recent amendments to the listing rules janet chiu assistant vice president compliance and monitoring...
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Recent Amendments to the Listing Rules
Janet Chiu
Assistant Vice President
Compliance and Monitoring Department
Listing Division, HKEx
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• 11 January 2008 - 2008 Combined Consultation Paper concerning 18 substantive policy issues published
• 7 April 2008 - Consultation period ended
• 28 November 2008 - Consultation Conclusions and Rule amendments on 15 policy issues published
• 1 January 2009 - Rule amendments became effective
• 3 policy issues are still under assessment Public float (Issue 5) General mandates (Issue 11) Self-constructed fixed assets (Issue 15)
Background
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Major areas of Rule amendments
• Vetting of listed issuers’ documents
• Transaction-related issues
• Disclosure and submission of information
• Corporate governance practices
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Agenda
I. Reduction of pre-vetting activities
II. Alignment of requirements for material dilution in major subsidiary and deemed disposal
III. Disclosure of information in takeovers
IV. Use of website for communication with shareholders
V. Model Code for directors’ dealings
VI. Disclosure of changes in issued share capital
VII. Other Rule amendments
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I. Reduction of pre-vetting activities
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Phased approach to post-vetting announcements
• MB R13.52(2)/ GEM R17.53(2) sets out announcements requiring pre-vetting.
• The Exchange intends to cease pre-vetting of all announcements.
• Transitional arrangement:
Announcements for more significant transactions will continue to be pre-vetted.
• The Exchange may request to pre-vet any documents
− New MB R13.52A/ GEM R17.53A
• When will the Exchange request for pre-vetting issuers’ announcements? • Can an issuer request the Exchange to pre-vet its announcement?
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Phased approach to post-vetting announcements
Pre-vetting required (Phase 1) Pre-vetting NOT required
• Major transactions, VSD, VSA or reverse takeovers
• Connected transactions• Fundamental change of listed issuer’s principal
business activities within 12 months after listing• An issuer becoming a cash company
For example:• Share transactions/ discloseable
transactions *• Issue of securities *• Amendments of articles of association*• Matters involving trading
arrangements*• Price-sensitive information• Results announcements
* Subject to pre-vetting under the Old Rules
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Our follow up enquiries
• We follow up: Before commencement of the next trading session – in situations that
may raise fair and orderly market concern Within one business day – on possible non-compliance/ ascertain
Listing Rule compliance
• Issuers must respond promptly to our enquiries within the time limit imposed (MB R2.12A/ GEM R17.55A [New])
• Outcome: No further actions Trading suspension Clarification announcements Other remedial measures Disciplinary actions • When may issuers publish a clarification announcement? • Will the Exchange take disciplinary actions against an issuer after post-vetting
if the issuer or its announcement fails to comply with the Rules?
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Pre-announcement consultation
• The Exchange will continue to offer guidance to issuers on a voluntary basis
− MB R13.52B(2)/ GEM R17.53B(2)
• Issuers should seek prior consultation with the Exchange, particularly on Rules:
where we experienced a high rate of non-compliance where we may exercise discretion
• Apart from areas which require pre-announcement consultation, issuers may seek guidance from the Exchange on a voluntary basis.
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Circumstances requiring pre-announcement consultation
• Aggregation of transactions [New]− MB R14.23A, R14A.27A/ GEM R19.23A, R20.27A
• Trading arrangement [New]− MB R13.52B(1)/ GEM R17.53B(1)
• Requests for waivers [New]− MB R13.52B(2)(b)/ GEM R17.53B(2)(b)
• Proposal for alternative size test− MB R14.20/ GEM R19.20
• Deeming a party to the transaction to be a connected person− MB R14A.06 or 14A.11(4) / GEM R20.06 or 20.11(4)
Must an issuer consult the Exchange if:
(a) the aggregated transactions are not subject to notifiable transaction
or connected transaction requirements?
(b) it already decides to apply the aggregation rules?
