, that is for at least the next 12 months from
the date of initial listing document
•
Sponsors to give written confirmation
* An applicant whose business is entirely or substantially that of the provision
of financial services, and its solvency & capital adequacy are subject to
prudential supervision by a regulator acceptable to the Exchange excepted
149
Initial listing eligibility criteria
• Mineral companies (R8.05B(1))
• Infrastructure companies (R8.05B(2))
150
Initial listing eligibility criteria
Deemed new listing (R8.01, R8.21C)
•
Asset to be injected/acquired or the enlarged group
must meet :
– track record requirement inclusive of trading record period &
management and ownership continuity requirements;
– profit or other financial standards requirement
•
Enlarged group of the existing issuer, or NewCo, must
meet :
–
–
–
–
working capital sufficiency requirement;
market capitalisation requirement;
public float requirement;
spread of shareholders requirement
151
Disclosure requirements
at the time of initial listing
Part A of Appendix 1
152
Disclosure requirements
at the time of initial listing
•
Over-allotment option and price stabilising activities
App 1A, Para 15(3)
•
Persons in control of the listing applicant \
App 1A, Para 27A
•
Management experience / qualification
App 1A, Para 41
•
Applicant group prospects
App 1A, Para 34(2)
153
Implementation
• Effective Date : 31 March 2004
• Some exceptions
154
Implementation
Exceptions for new initial listing eligibility
criteria:
–
Form A1 submitted before 31 March 2004, and listed
within three months afterwards*, i.e.
Submit Form A1
Listing
Applicable criteria
Before 31/3/2004
Before 31/3/2004
Existing
Before 31/3/2004
Before 1/7/2004
Existing*
Before 31/3/2004
On or after 1/7/2004
New
After 31/3/2004
--
New
155
Continuing listing obligations
156
Chapter 13 – Continuing Obligations (New)
• Existing Appendices 7A, B & I (Listing Agreements) become
part of the Listing Rules
– New Chapter 13 introduced (existing Chapter 13 repealed)
– Merged into Chapters 19 and 19A
• Existing Practice Note 19 (General disclosure obligations)
merged into new Chapter 13
157
Major areas of Rule amendments
• Voting by poll
• General mandate provisions
• Independent board committee and independent
financial advisers
• Disclosure of advances to entities/financial assistance
to affiliated companies
• New announcement requirements
• Directors’ service contracts
• Public float
• Timeliness of accounts
• Notice of meeting and circulars
158
Voting by poll (1)
• When required (R13.39(4))(*):
– Connected transactions
– Transactions that require controlling shareholders to abstain
from voting in favour
– Where any interested shareholders are required to abstain
from voting
– Granting of options to a substantial shareholder or INED or
his associates
• Disclosure of procedures for shareholders to demand a poll in
each circular (R13.55(3))
* Where an issue of shares or securities convertible into equity securities is allowed under
GEM Rule 17.29(5), the transaction must be subject to shareholders’ approval by way of poll.
159
Voting by poll (2)
• Publication of poll results after general meeting
(R13.39(5))
• Appointment of a scrutineer for vote-taking
(R13.39(5))
– Disclosure of his identity in the poll result
announcement
160
General mandate
• Limit on general mandate (R13.36(2)) :
– Existing limit of 20% of issued share capital retained
• Refreshment of general mandate (R13.36(2)&(4)):
– Refreshment subject to shareholders’ approval once a year
(normally at AGM)
– Independent shareholders’ approval for any subsequent
refreshments in a year
• Restriction on placing discounts of 20% or more to
market price
– unless issuers are in severe financial difficulties or the
circumstances are exceptional (R13.36(5))
161
Refreshment of General Mandate (R13.36(4)(e))
Issued share capital
(Number of Shares)
No of shares
1,000,000
Unused Mandate (say)
Rights Issue –
1 share for 2 existing shares
- 50% increase*
Issued shares after
Rights Issue
Unused portion of GM that
can be topped up and
subject to shareholders
approval
Total shares available and
unused under the GM
General Mandate (Number
of Shares)
(20%) 200,000
150,000
500,000
1,500,000
150,000 x 50%*
= 75,000 shares
150,000 + 75,000
= 225,000 shares
If the listed issuer wishes to have a general mandate so that the number of shares is equivalent
to 20% of the issued share capital after the Rights Issue (being 300,000 shares), it must obtain
independent shareholders approval for the remaining 75,000 shares (being 1,500,000 x 20% 162
less 225,000 shares).
