Post on 14-Apr-2018
7/30/2019 Notifiable Transaction 200910
1/107
1
Notifiable Transactions
Sammy Chau / Katherine Man
Assistant Vice President
Compliance and Monitoring Department
Listing Division, HKEx
7/30/2019 Notifiable Transaction 200910
2/107
22
Agenda
I. General
II. Definition of transaction
III. Classification of transactions and size tests computation
IV. Announcement, circular and shareholder approval requirements
V. Special considerations for transactions
7/30/2019 Notifiable Transaction 200910
3/107
3
I. General
7/30/2019 Notifiable Transaction 200910
4/107
4
Purposes of NT Rules
Who are subject to NT Rules?
Points to note
7/30/2019 Notifiable Transaction 200910
5/107
5
Purposes of NT Rules
Assess the impact of a transaction:
Shareholders are informed
Shareholders can vote on significant transactions
Reinforce the general disclosure principle of price-sensitive information
7/30/2019 Notifiable Transaction 200910
6/107
66
Who are subject to NT Rules? (1)
Listedissuer means:
- the listed issuer itself; and
- its subsidiaries.
Subsidiary includes:
(a) subsidiaryundertaking under the Companies Ordinance;
(b) a consolidated subsidiary under HKFRS / IFRS; and
(c) an acquisition target to be consolidated in the next auditedconsolidated accounts.
7/30/2019 Notifiable Transaction 200910
7/10777
Who are subject to NT Rules? (2)
Are transactions conducted via a jointly controlled entity (JCE) subject toNT Rules?
Listco A Company X
JCE 1
Listco A Company Y
JCE 2
50% * 50% 51% * 49%
Example 1 Example 2
* Listco A does not have control over JCE 1 and 2
Note: See FAQ Series 7 No. 1
7/30/2019 Notifiable Transaction 200910
8/10788
Who are subject to NT Rules? (3)
Are transactions conducted via an associated company subject to NTRules?
Listco A Company Z
Associated Co.
30% 70%
Example
7/30/2019 Notifiable Transaction 200910
9/1079
A notifiable transaction may also be subject to other Rules, e.g.
Disclosure of price-sensitive information
Advances to entities
Connected transactions
Spin-offs
Points to note
7/30/2019 Notifiable Transaction 200910
10/10710
II. Definition of transaction
7/30/2019 Notifiable Transaction 200910
11/10711
Definition oftransaction
Examples
7/30/2019 Notifiable Transaction 200910
12/1071212
Definition of transaction
The Rules set out a non-exhaustive list.
They are principally outside the issuers ordinary and usual course of
business and/or have an impact on the issuers operation, e.g.
a) Acquisition or disposal of assets
b) An option to subscribe for shares or buy or sell assets
c) Entering into or terminating a finance lease
d) Entering into or terminating operating leases with significantimpact on the companys operation
e) Providing financial assistance
f) Formation of JV
Exclude some transactions of a revenue nature in the ordinary and usual
course of business
7/30/2019 Notifiable Transaction 200910
13/10713
Example 1 Acquisition of properties
Listco A
Acquisitionof a property
Fact:
Listco A is engaged in property development and property investmentbusinesses.
Is the acquisition of a property by Listco A subject to NT Rules?
7/30/2019 Notifiable Transaction 200910
14/10714
Example 2 Placing & top-up subscription
(Listing Decision 75-3)
Before placing &subscription
After placing, but beforesubscription
After placing &subscription
Listco A
Listco B
46 shares (46%)
Listco A
Listco B
36 shares (36%)
Listco A
Listco B
46 shares (42%)
Whether the placing and top-up subscription constitute a transaction forListco A?
Fact:
Listco B conducts a standard top-up placing and subscription exercise.
7/30/2019 Notifiable Transaction 200910
15/10715
Example 3 Placing deposits to a non-banking company
Does placing of deposits by Listco A to Company X constitute a transaction?
Parent Co.
Listco A(PRC issuer)
Company X(a non banking
finance company)Place deposits
>50%>50%
7/30/2019 Notifiable Transaction 200910
16/10716
Example 4 Treasury activities
(Listing Decision 53-2)
Listco A
Appoint a fund manager to manageand invest surplus cash
Whether the above investment activities constitute a transaction?
7/30/2019 Notifiable Transaction 200910
17/10717
Example 5 Self construction of a factory
Listco(Car manufacturer)
Land
BuildingMaterials
Whether the acquisitions of land and building materials will betreated as a transaction?
