Reverse Takeover. Optima Capital Limited 創越融資有限公司

Transcription

1 Optima Capital Limited 創越融資有限公司 Suite 1501, 15 th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong Tel: (852) Fax: (852) Website: 1 Reverse Takeover 30 April

2 Outline What is Reverse Takeover? Listing Rules Implications Structuring deals outside the Bright Line Tests Latest Approach of HKEx on RTO Other Rules relating to RTO Q&A 3 What is Reverse Takeover? Reverse Takeover (RTO), sometimes referred to as backdoor listing, is a means used by private companies which may not otherwise qualify for public offering to go public, without going through the usual time-consuming and costly initial public offering (IPO) process. 4

3 What is Reverse Takeover? (cont d) Definition of RTO under Listing Rules (Rule 14.06(6)) An acquisition or a series of acquisitions of assets by a listed issuer which, in the opinion of the HKEx, constitutes, or is part of a transaction or arrangement or series of transactions or arrangements which constitute, an attempt to achieve a listing of the assets to be acquired and a means to circumvent the requirements for new applicants set out in Chapter 8 of the Listing Rules. 5 What is Reverse Takeover? (cont d) RTO normally involves the following steps: identifying a suitable shell company, usually a listed company which does not have significant businesses and assets injecting business/asset into the shell company in exchange for a substantial or majority stake in the shell company disposing of existing business/asset to outgoing shareholder or other independent party the incoming substantial/controlling shareholder securing control of the shell company and obtaining a listing status for its private company/business 6

4 What is Reverse Takeover? (cont d) Bright Line Tests under Listing Rules in determining RTO Rule 14.06(6)(a) : acquisition(s) of assets which in aggregate constitute Very Substantial Acquisition and results in a change of control; or Rule 14.06(6)(b) : acquisition(s) of assets which in aggregate constitute Very Substantial Acquisition from persons within 24 months of gaining control of the listed issuer by such persons Rule 14.06(6) will apply irrespective of whether any general offer obligations under the Takeovers Code have been waived. 7 What is Reverse Takeover? (cont d) Very Substantial Acquisition (VSA) refers to acquisition or a series of acquisitions of assets by a listed issuer where any percentage ratio is 100% or more under the Size Test Control (as defined under the Takeovers Code) refers to holding, or aggregate holdings, of 30% or more of the voting rights of a company 8

5 What is Reverse Takeover? (cont d) Size Test refers to computations of the following percentage ratios for the purpose of categorising transactions under Chapter 14 of the Listing Rules: Asset ratio: the total assets which are the subject of the transaction divided by the total assets of the listed issuer Profits ratio: the profits attributable to the assets which are the subject of the transaction divided by the profits of the listed issuer Revenue ratio: the revenue attributable to the assets which are the subject of the transaction divided by the revenue of the listed issuer 9 What is Reverse Takeover? (cont d) Size Test (cont d) Consideration ratio: the consideration divided by the total market capitalisation of the listed issuer. The total market capitalisation is the average closing price of the listed issuer s securities as stated in the HKEx s daily quotations sheets for the five business days immediately preceding the date of the transaction Equity capital ratio: the nominal value of the listed issuer s equity capital issued as consideration divided by the nominal value of the listed issuer s issued equity capital immediately before the transaction 10

6 What is Reverse Takeover? (cont d) Size Test (cont d) Points to note in calculating size test 100% of the total assets, profits and revenue attributable to the assets which are the subject of the transaction are used if the assets will become subsidiary of the listed issuer if consideration shares are issued to settle all or part of the consideration, fair value of the consideration shares determined in accordance with applicable accounting standards should be used to calculate the consideration ratio if convertible securities are issued to settle all or part of the consideration, the nominal value of the conversion shares should be used to calculate the equity capital ratio 11 What is Reverse Takeover? (cont d) Case 1 29 December

7 What is Reverse Takeover? (cont d) Case 1 RTO under R14.06(6)(a) new listing 13 What is Reverse Takeover? (cont d) Case 2 30 November

8 What is Reverse Takeover? (cont d) Case 2 RTO under R14.06(6)(b) new listing 15 Listing Rules Implications Once deemed as RTO, the listed issuer will be treated as if it were a new listing applicant; the listed issuer must comply with the procedures and requirements for new listing applications as set out in Chapter 9 of the Listing Rules, including but not limited to issuing a prospectus and paying the non-refundable initial listing fee; the enlarged group must be able to meet the requirements of Rule 8.05 and the enlarged group must be able to meet all the other basic conditions set out in Chapter 8 of the Listing Rules; A RTO must be made conditional on approval by shareholders in general meeting; Any shareholder and his associates who has a material interest in the transaction must abstain from voting at the relevant general meeting on the relevant resolution(s). 16

9 Structuring deals outside the Bright Line Tests Reducing the size of acquisition to below a VSA note size test computation requirements aggregation rule (R14.22 and R14.23) in practice, difficult for shell companies to avoid because of their small size Avoiding change of control issue consideration shares not more than 29.9% of enlarged issued share capital settle remaining consideration by cash, promissory note or convertible securities with conversion restriction 17 Latest Approach of HKEx on RTO Since mid-2010, the HKEx has issued series of listing decisions setting out its view on certain circumstances where VSAs were deemed as RTOs even if they fell outside the Bright Line Tests in Rule 14.06(6)(a) and (b). The decisions stress that the Bright Line Tests only apply to two specific form of RTOs and are not meant to be exhaustive. TheHKExisnowfocusedonwhethertheacquisitionis,intheopinion of the HKEx, a means to circumvent the new listing requirements set out in Chapter 8 of the Listing Rules. 18