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Rule amendments relating to circular requirements
• MB R13.52(1)/ GEM R17.53(1) sets out circulars and documents which are subject to pre-vetting.
Pre-vetting required Pre-vetting NOT required
• Listing documents• Circular relating to
– Cancellation or withdrawal of listing – Transactions or matters under MB Chapter 14/
GEM Chapter 19– Connected transactions
• Circular to shareholders seeking their approval of– Issuance of securities under specific mandate/
circulars containing IFA opinion– Matters relating to share option scheme– Mining activities– warrant proposal under MB PN4 paragraph
4(c)/ GEM R21.07(3)
• Circular or offer documents relating to takeovers, mergers or offer
For example:• Explanatory statement for share repurchase
mandate*
• Circulars on amendments of articles of association*
• Circulars on:– general issue mandate– re-election of directors– change of auditors
* Subject to pre-vetting under the Old Rules
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Rule amendments relating to circular requirements
• For (a) share repurchase and (b) amendments to issuer’s M&A, issuers must confirm that:
there is nothing unusual / no unusual feature (for both)
the proposed changes comply with Rules and the laws of the place where the issuer is incorporated or otherwise established (for amendments to M&A)
What does the term “unusual” mean?
Does the Exchange accept confirmation from in-house lawyer of the issuer?
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Rule amendments relating to circular requirements
• Issuers are no longer required to publish a circular for discloseable transactions.
• A further announcement on the expert reports must be published within 21 days from the discloseable transaction announcement
Exploration for natural resources activities (MB R14.38)
Profit forecast (MB R14.60A/ GEM R19.60A)
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Suspension cases - Phase 1 announcements
Did post-vetting shorten the suspension period?
Duration
(Average no. of days) No. of suspension
2008 Jan – May 2009 2008 Jan – May 2009
Share transactions/ discloseable transactions
3.4 1.3 64 14
Fund raising 2.9 2.2 177 63
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Post-vetting results in Jan – May 2009
Number %
Total number of published announcements 11,206 100
- Pre-vetted 578 5
- Not post-vetted 5,970 53
- Post-vetted 4,658 42
Post-vetted announcements resulting in follow up
Results of follow-up actions :
684 14.7
- No further action 522 76
- Suspension 15 2.2
- Clarification announcements 132 19
- Non-compliance with the Rules 81 12
- In the process of enquiry (31 May 2009) 48 7
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Post-vetting results in Jan – May 2009 - Announcements on Notifiable Transactions and Fundraising
Number %
Post-vetted announcements
- Notifiable transactions 181 60
- Fundraising 123 40
Total 304 100
Post-vetted announcements resulting in follow up 83 27
Results of follow-up actions :
- No further action 52 63
- Suspension 4 4.8
- Clarification announcements 34 41
- Non-compliance with the Rules 4 4.8
- In the process of enquiry (31 May 2009) 3 3.6
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• Share transaction/ discloseable transaction announcements Principal business activities of the counterparty (MB R14.58(2)/ GEM R19.58(3)) Date of the transaction and independence of the counterparty (MB R14.58(3)/
GEM R19.58(4)) Basis of consideration (MB R14.58(5)/ GEM R19.58(6)) Value of the subject asset (MB R14.58(6)/ GEM R19.58(7)) Net profits attributable to the target asset (MB R14.58(7)/ GEM R19.58(8))
• Issue of securities announcements Nominal value of shares (MB R13.28(2)/ GEM R17.30(2)) Net price of the securities to be issued (MB R13.28(5)/ GEM R17.30(5)) Details of general mandate (MB R13.28(12)/ GEM R17.30(12)) [New] Allocation basis for excess shares in rights issue/ open offer (MB R7.21(1) and
R7.26A(1)/ GEM R10.31(1) and R10.42(1)) [New]
• General Disclaimer statement (MB R13.52 Note 5 / GEM R2.19) [Revised]
Post-vetting results in Jan – May 2009 – Examples of omission of specific disclosures for Notifiable transactions and Fundraising