Car manufacturing
factory
Aggregation does not apply when:
an asset is being constructed, developed or refurbished by or onbehalf of a listed issuer for its own use in its ordinary and usualcourse of businesswhere the sole basis for aggregation is rule14.23(3)*
* Form parts of one asset
Construct into
7/30/2019 Notifiable Transaction 200910
18/10718
III. Classification of transactions and
size tests computation
7/30/2019 Notifiable Transaction 200910
19/107
19
Classification of NT
5 size tests
General principles
Specific circumstances
Alternative size tests
Aggregation of transactions
7/30/2019 Notifiable Transaction 200910
20/107
20
Classification of NT
NT category Size test results
Share transaction Acquisition of assets and the consideration involvessecurities for which listing is sought
All percentage ratios are less than 5%
Discloseable transaction 5% or above, but all below 25%
Major transaction 25% or above, but all below 75% (for disposal) or 100% (foracquisition)
Very substantial disposal (VSD) 75% or above
Very substantial acquisition (VSA) 100% or above
Reverse takeover(RTO) See definition in MB R14.06(6)/ GEM R19.06(6)
A transaction involving both an acquisition and a disposal will be classified by referenceto the larger of the acquisition or disposal.
7/30/2019 Notifiable Transaction 200910
21/107
21
5 size tests (1)
Assets ratio Total assets of the subject of the transaction
Total assets of the issuer
Profits ratio Profits* attributable to the subject of the transaction
Profits* of the issuer
* means net profit before taxation and minority interests
Revenue ratio Revenue** attributable to the subject of the transaction
Revenue** of the issuer
** means revenue arising from the principal activities of the entity
7/30/2019 Notifiable Transaction 200910
22/107
22
5 size tests (2)
Consideration ratio Consideration
Issuers total market capitalisation***
*** means the average closing price of the issuers securities for the 5business days immediately before the transaction date
Equity capital ratio Nominal value of the issuers equity capital issued as consideration
Nominal value of the issuers existing equity capital
7/30/2019 Notifiable Transaction 200910
23/107
23
General principles (1)
1. The source of issuers figures is its published information.
2. The source of targets figures is its audited accounts or other acceptableaccounts.
7/30/2019 Notifiable Transaction 200910
24/107
24
General principles (2)
3. Acquisition/ disposal of equity capital
resulting in consolidation/ de-consolidation?
Yes - 100%
No - % bought or sold
4. Transaction via non wholly owned subsidiary
Same size test computation as for transactions via wholly ownedsubsidiary
7/30/2019 Notifiable Transaction 200910
25/107
25
Specific circumstances: Deemed disposal (1)
Assets, profits and revenue ratios
Consideration ratio:
= Value of the shares issued to allottees, excluding those issued for
maintaining the allottees % interest in the subsidiary
Results in de-consolidation fromissuers account
100% of the target
Remain consolidated/ de-consolidated % of the equity interest decreased
7/30/2019 Notifiable Transaction 200910
26/107
26
Specific circumstances: Deemed disposal (2)
Before After
Listco A
Subsidiary B
90%(90 shares)
Mr. X
10%(10 shares)
Listco A
Subsidiary B
82%(90 shares)
Mr. X
18%(20 shares)
Numerator for the consideration ratio
No. of shares required for Mr. X to maintain his interest in Subsidiary B
= 110 shares x 10% = 11 shares
Numerator for the consideration ratio:
= (20 shares 11 shares) x fair value of the shares
Example: Computation of consideration ratio
7/30/2019 Notifiable Transaction 200910
27/107
27
Specific circumstances: Financial assistance
Assets ratio &Consideration ratio
Value of the financial assistance + any monetaryadvantage
Revenue ratio &
Profits ratio
Annual interest income (if any)
Equity capital ratio NA
How should the percentage ratios apply to provision of financialassistance by an issuer?
7/30/2019 Notifiable Transaction 200910
28/107
28
Specific circumstances: Formation of JV
(Listing Decision 2-1)
Under the JV agreement:
Total investment cost: RMB330 million
Registered capital: RMB110 million(contributed in cash)
The difference will be funded by proceedsfrom property sales, bank loans orshareholders loan
Listco B JV partner
JV Company
60% 40%
Which percentage ratios are applicable?
What should be the numerator of the percentage ratios?
7/30/2019 Notifiable Transaction 200910
29/107
29
Specific circumstances: When the consideration differs from
the asset value (R14.15(1))
Consideration: $50 million
Market price of the consideration shares: HK$70 million
Fair value of the property: HK$100 million
What should be the numerator of the consideration ratio?
Listco CAcquisition of a property
Settled by consideration shares
7/30/2019 Notifiable Transaction 200910
30/107
30
Specific circumstances: When the consideration cannot be
determined (FAQ Series 7- No. 8)
Under the agreement, Listco D has to pay:
cash consideration: HK$1 million; plus
future amount payable upon completion,
which is based on the valuation of theTarget at the time of completion
How should Listco D calculate the consideration ratio?
Listco D
Target
7/30/2019 Notifiable Transaction 200910
31/107
31
Issuers cannot exercise discretion:
Grant of option a transaction
Exercise or transfer of option not a transaction
Issuers can exercise discretion:
Grant of option normally not a transaction unless there is a premium
Exercise or transfer of option a transaction
Specific circumstances: Option arrangements (1)
7/30/2019 Notifiable Transaction 200910
32/107
32
Specific circumstances: Option arrangements (2)
Prior approval for exercise of option
At the time of entering into an option, issuer may seek shareholder approvalfor the exercise of the option.
