In the past few months, the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the "Main Board Rules"), which apply to listings on the main board of the Hong Kong Stock Exchange (the "Main Board"), were amended several times. Here is a summary of the more important changes.

Spin-offs

With effect from 16 July 2001, Practice Note 15 of the Main Board Rules was amended. The changes extended the spin-off requirements to an associated company which was previously a subsidiary of the listed parent at any time during the latest completed financial year up to the date of submission of the spin-off proposal.

In introducing the new rules, the Hong Kong Stock Exchange sought to close a regulatory gap which had in the past allowed listed parents to get around the rules by reducing their stakes in subsidiaries shortly before a spin-off, so that the latter became associated companies to which the old regime did not apply. In addition to the existing spin-off requirements (such as the requirement for proof of sufficiency of the remaining business and the prohibition of spin-offs within three years of the parent company’s listing, which continue to apply), additional provisions were made and certain rules modified.

Importantly, in proposing to spin off an associated company, the listed parent must now provide to the Hong Kong Stock Exchange details of the changes in ownership of the company to be spun off during the latest completed financial year, up to the date of submission of the spin-off proposal. The new rules apply regardless of where the listing of the associated company takes place.

Share option schemes

With effect from September 2001, Chapter 17 of the Main Board Rules was revamped. The amendments largely brought the share option scheme rules of the Main Board in line with the recently amended rules applying to GEM. Please see the section in this briefing headed "GEM Listing Rules Changed".

Companies with negligible net tangible assets

In May 2001 the Hong Kong Stock Exchange issued new rules for companies listed on the Main Board with a negative or negligible net tangible asset value. These rules enable such a company to obtain certain concessions and modifications of applicable rules when deciding what disclosure and approval requirements apply to a transaction the company wishes to enter into.

In August 2001 further guidelines were issued in relation to these concessions and modifications. Conditions for their granting and the factors to be taken into account by the Hong Kong Stock Exchange are now set out in more detail.

© Herbert Smith 2002

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