Reference is made to the Exchange's announcement dated 3 May 2001 (the "Announcement") setting out guidelines for Main Board issuers with negative or negligible net tangible assets (the "Guidelines") to apply for a de-minimis concession and/or modification to the calculation of the "assets test" and "consideration test" for the purposes of classifying notifiable transactions (other than connected transactions). For the avoidance of doubt, the Guidelines also apply to any modifications in connection with Practice Note 13, as Practice Note 13 clarifies the calculation or test set out in Chapter 14 in relation to notifiable transactions. Capitalised terms used herein have the same meanings as defined in the Announcement, unless otherwise stated.

Other parts of the Listing Rules also require comparisons to be made with an issuer's net tangible assets or net assets. These include applying the assets test for purposes of classifying connected transactions under Rules 14.24(5) and 14.25(1). Accordingly, Main Board issuers with negative or negligible net tangible assets may have difficulties in fully complying with such requirements. To ensure investor protection without imposing undue costs for issuers' compliance, eligible Main Board issuers may apply for adoption of the modified assets test, with appropriate variations, under the Modified Calculation Concession set out in the Guidelines in respect of the relevant requirements. The Securities and Futures Commission has granted its consent under Rule 2.04 of the Main Board Listing Rules for the modification of such relevant requirements in the Listing Rules in line with the further guidelines set out in this announcement. However, application of these further guidelines to individual applications would depend on the specific circumstances of the issuer.

Adoption of Modified Calculation Concession

As set out in the Guidelines, the modified assets test under the Modified Calculation Concession uses "the gross assets of the issuer less intangibles and current liabilities" as the basis for comparison. Such modified assets basis will be further applied as follows:

1. Modified Assets Test Only while Maintaining the Percentage Ratios Prescribed under the Relevant Rules

In relation to references to net tangible assets, or net assets, as applicable, in the following rules, the basis set out in the modified assets test under the Modified Calculation Concession will be adopted as the basis for comparison to determine the relevant disclosure requirements under those rules:

• Rule 19.10(5)(d)(A);
• Paragraphs 17(2) of Appendices 7A, 7B and 7I;
• Paragraph 16(2) of Appendix 7C;
• Paragraph 12(2) of Appendix 7H;
• Paragraph 5.1 of Practice Notice 13;
• Paragraph 3(e)(ii) of Practice Notice 15;
• Paragraph 36 of Appendix 16; and
• Paragraph 1.3 of Practice Note 19.

Since the numerator and denominator will be using the same modified basis, there is no need to change the current percentage ratios prescribed under these rules.

2. Modified Assets Test and Different Percentage Ratios

For the following rules, in relation to references to net tangible assets, or net assets, as applicable, the basis set out in the modified assets test under the Modified Calculation Concession will be adopted as the basis for comparison to determine the relevant disclosure or shareholder approval requirements. In addition, percentage ratio thresholds prescribed under those rules will be amended as a result of the change in basis:

• Paragraph 15.2 of Appendix 16 - ratio of 1%;
• Paragraph 23 of Appendix 16 - ratio of 5%;
• Paragraph 3.2.1 of Practice Note 19 - ratio of 8%;
• Paragraph 3.2.2 of Practice Note 19 - ratio of 3%;
• Paragraph 3.3 of Practice Note 19 - ratio of 8%; and
• Rule 18.07(2) - ratio of 10%;

3. Connected Transactions

In relation to references to net tangible assets set out under Rules 14.24 and 14.25 for connected transactions, the basis set out in the modified assets test under the Modified Calculation Concession will be adopted. In addition, the percentage ratio thresholds to determine disclosure and shareholder approval requirements will be amended as follows:-

• in Rule 14.24(5) the threshold will be the higher of either:

(i) HK$ 1,000,000 or

(ii) 0.01 per cent. of the modified assets basis.

• in Rule 14.25(1) the threshold will be the higher of either:

(i)HK$10,000,000 or

(ii) 1 per cent. of the modified assets basis.

Eligibility, Conditions and Applications

Main Board issuers who wish to apply for adoption of the modified assets test, with appropriate variations, under the Modified Calculation Concession in respect of the above-mentioned requirements would be subject to the similar guidelines for "Eligibility", "Conditions" and "Applications" as set out in the Announcement. Such guidelines are reproduced below for ease of reference.

Eligibility

Eligible Main Board issuers who wish to apply for the further guidelines must have a negative or negligible net tangible asset value based on their latest published accounts subject to adjustments in light of the interim accounts and transactions that have been completed by the issuer after publication of the annual accounts (if any). Further, they must show that their negative or negligible net tangible asset value did not arise from operational losses in the ordinary and usual course of business during the current and/or prior financial year(s). The Exchange reserves the discretion to take into account financial effects of any transactions/events after the latest published accounts when considering any application.

Issuers whose net tangible assets equal to or less than 10% of their market capitalisation are generally regarded as having negligible net tangible assets. The relevant market capitalisation will be based on the average closing price of the issuer's shares for the latest 20 trading days in the last quarter before the date of the application. In calculating the above, only trading days on which there are transactions recorded in issuer's shares will be taken into account.

Conditions

The main conditions upon the approval of adoption of the modified assets test, with appropriate variations, under the Modified Calculation Concession are as follows:

As the above are only guidelines, we may also impose further conditions on individual applicants should we consider appropriate. We will not consider application from any issuer who has not released its final or interim results under the Listing Rules at the time of application.

Applications

Issuers who wish to apply for the concession should submit all relevant supporting information together with their applications. We will consider all applications based on the above broad principles and the issuers' own merits, on a case by case basis. We may or may not approve the application in relation to any particular request. For example, we may not approve an application where there have been unusual market fluctuations in the price and/or volume in the shares of an issuer. We reserve the right to revoke or modify any approved application should new information on the issuer come to light or information provided in its application change.

Way Forward

The above modifications are an interim measure only. In our current review of the Listing Rules, we are considering whether using net tangible asset value is a suitable basis for the purposes of reporting, disclosure and shareholder approval requirements under the Listing Rules.