Shareholder approval is not required upon exercise of the option if: the relevant information is disclosed to shareholders; and
no change of the relevant facts at the time of exercise
No similar provision in the connected transaction Rules
7/30/2019 Notifiable Transaction 200910
33/107
33
Alternative size tests
We may disregard a size test calculation if:
it produces an anomalous result; or
it is inappropriate to the sphere of activity of the issuer.
Issuers must provide appropriate alternative tests for our consideration.
We will consider:
substance of transactions and not only their legal form
whether size tests results vary significantly
7/30/2019 Notifiable Transaction 200910
34/107
34
Example 1 Acquisition of listed securities as investment
(FAQ Series 7- No. 12)
Size tests Numerators of the alternative test
Assets ratio Fair value of shares being acquired
Profits/ revenue ratio Dividend income
Fact:
Listco A proposes to acquire 5% interest in Target X as an investment whichwill be classified as available for sale financial assets.
Our view:
How should Listco A compute the assets, profits and revenue ratios?
7/30/2019 Notifiable Transaction 200910
35/107
35
Example 2 Group restructuring
(Listing Decision 62-2)
Before After
Listco B
Subsidiary X Subsidiary Y
Target
100% 70%
Listco B
Subsidiary X Subsidiary Y
Target
100% 70%
Facts:
Disposal of 100% in Target by Listco B (through Subsidiary X)
Acquisition of 100% in Target by Listco B (through Subsidiary Y)
100% 100%
7/30/2019 Notifiable Transaction 200910
36/107
36
Aggregation of transactions
Prevent circumvention of Rules by splitting a transaction
Aggregation of a series of transactions:
completed within 12 months or
are otherwise related.
Non-exhaustive factors we consider:
with the same party or parties connected
involve interests in one particular company or group of companies
parts of one asset lead to substantial involvement in a new business
7/30/2019 Notifiable Transaction 200910
37/107
37
Points to note (1)
Aggregation is not automatic only because one factor is triggered.
We will also consider the effect of aggregation:
whether aggregation would result in a higher transaction classification.
New classification only applies to current transaction.
FirstTransaction
SecondTransaction
If aggregated Will aggregationresult in a higher
classification?
SecondTransaction
Major Discloseable Major No Discloseable
Major Discloseable VSA Yes VSA
e.g.
7/30/2019 Notifiable Transaction 200910
38/107
38
Points to note (2)
Prior consultation with the Exchange
Exceptions:
The issuer has already decided to aggregate the proposed transactionwith the previous transaction(s)
The proposed transaction, even when aggregated with the previoustransaction(s), will not be a NT
7/30/2019 Notifiable Transaction 200910
39/107
39
Example 1 Acquisition of machinery from related suppliers
(Listing Decision 64-1)
Facts:
Listco A proposes to acquire different models of machinery frommembers of Group X (a major supplier) under different contracts.
The machinery acquired under each contract is functional on its ownand does not form part of an assembled machine.
Each contract was negotiated independently.
Will the Exchange aggregate acquisitions of machinery?
7/30/2019 Notifiable Transaction 200910
40/107
40
Example 2 Acquisition of adjacent lands
(Listing Decision 64-2)
Facts:
Listco B acquired Land 1 in June.
It acquires Land 2 one month later.
Land 1 and 2 are adjacent to each other.
They will be re-developed into a single residential property for sale.
The 2 acquisitions are not inter-conditional.
Will the Exchange aggregate acquisitions of Land 1 and 2?
7/30/2019 Notifiable Transaction 200910
41/107
41
IV. Announcement, circular and shareholder approvalrequirements
7/30/2019 Notifiable Transaction 200910
42/107
42
Overview
Suspension
Announcement
Shareholder approval Circular
Documentary requirements for listing applications by listed issuers
7/30/2019 Notifiable Transaction 200910
43/107
43
Overview
Transaction
Type
Notify
ExchangeSuspension
Publish
Announce-
ment
Shareholders
approval
Publish
Circular
Accountants
report
Treated
as new
listing
Share
transaction
Yes Yes Yes No if shares
are issued
under general
mandate
No No No
Discloseable Yes No, unless
PSI
Yes No No No No
Major Yes Yes Yes Yes Yes Yes for
acquisition
No
VSD Yes Yes Yes Yes Yes Yes No
VSA Yes Yes Yes Yes Yes Yes No
RTO Yes Yes Yes Yes Yes Yes Yes
7/30/2019 Notifiable Transaction 200910
44/107
44
When required?
A short suspension is required for
a share transaction, major transaction, VSA, VSD or RTO; or
any discloseable transaction which is price sensitive,until publication of the announcement.
Suspension
7/30/2019 Notifiable Transaction 200910
45/107
45
Announcement (1)
When required?
Initial announcement
After finalisation of the terms of a NT
Further announcements
Expert reports
Exploration for natural resources activities
Profit forecast
within 21 days after discloseable transaction announcement
Poll results
after general meeting
7/30/2019 Notifiable Transaction 200910
46/107
46
Announcement (2)
When required?