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Post-vetting results in Jan – May 2009 – Announcements on Price Sensitive Information (R13.09)
Number %
Post-vetted announcements
- Profit warnings 354 40
- Other R13.09 530 60
Total 884 100
Post-vetted announcements resulting in follow up 142 16
Results of follow-up actions :
- No further action 118 83
- Suspension 4 3
- Clarification announcements 8 6
- Non-compliance with the Rules 21 15
- In the process of enquiry (31 May 2009) 7 5
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Points to note:
• Suspension situations insufficient disclosure on impact of development to issuers
• Profit warning announcements voluntary or price sensitive follow up on:
− timeliness of publication of announcements− extent of disclosures
• Overseas regulatory announcements may be subject to other Rule requirements (e.g. MB R13.09/ GEM
R17.10 or notifiable transaction Rules)
Post-vetting results in Jan – May 2009 – Announcements on Price Sensitive Information (R13.09)
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Post-vetting results in Jan – May 2009 – Results announcements
Number %
Post-vetted announcements 1,130 100
Post-vetted announcements resulting in follow up 158 14
Results of follow-up actions :
- No further action 118 75
- Suspension 1 0.6
- Clarification announcements 21 13
- Non-compliance with the Rules 14 9
- In the process of enquiry (31 May 2009) 20 13
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Non-compliance matters identified:
• Historical non-compliance - failure to publish profit warning announcements notifiable transactions
• Insufficient level of operations/ cash company
• Internal control issue (e.g. unavailability of books and records)
• Agreement with auditors on financial statements (MB R13.49/ GEM R18.49)
• Non-compliance with specific disclosures (MB Appendix 16/ GEM Chapter 18) qualification or modification of audit opinion compliance with CG code clarity of corporate actions disclosures (e.g. dividend, book closure)
• Disclosure of material information about the issuer’s financial position (e.g. going concern, litigations)
Post-vetting results in Jan – May 2009 – Results announcements
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II. Alignment of requirements for material dilution in major subsidiary and deemed disposal
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• Amended MB R13.36(1)(a) / GEM R17.39 requires shareholders’ approval for issuance of securities new Rule no longer applies to share issuance by major subsidiaries
Share issuance by a subsidiary is still a deemed disposal of an effective interest in the subsidiary (MB R14.29/ GEM R19.29), which requires:
• announcement (size test(s): 5% or more)• shareholders’ approval (size test(s): 25% or more)
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Old Rules • Chapter 13 – allotment of shares by a major subsidiary is a material dilution
Subject to shareholders’ approval at a physical meeting
• Chapter 14 – deemed disposal of interest in a subsidiary Announcement
New Rules• Chapter 14 – deemed disposal of interest in a subsidiary
Announcement
Example 1: Placing of shares by a subsidiary
Listco A
Listco B
Before placing After placing
Listco A
51% (51 shares)
Listco B
42% (51 shares)
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Example 2: Placing of shares by a listed subsidiary under its general mandate
Does Listco A (the parent co.) need to comply with the shareholders’ approval requirement under Chapter 14?
Listco A
Listco B
> 50%
Independent investors
Placing of new shares under general mandate
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III. Disclosure of information in takeovers
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• MB R14.67A(1)/ GEM R19.67A(1) – provides timing relief to listed issuers where certain non-public information related to a target company is unavailable.
• Conditions: The target must be listed and it must become a subsidiary of the
listed issuer. The issuer has no or limited access to non-public information on the
target. There are legal restrictions in providing non-public information on the
target.