Independent Board Committee (1)
When required (R13.39(6), 13.68):
• Connected transactions subject to independent
shareholders’ approval
• Transactions where controlling shareholders are
required to abstain from voting in favour
• Spin-off proposals subject to shareholders’ approval
• Directors’ service contracts subject to shareholders’
approval
163
Independent Board Committee (2)
Composition (R13.39(6)(a)):
• INEDs (with no material interests) only
– May consist of only 1 INED
– If all INEDs have a material interest in transaction, independent financial
adviser shall make recommendation to shareholders directly
Role (R13.39(6)(a)):
• Advise shareholders:
– Are the terms of the transactions fair and reasonable?
– Is the transaction in the interests of the issuer and shareholders as a
whole?
– Based on the IFA’s recommendations, should shareholders vote in favour
of the resolution?
164
Independent Financial Adviser
• When required (R13.39(6)):
– Connected transactions subject to independent shareholders’
approval
– Transactions where controlling shareholders are required to
abstain from voting in favour
– Spin-off proposals subject to shareholders’ approval
• IFA letters in circulars to shareholders (R13.39(7)):
– Separate letters to IBC and shareholders:
• Are the terms of the transactions fair and reasonable?
• Is the transaction in the interests of the issuer and
shareholders as a whole?
• Should shareholders vote in favour of the resolution?
165
Disclosure of advances to entities
• Exclude advances to subsidiaries
• All size tests apply* (to the extent applicable**)
• Disclosure thresholds
– For any advance made: lowered from 25% to 8%
(R13.13)
– For any increase since previous disclosure: lowered from
10% to 3% (R13.14)
• Must comply with the new Rules as soon as
practicable
* Under current Rules, only the net assets test applies.
** In practice, only consideration test and total assets test would apply.
166
Disclosure of financial assistance
to affiliated companies
• “Affiliated companies” = companies accounted for by
issuers using equity method of accounting
(R13.11(2)(a))
• All size tests apply* (to the extent applicable**)
• Disclosure threshold lowered from 25% to 8%
(R13.16)
• Must comply with the new Rules as soon as practicable
* Under current Rules, only the net assets test applies.
** In practice, only consideration test and total assets test would apply.
167
New announcement requirements
Publish an announcement on:
• any proposed alteration of memorandum or articles of
association (R13.51(1))
• any appointment, resignation or re-designation of directors
(R13.51(2))
• any change in the rights attaching to (1) any class of listed
securities and (2) any shares into which any listed debt
securities are convertible or exchangeable (R13.51(3))
• any change in auditors (R13.51(4))
• any change in financial year end (R13.51(4))
• any change in secretary or registered address (R13.51(5))
168
Public Float (1)
• Maintain public float of 25% (unless a lower % is
accepted at the time of initial listing) – existing
requirement
• Suspension if public float falls below 15% (R13.32(3))
– new requirement
• Temporary waiver may be granted in general offer
situation for a “reasonable period” after close of offer
(R13.33)
– Normally for a period of 3 months
– Must restore minimum public float after expiration of waiver
– Not extended to share repurchase situation
169
Public Float (2)
• Where lower % of public float (between 15% and
25%) accepted at the time of listing with market
capitalisation over HK$10 billion (R8.08(1)(d), 13.32)
– Such lower % is applicable throughout issuer’s
listing on the Exchange
– Suspension if public float falls below 10%
(R13.32(3))
• Lower % of public float will not be considered post
listing
170
Public Float (3)
• Confirmation of public float sufficiency in annual
reports (R13.35, App 16-34A)
– based on publicly available information
– within the knowledge of directors
171
Directors’ service contracts
• Shareholders’ approval required if:
– duration that may exceed 3 years
– the service contract expressly require notice period of more
than 1 year or compensation of more than 1 year’s
emoluments for termination of contracts
→ (a) remuneration committee with a majority of INEDs or
(b) independent board committee : to advise shareholders
(R13.68)
• Exempt service contracts entered into on or before 31 January
2004 (R13.69)
– Shareholders’ approval required if renewal or variation of
material terms of contracts
172
Timeliness of account (R13.50)
• Immediate suspension - if failure to publish financial
results on due date
• Transitional period up to 31 December 2004
173
Notice of meeting and circulars (R13.73 and 13.74)
• Must despatch circulars at the same time as or before
giving notice of meeting
• Must publish notice of every meeting of shareholders
and creditors by way of an announcement
• For election of directors at general meetings,
– Must disclose biographical details (see R13.51(2))
of the proposed directors in the circular to
shareholders
174