Further announcements (contd)
Changes after initial announcement: termination of a previously announced NT
material change in terms of the NT
material delay in completion of the agreement
Option arrangements: expiry of the option
option holder notifying the grantor of non-exercise of the option
transfer of the option to a third party
7/30/2019 Notifiable Transaction 200910
47/107
47
Announcement (3)
Content requirements
General principle
Information must be clearly presented, and must be accurate andcomplete in all material respects and not be misleading or deceptive
Specific disclosures
e.g. - general nature of the transaction
- description of the target
- terms of the transaction (e.g. consideration)
- reasons for and impact of the transaction
7/30/2019 Notifiable Transaction 200910
48/107
48
Announcement (4)
Common pitfalls
Frequent omissions:
Principal business activities of the counterparty
Date of the transaction and independence of the counterparty Value of the subject asset
Net profits of the target asset
Gain or loss on disposal and the basis of calculation
Inadequate disclosures: Basis of consideration
Reasons for entering into the transaction
7/30/2019 Notifiable Transaction 200910
49/107
49
Announcement (5)
Waivers from disclosure requirements
Granted only in limited circumstances
We will consider:
materiality of the information
alternative disclosures proposed by the issuer
sufficient information for shareholders/ investors to make an informedinvestment decision
unduly burdensome/ impractical
7/30/2019 Notifiable Transaction 200910
50/107
50
Example Waiver from disclosure requirements
Facts
Listco A proposes a major acquisition involving issuance of considerationshares change in control
Listco A must disclose the Targets financial information in theannouncement.
Takeovers Code: Disclosure of unaudited financial information willconstitute profit forecasts, which must be reported by an auditor and/or a
financial advisor.
Will the Exchange grant waiver?
7/30/2019 Notifiable Transaction 200910
51/107
51
Shareholder approval (1)
When required?
Major transaction, VSD, VSA and RTO
General principles
Voting should be made on the terms of the subject transaction
All voting at general meetings must be taken by poll
Shareholder approval must be obtained before completion of the transaction
Can an issuer obtain a prior mandate from its shareholders for on-market
disposal of its investments?
7/30/2019 Notifiable Transaction 200910
52/107
52
Shareholder approval (2)
Material interest
Any shareholder that has a material interest in the transaction shall abstainfrom voting
Factors determining material interest include: a party to the transaction or his associate?
any benefit confers upon the shareholder or his associate, which is notavailable to other shareholders
No monetary / financial benchmarks for material interest
7/30/2019 Notifiable Transaction 200910
53/107
53
Example 1 Material interest in a transaction
(Listing Decision 73-1)
>10%
Mr. X
(Director)
Vendor
Listco A Target
2%+CEO
0.5%60%
Facts:
Mr. X is not a party to the VSA
Mr. X had abstained from voting at board meetings
Mr. X is a member of Listco As executive committee
Does Mr. X have material interest in the VSA?
Subject matter of
the VSA
7/30/2019 Notifiable Transaction 200910
54/107
54
Example 2 Material interest in a transaction
(Listing Decision 73-2)
9%
Mr. Y
Listco A
Listco B
Director & CEO
of Listco B andholding a number of
outstanding options (about
2% of Listco Bs issued
share capital)Facts:
Listco A proposes to privatise Listco B.
a major transaction for Listco A
Do Company X and Mr. Y have material interest in the major transaction?
Company X
>10%
Director &
shareholder
of Listco A
7/30/2019 Notifiable Transaction 200910
55/107
55
Written shareholder approval (1)
Allowed for major transactions if:
no shareholder needs to abstain from voting; and
a closely allied group of shareholders, holding more than 50% voting
interest, approves the transaction
A closely allied group of shareholders:
the number of persons in the group
their relationship (e.g. past or present business association)
how long have they been shareholders?
are they parties acting in concert under Takeovers Code?
voting pattern on past shareholders resolutions (other than routine
resolutions at AGM)
7/30/2019 Notifiable Transaction 200910
56/107
56
Written shareholder approval (2)
Not allowed for :
VSA, VSD and RTO
qualified opinion on the accountants report
some natural resources acquisitions that become new ventures of theissuer
Other Listing Rules may require shareholder meeting
e.g. specific mandate for issue of consideration shares
7/30/2019 Notifiable Transaction 200910
57/107
57
Subsequent change of terms of a transaction
Material changes of the terms of a transaction after shareholder approval require shareholder re-approval?
Example:
Listco A agreed to dispose of a property at a consideration of HK$20million VSD
The VSD was approved by shareholders.
The parties now proposes to reduce the consideration to HK$10million before completion major transaction
Does the change of consideration constitute a material change interms?
Note: See also FAQ Series 7 No. 16
7/30/2019 Notifiable Transaction 200910
58/107
58
Circular (1)
When required?