10 Latest Approach of HKEx on RTO (cont d) In determining whether the transaction is a RTO, the HKEx will consider the followings: whether the relative size of transaction is extreme for the listed issuer whether the target itself is qualified for listing under the requirements set out in Rule 8.05 whether the target was suitable for listing 19 Latest Approach of HKEx on RTO (cont d) whether the listed issuer is a listed shell whether the transaction would result in a complete change in the principal business of the listed issuer or whether the target would form a substantial part of the listed issuer s business whether the transaction together with other transaction forming a series of arrangements to circumvent the RTO Rules 20

11 Latest Approach of HKEx on RTO (cont d) LD95-1 Trading company acquiring Taiwanese insurance company with asset ratio = 300 times and revenue ratio=5,000 times. Target s results affected by global economic downturn LD95-2 Controlling shareholder of toy company relinquished control. 4 months later, listco acquires solar module business (VSA) from i3p and sell toy business (VSD) to original controlling shareholder LD95-3 CBs were issued to finance an acquisition. Listco subsequently proposes an open offer underwritten by vendor to offset the CBs LD95-4 Listco engaged in sale of machinery and equipment proposes a VSA of an oil and gas exploration, extraction and processing company LD months after new shareholder took control (via whitewash), listco proposes to acquire target from him and at the same time conduct placing to reduce his shareholding to below 30% 21 Latest Approach of HKEx on RTO (cont d) LD LD LD LD Property development company acquiring similar business from controlling shareholder within one year after the latter acquired the controlling stake in the company Acquisition of minority interest in the target Acquisition of significant assets by a long suspended company (listed shell) Electronic gaming company acquires overseas gaming patents from a substantial shareholder resulting the in latter becoming controlling shareholder. Waiver to Rule 14.06(6)(a) granted 22

12 Latest Approach of HKEx on RTO (cont d) In addition, the HKEx has stated in the decisions the followings: no change of control of the listed issuer was irrelevant to its analysis whether the vendor would receive shares of the listed issuer as consideration of the transaction was irrelevant 23 Latest Approach of HKEx on RTO (cont d) Extreme cases Circumvention of new listing requirement RTO new listing requirements apply Other cases Straight forward VSA e.g. acquisition of same line of business 24

13 Latest Approach of HKEx on RTO (cont d) circular includes risk factor industry overview business plan management profile listco s intention may impose specific due diligence standards (PN21) if subsequent actions contradict disclosures, case referral to SFC 25 Latest Approach of HKEx on RTO (cont d) Case 1 March 2012 (Circular October 2013) 26

14 Latest Approach of HKEx on RTO (cont d) Given the feature of conversion restriction, this column is set out for illustration purpose only 23.46% 29.94% 27 Latest Approach of HKEx on RTO (cont d) vendor of assets has been substantial shareholder of listco for some years listco is principally engaged in metals and minerals trading and processing of raw ores. Target asset is engaged in mining and sale of mineral resources target asset complies with Chapter 18 requirements enhanced disclosures in circular 28

15 Latest Approach of HKEx on RTO (cont d) Case 2 August Latest Approach of HKEx on RTO (cont d) controlling shareholder remain 30

16 Latest Approach of HKEx on RTO (cont d) Existing controlling shareholder (Long Grand) still maintains its controlling and single largest shareholding position post acquisition listco is engaged principally in consulting business while target is engaged in scrap metal processing enhanced disclosures in announcement Listing committee resolved that not RTO enhanced disclosure in circular comparable to prospectus standard appoint financial adviser to conduct PN21 due diligence 31 Latest Approach of HKEx on RTO (cont d) Case 3 January 2013 (Circular May 2013) 32

17 Latest Approach of HKEx on RTO (cont d) for illustration purpose only 33 Latest Approach of HKEx on RTO (cont d) The listed issuer is principally engaged in development and sales of electronic gaming systems and it proposed to acquire certain overseas patents from the substantial shareholder who was at that time holding 10.14% interest in the listed issuer: The vendor (i.e. the substantial shareholder at the material time) applied for whitewash waiver the Stock Exchange was satisfied that the Patents were related to the listed issuer s existing principal business and would enable an expansion of the business in an overseas market The Stock Exchange therefore consider the circumvention of the new listing requirements was not a material concern in this case and grant the Company a waiver to R14.06(6)(a) Enhanced disclosure (similar to a IPO prospectus standard) and vetting approach 34

18 Other Rules relating to RTO Rule and of the Listing Rules aim to address circumvention of Rule 14.06(6) in situations where a RTO may be structured as a series of transactions. Rule Rule A listed issuer may not dispose of its existing business for a period of 24 months after a change in control (as defined in the Takeovers Code) unless the assets acquired from the person or group of persons gaining such control or his/their associates and any other assets acquired by the listed issuer after such change in control can meet the trading record requirement of Rule A disposal by a listed issuer which does not meet the requirement under Rule will result in the listed issuer being treated as a new listing applicant. 35 Q & A 36

19 Thank You 37