- Exchange publishes consultation papers on:
- Targeted capital raising activities of Listed Issuers
- Delisting and other rule amendments
- Deadline for responses is 24 November 2017
The Stock Exchange of Hong Kong Limited (the Exchange), a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) published consultation papers on (1) Capital Raisings by Listed Issuers and (2) Delisting and other Rule Amendments. Both papers include proposed changes to the Exchange’s Listing Rules (the Rules).
In the interest of improving market quality, the Exchange has conducted a review of its regulation of capital raising activities and backdoor listings by listed issuers as well as its continuing listing criteria and delisting procedures. The consultation papers published today seek views on proposals relating to listed issuers' capital raising activities and the Exchange's delisting procedures. Discussion of backdoor listings and continuing listing criteria and related proposals will be set out in separate consultation papers which will be published in due course.
"We have been applying the Listing Rules to address recent concerns about certain share issuance transactions that might not afford a fair treatment of shareholders or an orderly market for securities trading," said David Graham, HKEX’s Chief Regulatory Officer and Head of Listing. "Our proposals relating to capital raising activities are targeted and seek to ensure ordinary capital raising activities will not be restricted."
"After adopting a more robust delisting policy to address concerns about a number of long suspended issuers, we are proposing changes to the delisting framework to facilitate efficient and orderly exits of poor quality issuers and provide certainty to the market on the delisting process, bringing our practice more in line with other major markets."
Consultation Paper on Capital Raisings by Listed Issuers
The Exchange proposes to introduce targeted measures in the Rules to address potential abuses related to large scale deeply discounted capital raising activities. The consultation paper also contains proposals to address specific issues concerning other capital raising and share issuance transactions.
The proposals seek to prohibit market practices that may jeopardise an orderly, fair and informed market for the trading and marketing of securities and to ensure fair and equal treatment of all shareholders.
The consultation paper includes the following proposed Rule amendments:
| (a) |
Highly dilutive capital raisings – disallow rights issues, open offers and specific mandate placings, individually or when aggregated within a rolling 12-month period, that would result in a cumulative material value dilution (proposed to be 25 per cent or more), unless there are exceptional circumstances eg, the issuer is in financial difficulty;
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| (b) |
Rights issues and open offers
- require minority shareholders' approval for all open offers, unless the new shares are to be issued under the authority of an existing general mandate;
- remove the mandatory underwriting requirements for all rights issues and open offers;
- require underwriters (if any) for rights issues and open offers to be persons licensed under the Securities and Futures Ordinance and independent from the issuers and their connected persons, with the exception that controlling shareholders may act as underwriters if compensatory arrangements are made available for the unsubscribed offer shares and the connected transaction Rules are complied with;
- remove the connected transaction exemption currently available to connected persons acting as underwriters of rights issues or open offers;
- require issuers to adopt either excess application arrangements or the compensatory arrangements for the disposal of unsubscribed shares in rights issues or open offers (currently, these arrangements are optional),
- require issuers to disregard any excess applications made by the controlling shareholders and their associates in excess of the offer size minus their pro-rata entitlements;
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| (c) |
Placing of warrants or convertible securities under general mandate
- disallow the use of general mandate for placing of warrants;
- restrict the use of general mandate to the placing of convertible securities with an initial conversion price that is no less than the market price of the shares at the time of placing;
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| (d) |
Disclosure of the use of proceeds from capital raisings – enhance the disclosure of the use of proceeds from equity fundraisings in interim and annual reports;
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| (e) |
Share subdivision and bonus issue of shares– disallow subdivisions or bonus issues of shares if the theoretical share price after the adjustment for the subdivision or bonus issue is less than $1 or $0.50. For the avoidance of doubt, the above proposal would only restrict share subdivisions and bonus issues. The Exchange does not propose to introduce any minimum share price as a continuing listing requirement.
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Consultation Paper on Delisting and other Rule Amendments
The Exchange proposes changes to the Listing Rules to improve the effectiveness of the delisting framework and address the issue of prolonged suspension of trading in issuers' listed securities. This is in the interest of maintaining market quality and reputation.
The consultation paper includes the following proposed Rule amendments:
| (a) |
under the Main Board Listing Rules:
- add a separate delisting criterion to allow the Exchange to delist an issuer after its continuous suspension for a prescribed period (proposed to be 12, 18 or 24 months);
- specify a new delisting process that will apply to all the existing delisting criteria in Rule 6.01. Under this new process, the Exchange may (i) publish a delisting notice and give the issuer a period of time to remedy the relevant issues to avoid delisting, or (ii) delist the issuer immediately in appropriate circumstances;
- remove Practice Note 17 which sets out a three stage delisting procedure for issuers without sufficient operations or assets, to which the new delisting process will also apply;
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| (b) |
under the GEM Listing Rules, add a separate delisting criterion to allow the Exchange to delist an issuer after its continuous suspension for a prescribed period (proposed to be six or 12 months); and
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| (c) |
provide transitional arrangements for Main Board/GEM issuers whose securities are under suspension immediately before the effective date of the above proposed framework, and other minor Rule amendments relating to delisting. |
The consultation paper also seeks views on proposed changes to certain suspension requirements in the interests of keeping trading suspensions to the shortest duration possible.
The Exchange invites market feedback on the proposals contained in the two consultation papers. The deadline for responses is 24 November 2017.
"We have also conducted a number of reviews of our Rules and adopted practices to address issues concerning backdoor listings and related activities in recent years," Mr Graham said. "We are considering proposals to enhance our Rules on backdoor listings and our continuing listing criteria, and plan to publish consultation papers in due course to seek market views."
The consultation papers on Capital Raisings by Listed Issuers and Delisting and other Rule amendments can be downloaded from the HKEX website. Interested parties are encouraged to respond by completing the respective Capital Raisings and Delisting questionnaires.
Ends