Major transaction, VSD, VSA and RTO
The circular must be despatched:
within 21 days after publication of the announcement; and
at the same time or before the issuer gives notice of the shareholdermeeting (if any)
Any supplementary circular containing material information
at least 14 days before general meeting
7/30/2019 Notifiable Transaction 200910
59/107
59
Circular (2)
Content requirements
General principle
Information must be clearly presented, and must be accurate andcomplete in all material respects and not be misleading or deceptive
Sufficient information for shareholders to vote
Specific disclosures
e.g. - 3 year historical financial information of the target
- Pro forma financials of the enlarged/ remaining group
- Other expert reports (e.g. valuation report, mining report)- Information on the target and the issuer
e.g. indebtedness statement, working capital sufficiency statement,information on the financial and trading prospects of the issuer
7/30/2019 Notifiable Transaction 200910
60/107
60
Historical financial information of the target (1)
NT category Where the target is a business/
company
Where the target is a revenue-
generating asset with an identifiable
income stream or asset valuation
Major disposal Not required Not required
Major acquisition Accountants report on the target* Profit/ loss statement and (where
available) valuation of the target
VSD Accountants report on the group# Profit/ loss statement and (whereavailable) valuation of the target
VSA and RTO Accountants report on the target* Profit/ loss statement and (whereavailable) valuation of the target
# with separate disclosure of financial information of the disposal target as a discontinuing operation
* No accountants report is required if the target itself is listed on the Exchange
7/30/2019 Notifiable Transaction 200910
61/107
61
Accountants report
Prepared by qualified and independent CPA
The accounts must:
adopt accounting policies materially consistent with those of the issuer
conform with HKFRS or IFRS
contain financial statements of the target / group for 3 financial yearsbefore issue of circular
relate to a financial period ended 6 months or less before issue of
circular
Historical financial information of the target (2)
7/30/2019 Notifiable Transaction 200910
62/107
62
Accountants report relief
We will consider:
Information differences
Assurance differences
Unduly burdensome/ impractical
Specific relief in the Rules:
the target has not or will not become the issuers subsidiary
non-public information related to a target company (which is listed andwill become the issuers subsidiary) is unavailable
Historical financial information of the target (3)
7/30/2019 Notifiable Transaction 200910
63/107
63
Example - Waiver from accountants report requirements
(Listing Decision 74-1)
Facts:
Listco A proposes to acquire a business from a US listed company VSA
Listco A has practical difficulties in preparing an accountants report on the Target
Business.
It proposes to include in its VSA circular:
audited combined financial statements of the Target Business
prepared in accordance with US GAAP, with a reconciliation to HKFRS
audited by the vendors auditors in accordance with US auditing
standard
GAAP reconciliation reviewed by Listco As auditor
7/30/2019 Notifiable Transaction 200910
64/107
64
Pro forma financial information (1)
NT category Where the target is a business/
company
Where the target is a revenue-
generating asset with an identifiable
income stream or asset valuation
Major disposal Not required Not required
Major
acquisition
Pro forma statement of assets
and liabilities of the enlargedgroup
Pro forma statement of assets and
liabilities of the enlarged group
VSD Pro forma income statement,balance sheet and cashflow
statement of the remaining group
Pro forma profit and loss statement
and net assets statement on the
remaining group
VSA/ RTO Pro forma income statement,balance sheet and cashflow
statement of the enlarged group
Pro forma profit and loss statementand net assets statement on the
enlarged group
7/30/2019 Notifiable Transaction 200910
65/107
65
Pro forma financial information (2)
Pro forma financials must:
clearly state the purpose of their preparation
include all appropriate adjustments
adopt format and accounting policies consistent with those used by theissuer
Pro forma financial information may only be published in respect of:
the current financial period
the most recently completed financial period
the most recent interim period for which information has been published
Point to note:
The pro forma income statement and balance sheet may be prepared fordifferent accounting periods
7/30/2019 Notifiable Transaction 200910
66/107
66
Pro forma financial information (3)
The issuers unadjusted information must be derived from the most recent :
audited published accounts, published interim reports, published interim orannual results announcements;
accountants report;
previously published pro forma financials; or
published profit forecast or estimate
7/30/2019 Notifiable Transaction 200910
67/107
67
Other expert reports (1)
Report on profit forecast
Profit forecast is not mandatory
A circular containing a profit forecast must include:
reporting accountants or auditors report accounting policies
calculations for the forecast
financial advisers report
forecast has been stated after directors due and careful enquiry
7/30/2019 Notifiable Transaction 200910
68/107
68
Other expert reports (2)
Report on profit forecast (contd)
Profit forecast includes:
any statement which quantifies the anticipated level of future profits or
losses
any profits/ losses estimate for a financial period which has expired butfor which the results have not yet been published
any valuation of assets (other than land and buildings) or businesses
based on discounted cash flows or projections of profits, earnings or
cash flows
7/30/2019 Notifiable Transaction 200910
69/107
69
Other expert reports (3)
Technical report for mining activities
applicable to Main Board issuers proposing to explore for natural resources as
a new venture
must be prepared by a qualified technical adviser
must include information e.g.
