Hong Kong Exchanges and Clearing Limited (HKEx)
published a listing decision "HKEx-LD35-2012" on 31 July
2012 in which it determined that the subject listed company
(Listco) would not have sufficient operations or
assets of sufficient value after completion of a series of proposed
transactions to warrant its continued listing on The Stock Exchange
of Hong Kong Limited (SEHK).
The Listco and its parent company (Parentco)
intended to enter into the following series of transactions
Step 1 - The Listco would inject a
substantial part of its existing business into its wholly-owned
subsidiary (Subsidiary). On a pro-rata basis, all the shares of the
Subsidiary would be distributed to the Listco's shareholders
(Distribution). The Distribution was conditional on approval by the
Listco's shareholders (excluding the Parentco).
Step 2 - After the Distribution, the
Parentco would make a voluntary cash offer to acquire all the
remaining shares in the Subsidiary held by its other shareholders
Step 3 - The Parentco would also sell
its controlling interest in the Listco to a third-party investor
(Investor) who would then make an offer to acquire all the
remaining shares in the Listco that were held by its other
shareholders (Listco Offer). The sale of the controlling interest
in the Listco by the Parentco was conditional on the
shareholders' approval of the Distribution.
Both the Listco Offer and the Subsidiary Offer would be subject
to the Takeovers Code.
After completion of the Transactions, the business remaining
(Remaining Business) would be a business that had
recorded a loss and negative operating cash flow in the latest
financial year. Its total assets and revenue represented about 6%
of that of the Listco before the Transactions.
The Investor would not inject capital into the Listco nor
implement any fund raising activities. The plan for the Listco was
to expand the Remaining Business by expanding its customer base,
and to explore new business opportunities and investments. However,
no concrete step had been taken.
Relevant Listing Rule
Rule 13.24 states that "An issuer shall carry out,
directly or indirectly, a sufficient level of operations or have
tangible assets of sufficient value and/or intangible assets for
which a sufficient potential value can be demonstrated to the
Exchange to warrant the continued listing of the issuer's
Whether the Listco would have a sufficient level of operations
or assets of sufficient value to warrant its continued listing on
SEHK upon completion of the Transactions.
SEHK determined that the Listco would not have
a sufficient level of operations or assets of sufficient value to
warrant its continued listing on SEHK upon completion of the
Transactions in view of the following:
The Transactions were in essence a privatisation of the
Listco's existing business, although it was structured with the
intention to allow the Listco to maintain its listing status.
After the Transactions, the Listco would be left with
insignificant operations and this would lead to a market quality
issue. Also, the Listco had failed to show that it would have a
feasible and sustainable business operation upon completion of the
The Remaining Business was immaterial when compared to the
Listco's business operations and assets value before the
Transactions. Its absolute size was also small, with an asset value
and annual turnover of only HK$20 million or less in recent
financial years. In addition, it had recorded net losses and
negative operating cash flow.
You may download copies of the listing decision via the link
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This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications
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