- Exchange to amend Listing Rules to restrict highly dilutive capital raisings
- Other issues in capital raising and share issuance transactions are addressed
The Stock Exchange of Hong Kong Limited (the Exchange), a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) published its conclusions from responses to its Consultation Paper on Capital Raisings by Listed Issuers (Consultation Conclusions) and will implement the proposals with minor modifications in response to the comments received. The Listing Rule amendments will become effective on 3 July 2018.
The Exchange received a total of 46 responses1 including comments from a broad range of stakeholders. The feedback indicated strong support for the proposals.
“The Rule amendments are aimed at restricting abusive practices relating to capital raisings by listed issuers and protecting the interests of minority shareholders,” said David Graham, HKEX’s Chief Regulatory Officer and Head of Listing.
“We reiterate the importance of fair and equal treatment of all shareholders. Directors of a listed issuer are expected to act in the interests of its shareholders as a whole and conduct any share issuance in a fair and orderly manner,” Mr Graham added.
The changes to the Listing Rules include the Rules on:
- 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 (25 per cent or more), unless there are exceptional circumstances, eg the issuer is in financial difficulties;
- 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 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 or substantial 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 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;
- Placing of warrants or convertible securities under general mandate:
- disallow the use of general mandate for placing of warrants; and
- restrict the use of general mandate for the placing of convertible securities with an initial conversion price that is not less than the market price of the shares at the time of placing.
There are also other Rule amendments to enhance disclosure of the use of proceeds from equity fundraisings, and to impose an additional requirement for subdivisions and bonus issues of shares to ensure an orderly market.
The Consultation Conclusions and copies of respondents’ submissions can be downloaded from the “News – Market Consultation” section of the HKEX website.
A set of Frequently Asked Questions relating to the Listing Rules amendments can be downloaded from the “Listing - Interpretation and Guidance - Frequently Asked Questions” section of the HKEX website.
Amendments to the Main Board Listing Rules can be downloaded from the “Listing - Rules and Guidance - Listing Rules - Amendments to Main Board Listing Rules” section of the HKEX website.
Amendments to the GEM Listing Rules can be downloaded from the “Listing - Rules and Guidance - Listing Rules - Amendments to GEM Listing Rules” section of the HKEX website.
Note 1: Submissions were received from 107 respondents, of which 61 were entirely identical, in contents, to other responses. Submissions with entirely identical content were counted as one response.
Ends