estimated reserves
evidence on which the estimate is based
details of the technical advisers
must be prepared not more than 6 months before issue of the circular
7/30/2019 Notifiable Transaction 200910
70/107
70
Indebtedness statement
statement of indebtedness of the group as at the most recent practicabledate
most recent practicable date normally NOT more than 8 weeks before
group include any company which will become a subsidiary of the
issuer
Working capital sufficiency statement
confirmation if the issuer has sufficient working capital
normally cover the next 12 months
Indebtedness and working capital sufficiency statements
7/30/2019 Notifiable Transaction 200910
71/107
71
Recent Rule amendments (Effective 2 November 2009)
simplify Rules for listing applications by listed issuers
remove some existing documentary requirements
revise timeframe for submission of documents
reduce number of copies required for submission
Documentary requirements for listing applications by listed
issuers
7/30/2019 Notifiable Transaction 200910
72/107
72
V. Special considerations for transactions
7/30/2019 Notifiable Transaction 200910
73/107
73
Reverse takeovers
Spin-off
Distribution in specie
Cash companies
Sufficiency of operations
7/30/2019 Notifiable Transaction 200910
74/107
7/30/2019 Notifiable Transaction 200910
75/107
75
MB R14.06(6)/ GEM R19.06(6) (contd)
A reverse takeover normally refers to:
(a) an acquisition or a series of acquisitions (aggregated under rules 14.22 and
14.23) of assets constituting a very substantial acquisition where there is orwhich will result in a change in control (as defined in the Takeovers Code) ofthe listed issuer (other than at the level of its subsidiaries); or
(b) acquisition(s) of assets from a person or a group of persons or any of his/their
associates pursuant to an agreement, arrangement or understanding enteredinto by the listed issuer within 24 months of such person or group of personsgaining control (as defined in the Takeovers Code) of the listed issuer (otherthan at the level of its subsidiaries), where such gaining of control had notbeen regarded as a reverse takeover, which individually or togetherconstitute(s) a very substantial acquisition
Reverse takeovers (2)
7/30/2019 Notifiable Transaction 200910
76/107
76
Application of RTO Rule
What is a RTO? (LC Annual Report 2007)
What is the 24 month restriction?
How do we look at change in control?
Reverse takeovers (3)
7/30/2019 Notifiable Transaction 200910
77/107
77
We will look at the reason(s) for triggering the general offer obligation whendetermining whether the change in control test is met.
Company X
Vendor Holding Co
Target Listco A
Company X
Vendor
Listco A
Holding Co
Target
>50% >50% >50%
>50%
20%
100%100%100% 100%
Before AfterExample
Example Change in control
(Listing Decision 75-2)
7/30/2019 Notifiable Transaction 200910
78/107
78
To address circumvention of the RTO rules
An issuer may not dispose of its existing business for a 24 month period
after a change in control, unless
assets acquired after the change in control meet the new listingrequirement
Otherwise, deemed as a new listing applicant
Disposal of existing business after change in control (1)
7/30/2019 Notifiable Transaction 200910
79/107
79
Listing Committee Annual Report 2008
The Listing Committee endorsed a waiver:
Disposal will be restricted if :
assets injection by new controlling shareholder at the time of and/or afterthe change in control; and
such asset injection would have resulted in a VSA, taking into accountthe disposal(s)
We will consider whether the issuer structures its transactions to circumvent
the RTO Rules.
Disposal of business after change in control (2)
7/30/2019 Notifiable Transaction 200910
80/107
80
A proposal that effects the separate listing on the Exchange or elsewhere of
assets or businesses wholly or partly within its existing group
General principle
one business should not support 2 listing status
Clarifications:
Spin-off can be conducted via acquisition of a listed shell
Holding of interest in Newco after spin-off is not a pre-requisite
Spin-off proposals are subject to the Exchanges approval
Shareholder approval is only required for major or above transactions
Spin-off
7/30/2019 Notifiable Transaction 200910
81/107
81
Example Spin- off via acquisition of a shell company
Listco A
Disposed
Group
100%
Listco A
DisposedGroup
80%
Company B
100%
Before Disposal After Disposal
Facts:
Company B does not have material assets or operation.
The disposal aims to consolidate majority of Listco A Singapore assets under
one listed subsidiary (Company B).
(Listed on Main Board) (Listed on Main Board)
(Listed in Singapore)
Does the disposal constitute a spin-off?
Note: See also Listing Decision 3-2
7/30/2019 Notifiable Transaction 200910
82/107
82
Distributions in specie to shareholders are normally not notifiable transactions.
We may impose requirements if the distributions are in substance:
circumvention of the Listing Rules disposal of assets by the issuer
against the general principles of investor protection
Distribution in specie
7/30/2019 Notifiable Transaction 200910
83/107
83
Example - Distribution in specie
(Listing Decision 75-4)
Before After
ParentCompany
Listco A
Subsidiary X(unlisted)
Minorityshareholders
Distribution of all Subsidiary Xs
shares to Listco As
shareholders ( Distribution)
Parent Company will make acash offer to acquire allSubsidiary Xs shares *
(Subsidiary Offer)
ParentCompany
Listco ASubsidiary X
(unlisted)
* Parent Shareholder proposes the Distribution to facilitate the disposal of its controlling
interest in the Listco A.
