Originally published 14 September 2011

Keywords: SFC, Takeovers Code, mergers, securities,

Quick Read

The Securities and Futures Commission (SFC) published its "Consultation Paper on (1) the proposal to amend the requirements for property valuation in the Codes on Takeovers and Mergers and Share Repurchases, (2) the proposed amendment relating to confirmations of independence in placing and top-up transactions and (3) the timing for payment of acceptances" (Consultation Paper) on 24 August 2011 to solicit comments from the public to amend certain provisions of the Code on Takeovers and Mergers (Takeovers Code).

How Does This Affect You?

The Consultation Paper aims to facilitate market operations so that more focused and relevant information will be disclosed under the Takeovers Code. It also intends to clarify certain responsibilities of market practitioners. Interested parties are encouraged to respond to the Consultation Paper if they have any comments in relation to the proposals.

The Consultation Paper

The Consultation Paper contains three proposals to amend the Takeovers Code which are summarised as follows:

Proposal to amend Rule 11.1(f) of the Takeovers Code in relation to the requirements for property valuation

Rule 11.1(f) requires a valuation of properties in the case of an offer for a company with significant property interests, or in the case of a securities exchange offer, where the offeror company has significant property interests. The Consultation Paper contains a proposal to amend this requirement so that it will only be applicable to:

  • an offer (mandatory or voluntary, including a privatisation offer or proposal) where the offeror is a related party;
  • a whitewash transaction where the whitewash waiver applicant is a related party; and
  • an offer or a whitewash transaction which involves a special deal that requires shareholder approval under Rule 25 of the Takeovers Code.

The rationale behind the proposed amendment is to recognise that in some situations, the application of the valuation requirement in full may be unduly burdensome both in cost and time, especially in cases when the need for the valuation arises from the action of an unrelated party.

Proposal to amend Note 7 on dispensations from Rule 26 of the Takeovers Code relating to confirmations of independence in placing and top-up transactions

Note 7 on dispensations from Rule 26 of the Takeovers Code provides that "[w]hen compliance with a Rule or a waiver is dependent upon a disposition or placement of voting rights to independent persons the Executive will normally require the financial adviser, placement agent or acquirer of the voting rights to verify and/or confirm that the purchaser is independent of, and does not act in concert with, the vendor of the voting rights, and such verification or confirmation shall be provided in such manner as the Executive may reasonably require to satisfy itself of the acquirer's independence. In the case of a single placee the Executive will be particularly concerned with verifying the independence of the placee."

The Consultation Paper contains a proposal to amend this rule for the purposes of clarifying that:

  • the responsibility for ensuring and confirming that the placees procured under a placing and top-up transaction are independent of, and not acting in concert with, the vendor of the voting rights rests with the financial advisers, placing agents and acquirers of the voting rights, and not the Executive Director of the Corporate Finance Division of the SFC (or his delegate) (Executive); and
  • the Executive may enquire about the independence of the acquirer of the voting rights after the completion of the placing and top-up transaction.

If the acquirer of the voting rights is found to have acted in concert with the vendor of the voting rights, then any waiver which has been granted would be invalidated. The Executive would also take appropriate action including possibly requiring a general offer to be made in accordance with the requirements of Rule 26 of the Takeovers Code.

Proposal to amend the 10-day payment period for the settlement of consideration set out in Rule 20.1 of the Takeovers Code

Rule 20.1 of the Takeovers Code requires that acceptances of an offer which has become unconditional, must be paid for by the offeror as soon as possible but in any event within 10 days. According to the existing practice, the 10-day payment period is calculated in calendar days.

The Federation of Share Registrars Limited is concerned that when any part of the 10-day payment period coincides with any of the public holidays of Hong Kong (such as Chinese New Year, Easter and Christmas), the available processing time before despatch of payment cheques will be significantly shortened causing practical difficulties. In response to this concern, the Executive proposes to amend the prescribed time period in Rule 20.1 from 10 days to 7 business days.

The SFC has asked for comments on the Consultation Paper by 26 September 2011.

You can download copies of the Consultation Paper via the link below:


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