Timing relief for disclosures in major transaction/ VSA circulars
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• MB R14.67A(2)/ GEM R19.67A(2) – The initial circular must contain the minimum disclosure:
all material public information and other available information of the target company to enable shareholders to make an informed voting decision
specific information (e.g. indebtedness statement and working capital sufficiency statement) in relation to the listed issuer
• MB R14.67A(3)/ GEM R19.67A(3) – The supplemental circular must: contain all non-disclosed information be despatched to shareholders within 45 days after gaining access to
the information or control over the target company
Timing relief for disclosures in major transaction/ VSA circulars
• Will the Exchange grant relief if the target will become an associated company of the listed issuer?
• Will the Exchange grant other relief such as disclosure relief?
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IV. Use of website for communication
with shareholders
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• A listed issuer can deem shareholder’s consent to corporate communication being made available to him solely on the listed issuer’s website.
subject to compliance with applicable laws/ regulations and the listed issuer’s own constitutional documents.
• Basic conditions for adoption of the deeming procedure: shareholders’ approval has been obtained at a general meeting; or there is an enabling provision in the listed issuer’s constitutional
documents.
Deeming consent under MB R2.07A(2A)/ GEM R16.04A(2A)
• How does the new Rule affect Hong Kong/ PRC/ Bermuda/ Cayman Islands incorporated issuers?
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Other conditions for adoption of the deeming procedure:
• Each shareholder must be asked individually for the consent.
• Issuers must wait for 28 days before deeming shareholders’ consent.
• A shareholder would not be deemed to have consented if:
the listed issuer’s request for consent was sent less than 12 months after a previous request for consent; and
the previous request for consent is made to him in respect of the same class of corporate communication.
• Issuers must notify the intended recipient of publication of the corporate communication on the website.
Deeming consent under MB R2.07A(2A)/ GEM R16.04A(2A)
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V. Model Code for directors’ dealings
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• Revised “black out” period (effective 1 April 2009) under Rule A.3 of MB App 10 / GEM R5.56
Annual results − 60 days before publication of the results or, if shorter, the
period from the financial year end up to the date of publication
Half-year and quarterly results− 30 days before publication of the results, or, if shorter, the
period from the financial period end up to the date of publication
• The listed issuer must notify the Exchange in advance of the commencement date of the “black out” period
− New Rule A.3(b) of MB App 10/ GEM R5.56(b)
“Black out” period
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• We support early implementation of statutory obligation to disclose price sensitive information.
• We believe that we should enhance our Rules to require reporting on a quarterly basis to ensure a more regular and timely flow of information.
• We have enhanced program to monitor directors’ dealings.
Press release on 12 February 2009
Analysis of director’s dealings during Jan – Mar 2009
Jan to Mar 2009 Full year 2008
Number % Number %
Total no. of dealings: 1,293 100% 9,840 100%
- Outside black out period 1,254 97.0% 9,589 97.4%
- Within black out period 39 3.0% 251 2.6%
Non-compliance with Model Code:
- No. of dealings 3 7.7% 43 17%
- No. of issuers involved 3 - 25 -
Source: Disclosure of Interest forms filed by directors and posted on the HKEx website.
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• Commencement of black out period: 7 April 2009• Notification must be sent to the Exchange before 7 April 2009
Example
31/3/2009(year end
date)
6/6/2009(Date of publication of annual results)
• Can directors deal in securities of the issuer on 6 June 2009?
• If the issuer expects a delay in publication of the results until 31 August 2009, when should the black out period start?
• If the issuer has notified the Exchange of the commencement of the black out period (7 April 2009), say on 5 April 2009 and subsequently decides to postpone the board meeting to 30 July 2009, when should the black out period start?