Minorityshareholders
7/30/2019 Notifiable Transaction 200910
84/107
84
Cash companies
Where for any reason the assets of an issuer consist wholly or substantiallyof cash or short-dated securities, it will not be regarded as suitable for listingand trading in its securities will be suspended.
Short-dated securities: securities such as bonds, bills or notes whichhave less than 1 year to maturity.
We will treat the issuers application for lifting of the suspension as if it were anew listing applicant.
Exclude:
investment companies as defined in MB Chapter 21; or
an issuer which is solely or mainly engaged in the securities brokeragebusiness
7/30/2019 Notifiable Transaction 200910
85/107
85
For continued listing of its securities, an issuer must demonstrate to theExchange that:
it carries out, directly or indirectly, a sufficient level of operations
it has tangible assets of sufficient value and/or
it has intangible assets of sufficient potential value
Sufficiency of operation
7/30/2019 Notifiable Transaction 200910
86/107
86
Compliance reminders
7/30/2019 Notifiable Transaction 200910
87/107
87
I. Reminders
7/30/2019 Notifiable Transaction 200910
88/107
88
Trading suspension
Black out period
Shareholder meeting notice
Continuing connected transactions
Access to books and records of disposed companies
Board meeting notification
Book closure notification
Disclosures in monthly returns and next day disclosure returns
7/30/2019 Notifiable Transaction 200910
89/107
89
Trading suspension
1. Authorised representatives and company secretary should be contactable todeal with suspension related matters:
respond to our press/ price and trading movement / post-vetting
enquiries inform us of the proposed suspension well in advance
submit written suspension request well in advance
Reminders (1)
7/30/2019 Notifiable Transaction 200910
90/107
90
Black out period
2. The new black out period will commence:
60 days before publication of results or
if shorter, the period from the financial year end up to the date of
publication
notify the Exchange about the commencement of blackout period
Reminders (2)
31/12/2009(year end
date)
20/3/2010(Date of publicationof annual results)
30/4/2010(Deadline for publication of
annual results MB issuers)
Commencement of black out period: 19 January 2010
Notification must be sent to the Exchange before 19 January 2010
7/30/2019 Notifiable Transaction 200910
91/107
91
Shareholder meeting notice
3. Code Provision: Notice of shareholder meeting should be sent
at least 20 clear business days before AGM
at least 10 clear business days before other general meeting
(Introduced on 1 January 2009)
Reminders (3)
7/30/2019 Notifiable Transaction 200910
92/107
92
Revised publication deadlines for results announcements (Main Board)
4. Annual results: 3 months after year end
- for financial year ending on or after 31 December 2010
5. Interim results: 2 months after period end- for 6 months ending on or after 30 June 2010
Reminders (4)
7/30/2019 Notifiable Transaction 200910
93/107
93
Continuing connected transactions (CCTs)
6. Is there sufficient time for renewing an expiring CCT agreement?
Plan for:
renewal of the agreement
publication of announcement, shareholder meeting, appointment ofIFA and establishment of IBC
7. Will the CCTs exceed the annual cap(s)?
Plan for publication of announcement, shareholder meeting, appointment
of IFA and establishment of IBC
8. Will there be adequate time for auditors and INEDs to review the CCT?
Submit auditors confirmation within 10 business days before bulk-printing of the annual reports
Reminders (5)
7/30/2019 Notifiable Transaction 200910
94/107
94
Access to books and records of disposed companies
9. Ensure that the issuer itself and its auditors can have access to the disposedcompanies books and records for the year end audit
Reminders (6)
7/30/2019 Notifiable Transaction 200910
95/107
95
Board meeting notification
10. Announce at least 7 clear business days before the meeting date
Reminders (7)
7/30/2019 Notifiable Transaction 200910
96/107
96
Book closure notification
11. Announce the book closure date at least 14 days before the closure
12. Disclose the purpose of the book closure (e.g. for dividend entitlements,
attendance at the AGM, etc)
Reminders (8)
7/30/2019 Notifiable Transaction 200910
97/107
97
Type of Issue No. of newshares of
issuer issued
during the
month
pursuant
thereto
No. of newshares of issuer
which may be
issued pursuant
thereto as at
close of the
month
6.Repurchaseof shares
Class of share repurchasedCancellation date : (dd/mm/yyyy)
EGM approval date: (dd/mm/yyyy)
Ordinary
(15/11/2009)
(30/11/2009)
(26/06/2009)
(100,000)
(200,000)
N/A
N/A
N/A
(200,000)
13. Other Movements in Issued Share Capital:- 6. Repurchase of shares
No. of shares repurchased (but yet to
be cancelled) as at the end of the
month
Disclosures in Monthly Return Share repurchase and cancellation of
repurchased shares
No. of shares cancelled during
the month
Date of general meeting (e.g. AGM date)
approving the share repurchases
Reminders (9)
7/30/2019 Notifiable Transaction 200910
98/107
98
Issues of shares(Notes 6 and 7)
No. of shares
Issued shares as
a % of existing
issued share
capitalbeforerelevant share
issue(Notes 4, 6 and 7)
Issue price
per share(Notes 1 and
7)
Closing market price
per share of the
immediatelypreceding business
day
(Note 5)
% discount/premium of issue
price to market
price
(Note 7)
Opening balance as at(Note 2)
31 October 2009
1,000,000,000
(Note 3)
Placing of new shares
- 20 November 2009
Exercise of options
- 3 November 2009- 5 November 2009
50,000,000
10,000
40,000
5%
0.001%
0.004%
$0.70
$0.50
$0.50
$0.85 (9 Nov 2009)
$0.65 (2 Nov 2009)
$0.75 (4 Nov 2009)
17.65% discount
23.01% discount
33.33% discount
The closing market price per share on the
business day immediately before the
occurrence of the reported item, e.g. issue of
shares on exercise of options
Where shares are allotted or redeemed on multiple dates,
details must be disclosed separately.
