Market consultation on proposed changes to Practice Note 15 to the Exchange Listing Rules relating to the requirements with regard to the remaining business of listed issuers after spin-off of assets or businesses
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Practice Note 15 to the Exchange Listing Rules sets out the Exchange's requirements on proposals submitted by listed issuers to effect a separate listing of assets or businesses wholly or partly within their existing group ("spin-offs"). The requirements apply irrespective of whether the entity ("Newco") to be spun off by an existing listed issuer (the "Parent") is to be listed on the Exchange or elsewhere. In view of market developments, the Exchange proposes to amend the requirements relating to the remaining business of the Parent, principally the minimum profit requirement set out in Rule 8.05 of the Exchange Listing Rules. The Exchange proposes that, if the Parent is able to satisfy certain criteria, it may grant a waiver to the Parent from strict compliance with the minimum profit requirement under Rule 8.05 in respect of its remaining business after the spin-off. The Exchange would like to seek the market's views on the proposal and any alternative approach in this regard.
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Existing requirements with regard to the remaining business of the Parent after spin-off
Paragraph 3(c) of Practice Note 15 provides as follows: "The Listing Committee must be satisfied that, after the listing of Newco, the Parent would retain a sufficient level of operations and sufficient assets to support its separate listing status. In particular, it would not be acceptable to the Listing Committee that one business (Newco's) supported two listing statuses (the Parent's and the Newco's). In other words, the Parent itself would be required to retain, in addition to its interest in Newco, sufficient assets and operations of its own, excluding its interest in Newco, to satisfy independently the requirements of Chapter 8 of the Exchange Listing Rules."
Listed issuers and market practitioners have commented that poor results in one or two years may not indicate that the remaining business cannot support the Parent's continuing listing status. Therefore, for the purposes of Practice Note 15 only, the Exchange proposes that the Parent must have an aggregate profit attributable to shareholders of not less than HK$50 million for any three years out of the five financial years immediately preceding the spin-off application. The Exchange also proposes that the Parent must demonstrate that an exceptional factor and/or a significant market downturn had affected the results of the Parent for those two financial years that have not been taken into account. However, the Parent must also demonstrate that such factor is not likely to continue or recur in the future or that the Parent has taken appropriate measures to negate the impact on its profit of the market downturn.
The Exchange proposes to introduce the following additional provision to Practice Note 15:
"Where the Parent, excluding its interest in Newco, cannot meet the minimum profit requirement of Rule 8.05, the Exchange may grant a waiver to the Parent if the Parent is able to demonstrate that it, excluding its interest in Newco, fails to meet the minimum profit requirement of Rule 8.05 due solely to an exceptional factor or a significant market downturn. The Parent must also demonstrate to the satisfaction of the Exchange that such factor was temporary in nature and is not likely to continue or recur in the future or that appropriate measures have been taken by the Parent to negate the impact on its profit of the market downturn (as the case may be). In addition, the Parent, excluding its interest in Newco, must have an aggregate profit attributable to shareholders of not less than HK$50 million in respect of any three out of the five financial years immediately preceding the spin-off application."
Market consultation
The Exchange invites comments on the above proposal. The Exchange also welcomes views on any alternative approach for ascertaining that the Parent, excluding its interest in Newco, would retain a sufficient level of operations and assets to support its listing status after the spin-off.
Please send any written comments, together with the sender's name, occupation and contact details (making reference in the subject header to Practice Note 15), to:
Listing Division
The Stock Exchange of Hong Kong Limited
11/F, One International Finance Centre
1 Harbour View Street
Central
Hong Kong
Facsimile number : (852) 2868 5028
E-mail : listing@sehk.com.hk
Comments should be received by the Exchange on or before July 4, 2000.
This announcement will be available for viewing on the Exchange's website at http://www.sehk.com.hk from 10 a.m. on June 5, 2000.
Corporate Communications