31/7/2009(Deadline for publication
of annual results)
31/8/2009
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• 3 new exceptions to the definition of “dealings”− MB App 10 – 7(d)(vi) to (viii) / GEM R5.52 (4)(f) to (h)
• Definition of “price-sensitive information” for the purpose of the Mode Code− Note to MB App 10 – Rule A.1/ GEM R5.54
• Time limits for (a) an issuer to respond to a director’s request to deal and (b) dealings to take place once clearance is given
− MB App 10 – Rule B.8 / GEM R5.61
Other Rule amendments
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VI. Disclosure of changes in issued share capital
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• Next Day Disclosure Return (NDDR) must be published by 9 a.m. the next business day following the relevant event
Certain event triggers immediate disclosure (e.g. placing, share repurchase, etc)
Other events may be subject to a 5% de minimis threshold (e.g. exercise of options by a non director, conversion of convertible bonds)
In the event of immediate disclosure is triggered, all prior events that are subject to the 5% de minimis threshold must be disclosed
• Monthly Return must be published by 9 a.m. of the fifth business day next following the end of the calendar month.
Next Day Disclosure Return (MB R13.25A/ GEM R17.27A)and Monthly Return (MB R13.25B/ GEM R17.27B)
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• Issuers must publish an announcement as soon as possible upon grant of options under the share option scheme.
• Example:
– Date of offer of options: 15 April 2009
– Date of acceptance of options: 20 April 2009
Grant of options (MB R17.06A/ GEM R23.06A)
• When was the announcement obligation under R17.06A triggered? on 15 April 2009 or 20 April 2009?
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VII. Other Rule amendments
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1) Bonus issue of a class of securities new to listing Disapplies the minimum spread and number of shareholders requirement for
bonus issue involving options, warrants or similar rights to subscribe or purchase shares provided that no high concentration of shareholding in the hands of a few shareholders within the preceding 5 years
2) Qualified accountants Removed the requirement for appointment of a qualified accountant under
MB R3.24/ GEM R5.15 to 5.18
New Code Provisions in MB Appendix 14/ GEM Appendix 15− Directors should conduct an annual review of the adequacy of staffing
of the financial reporting functions of the issuer. (C.2.2)
− The term of the audit committee should include its responsibility of overseeing the adequacy of staffing of the issuer’s accounting and financial reporting functions. (C.3.3)
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3) New Code Provisions in MB Appendix 14/ GEM Appendix 15 Notice to shareholders should be sent:
− at least 20 clear business days before AGM− at least 10 clear business days in the case of all other general
meetings (E.1.3)
4) Voting by poll Required for all resolutions (MB R13.39(4)/ GEM R17.47(4))
5) Codification of the waiver to property companies (MB Ch.14&14A and GEM Ch. 19 & 20)
Joint press release by the Exchange and the SFC in Dec 2006 –conditional waiver applies to acquisitions by listed property developers of land or property development projects in Hong Kong through public auctions or tenders
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6) Issuers must disclose changes to information about directors/ supervisors (New MB R13.51B/ GEM R17.50A)
by issue of an immediate announcement for information under paragraphs (h) to (v)
in listed issuers’ next published annual / interim report for information under paragraphs (a) to (e) and (g)
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Reference materials published on the HKEx website
• Guidance materials on Exchange’s practices and procedures for handling listing related matters: http://www.hkex.com.hk/listing/epp/epp.htm
• Frequently asked questions on notifiable transactions, connected transactions and issue of securities: (http://www.hkex.com.hk/listing/suppmat/faq200811.doc)
• Listing Decisions: http://www.hkex.com.hk/listing/listdec/listdec.asp
• Checklists and forms in relation to disclosure, documentary and other specific compliance requirements under the Listing Rules and related administrative procedures:
Main Board - http://www.hkex.com.hk/listing/epp/cft_mb.htm GEM - http://www.hkex.com.hk/listing/epp/cft_gem.htm
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• Consultation Conclusions
http://www.hkex.com.hk/consul/conclusion/cc200811.pdf
• Frequently asked questions on the Rule amendments relating to the 2008 Combined Consultation
http://www.hkex.com.hk/listing/suppmat/faqcc200811.doc
• Annotated Next Day Disclosure Return http://www.hkex.com.hk/listing/suppmat/annotnddr.pdf
• Annotated Monthly Return http://www.hkex.com.hk/listing/suppmat/annotmr.pdf
Reference materials published on the HKEx website
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Thank you