Disclosure in Next Day Disclosure Return
14. Closing market price and allotment/repurchase on multiple dates
Reminders (10)
7/30/2019 Notifiable Transaction 200910
99/107
99
II. Year end disclosures
7/30/2019 Notifiable Transaction 200910
100/107
100
Publication of management accounts
Issuers failing to announce their preliminary results before the publicationdeadline must issue an announcement containing:
a full explanation for its inability to publish a preliminary results
the expected date of announcement of the financial results financial results (if available)
any disagreement with the audit committee on accounting treatmentadopted
Year end disclosures (1)
7/30/2019 Notifiable Transaction 200910
101/107
101
Common pitfalls of disclosures in annual results announcements
Omission of information required under MB App 16/ GEM Chapter 18
Ageing analysis and credit policy description
Compliance statement on Corporate Governance (CG) Code
A statement that the results had been reviewed by audit committee
Details of the qualification or modification of the auditors report
The explanatory notes to proposed dividend
Inadequate disclosure of information required under MB App 16/ GEM Chapter 18
Significant balances / fluctuation
Management discussion on the issuer's results
Year end disclosures (2)
7/30/2019 Notifiable Transaction 200910
102/107
102
Common pitfalls of disclosures in annual reports
Omission of information
Disclosures in Corporate Governance Report
e.g. terms of NED appointment, information on remuneration committee
Details of connected transactions
A narrative statement on whether the auditors had reviewed and confirmed compliancewith CCT annual review Rules
Continuing disclosures of advance to entities, financial assistance to affiliatedcompanies, pledge of shares by controlling shareholders, etc
Annual confirmation of INED independence
Inadequate disclosure Description of credit policy and ageing analysis
Analytical and in-depth discussion in MD&A section
Details of share option scheme
Explanation for inconsistency of disclosure relating to auditors remuneration infinancial statements and CG Report
Disclosure on financial instruments (their nature, valuation and risk exposure)
Year end disclosures (3)
7/30/2019 Notifiable Transaction 200910
103/107
103
Year end disclosures (4)
Dividend information
Provide sufficient information on dividend proposals including the dividendpayment date
Notify shareholders of any withholding tax implication
7/30/2019 Notifiable Transaction 200910
104/107
7/30/2019 Notifiable Transaction 200910
105/107
7/30/2019 Notifiable Transaction 200910
106/107
106
Other reference materials
Auditing guideline - Statement 3.340 Prospectuses and the Reporting Accountant,issued by HKICPA(http://app1.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/3_340.pdf)
Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusionin Investment Circulars, issued by HKICPAhttp://www.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeII/ag7.pdf
Hong Kong Standard on Investment Circular Reporting Engagements 300Accountants Reports on Pro forma Financial Information in Investment Circulars ,issued by HKICPAhttp://www.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/hksir3
00.pdf
Review report by the Professional Standards Monitoring Committee of the HKICPA(http://www.hkicpa.org.hk/correspondence/2009-06-25/activities_report.pdf)
http://app1.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/3_340.pdfhttp://app1.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/3_340.pdfhttp://www.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeII/ag7.pdfhttp://www.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/hksir300.pdfhttp://www.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/hksir300.pdfhttp://www.hkicpa.org.hk/correspondence/2009-06-25/activities_report.pdfhttp://www.hkicpa.org.hk/correspondence/2009-06-25/activities_report.pdfhttp://www.hkicpa.org.hk/correspondence/2009-06-25/activities_report.pdfhttp://www.hkicpa.org.hk/correspondence/2009-06-25/activities_report.pdfhttp://www.hkicpa.org.hk/correspondence/2009-06-25/activities_report.pdfhttp://www.hkicpa.org.hk/correspondence/2009-06-25/activities_report.pdfhttp://www.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/hksir300.pdfhttp://www.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/hksir300.pdfhttp://www.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeII/ag7.pdfhttp://app1.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/3_340.pdfhttp://app1.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/3_340.pdf7/30/2019 Notifiable Transaction 200910
107/107
Thank you