Introduction
On 20 June 2025, The Stock Exchange of Hong Kong Limited (the "Stock Exchange") published a listing decision LD139-2025 (the "Listing Decision"). The Listing Decision discusses whether the Stock Exchange would give consent to a listed issuer under Rule 10.06(3)(a) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules") for a share buyback to be conducted concurrently with its convertible bonds offering (the "CBs Offering").
Background
Company A is a Main Board issuer with a market capitalisation of over HK$100 billion and an average daily turnover volume of over HK$400 million in the preceding six months. It proposed to issue convertible bonds (the "CBs") in an aggregate principal amount of around US$300 million to professional investors through placing banks. The initial conversion price of the CBs was expected to be set at a substantial premium over the benchmarked price of Company A's shares, in compliance with Rule 13.36(6) of the Listing Rules. Upon conversion, Company A would deliver shares to the bondholders. The CBs were to be issued under the general mandate granted at its last annual general meeting.
Concurrently with the CBs Offering, the subscribers, including hedge funds and arbitrage investors, would short sell a portion of the underlying shares (the "delta shares") to hedge their exposure. Placing banks would aggregate these delta shares and sell them off-market through a delta placement. The delta shares would be offered to Company A and other investors at a price determined through bookbuilding, expected to be at a small discount to the last closing price of Company A's shares prior to the CBs Offering.
Company A proposed to purchase the delta shares at the same price using part of the CB proceeds and cancel the purchased delta shares afterwards. This purchase would constitute an off-market share buyback. Company A argued that this concurrent share buyback was integral to the CBs Offering, as it would facilitate investors' hedging and mitigate the negative pressure on the share price from short-selling and potential dilution from conversions.
The CBs Offering would launch after market close in Hong Kong, with pricing determined overnight. Company A would announce the terms of the CBs Offering and concurrent share buyback before market open the next trading day.
Relevant Listing Rules
Rule 10.06(3)(a) of the Listing Rules states that an issuer with a primary listing on the Stock Exchange may not make a new issue of shares, or a sale or transfer of treasury shares, or announce such a proposal, for a period of 30 days after any share purchase by such an issuer, without prior approval from the Stock Exchange. This moratorium does not apply to certain issues pursuant to capitalisation issues, share schemes or exercises of outstanding warrants or options.
Rule 10.06(6)(c) of the Listing Rules provides that for the purposes of the above Rule 10.06 of the Listing Rules, "shares" include securities carrying a right to subscribe or purchase shares, such as CBs.
Decision of the Stock Exchange
The Stock Exchange gave consent to Company A under Rule 10.06(3) for the concurrent share buyback with the CBs Offering, taking into account:
- The concurrent share buyback was part of the CBs Offering to help investors establish an initial hedge, and to reduce the negative impact of such hedging activities on the share price and the potential dilution impacts of the CBs Offering. Accordingly, the concurrent share buyback would benefit Company A and its shareholders;
- The concurrent share buyback would not artificially inflate the CBs conversion price. Pricing for both the CBs and the delta placement would reference the last closing price, determined around the same time, without the involvement of Company A. Company A also confirmed that it had not conducted any share buybacks in the prior 30 days and would not make new issues for 30 days after, without consent of the Exchange; and
- Company A's large market capitalisation and high liquidity made its shares less susceptible to manipulation.
Takeaways
This Listing Decision shows the Stock Exchange's flexibility in applying the Listing Rules to facilitate innovative fundraising while protecting investors. Primary-listed issuers interested in similar fundraising structures should consult professional advisers and the Stock Exchange to ensure their proposals align with the Listing Rules and provide sufficient safeguards to protect the investors and shareholders.
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