HKEx LISTING DECISION Cite as HKEx-LD56-1 (September 2006) (Updated in September 2010 and January 2013) Summary

Transcription

1 HKEx LISTING DECISION Cite as HKEx-LD56-1 (September 2006) (Updated in September 2010 and January 2013) Summary Name of Party Company X - a Main Board listing applicant Company Y a shareholder of Company X Subject Listing Rule Decision Whether and under what circumstances could the domestic shares of Company X held by Company Y be listed on the Exchange as H shares and sold in the open market Listing Rules 2A.05, , 2.03(2) and (4), 2.13, and 13.09(1) 3 ; Listing Rules, Part C1 of Appendix 5, Paragraph 3 2 Based on the fact that Company X had established a clear methodology for the transfer of domestic shares to H shares and had publicly announced that methodology to investors together with other appropriate disclosure regarding the transfer process in a listing document published before any proposed transfer, the Exchange determined that: (i) subject to prior approval by the China Securities Regulatory Commission (CSRC) and compliance with the transfer procedures duly established and announced by Company X, domestic shares of Company X could be transferred to Hong Kong, listed on the Exchange as H shares and sold in the open market; (ii) the transfer of domestic shares to Hong Kong would be required to meet the established administrative procedures for listing on the Exchange, including the submission of necessary documentation and the delivery of the shares for inclusion in the Hong Kong share registrar; (iii) Company X could apply to list all or any portion of its domestic shares on the Exchange as H shares in advance of any proposed transfer to ensure that the transfer process could be completed promptly upon notice to the Exchange and delivery of shares for inclusion in the Hong Kong share registrar. However, as the listing of additional shares after a company s initial listing was ordinarily considered by the 2 1

2 Exchange to be a purely administrative matter, the Exchange did not require such prior application as a condition for the transfer, listing and sale of shares in the form of H shares; and (iv) no further approval by the shareholders of Company X in general meetings and/or class meetings would be required for the transfer, listing and sale of domestic shares held by Company Y in the form of H shares. SUMMARY OF FACTS 1. Company X was incorporated in Mainland China and proposed to list its domestic shares on the Exchange following a Global Offering and initial public offering (IPO) in Hong Kong. The domestic shares of Company X held by Company Y (being a shareholder of Company X), which represented approximately 70 per cent of Company X s issued shares upon completion of the Global Offering, were deposited with the China Securities Depository and Clearing Corporation Limited. The domestic shares would be identical in all material respects to the H shares except that dividends on domestic shares would be payable in renminbi and the H shares would be held on the Hong Kong share registrar of Company X. 2. Company X s articles of association provided that the special voting procedures for shareholders of different categories would not apply in the circumstances where the shares of Company X held by founding shareholder(s) were transferred or converted to foreign investment shares upon the approval of the State Council or its authorised approving authorities (such as the CSRC) and publicly tradable on one or more overseas stock exchanges. The articles of association of Company X had been reviewed by the CSRC and complied with relevant requirements of the Chinese Company Law and with Chapter 19A of the Listing Rules. There were no published interpretations of relevant PRC laws, rules, regulations or administrative procedures relating to the transfer of domestic shares or A shares to H shares. 3. The listing document of Company X stated that the shares held by Company Y would only be admitted and listed as H shares on the Exchange upon the approval of the CSRC and completion of the procedural requirements which involved the withdrawal of such shares from the China Securities Depository and Clearing Corporation Limited and re-registration of such shares on Company X s share registrar maintained in Hong Kong. 4. The listing document of Company X also stated that in order for Company Y to withdraw its shares that were deposited with the China Securities Depository and Clearing Corporation Limited and re-register such shares on Company X s Hong Kong share registrar, Company Y would issue to Company X a removal request in a prescribed form in respect of a specified number of shares and attach the 2

3 relevant documents of title. Company X would then issue a notice to its Hong Kong share registrar with instructions that, with effect from a specified effective date, its Hong Kong share registrar would issue H-share certificates to Company Y for such specified number of shares and Company Y s shareholding interest deposited with the China Securities Depository and Clearing Corporation Limited would then be correspondingly reduced. In addition, after receiving the approval from the CSRC and completing the withdrawal procedures, Company X would issue an announcement to inform shareholders and the public of such fact not less than three days prior to the proposed effective date. 5. Company X had made disclosure under the Risk factors section of its listing document that any future re-registration of domestic shares held on the China Securities Depository and Clearing Corporation Limited into H shares could have a material adverse effect on the market price of Company X s H shares and result in dilution of shareholdings of the investors subscribing shares in the Global Offering. 6. Until the domestic shares were re-registered on Company X s Hong Kong share registrar, Company Y would not be entitled to attend and vote at meetings of H shareholders in respect of such shares. 7. As part of its Global Offering, and in order to ensure that any future transfer process could be completed promptly upon notice to the Exchange, Company X applied to the Exchange to authorise for listing on the Exchange all of the domestic shares held by Company Y in Company X. 8. The sponsor also submitted that any transfer of Company Y s shares for listing on the Exchange would not invalidate or limit certain transfer restrictions applicable to Company Y s shares and described in Company X s listing document. THE ISSUE RAISED FOR CONSIDERATION 9. Whether and under what circumstances could the domestic shares of Company X held by Company Y be listed on the Exchange as H shares and sold in the open market APPLICABLE LISTING RULE OR PRINCIPLE 10. Listing Rule 2A.05 states that the Listing Committee has reserved to itself the power to approve all applications for listing from a new applicant. 11. Listing Rule requires a formal application for listing in the form set out in Form C1 be lodged with the Exchange, in the case of a new application at least four clear business days prior to the date of hearing of the application by the Listing Committee. 3

4 12. Listing Rules, Part C1 of Appendix 5, Paragraph 3 2 requires Form C1 containing amounts and descriptions of securities for which application is now made. 13. Listing Rule 2.03(2) and (4) require that: (2) the issue and marketing of securities is conducted in a fair and orderly manner and that potential investors are given sufficient information to enable them to make a properly informed assessment of an issuer (4) all holders of listed securities are treated fairly and equally; 14. Listing Rule 2.13 provides that any listing document must be prepared having regard to the general principle that the information contained in the document must be accurate and complete in all material respects and not be misleading or deceptive. It is the responsibility of the directors of new listing applicants to ensure to their own satisfaction that the listing document is accurate in all material respects. 15. Listing Rule provides that: all listing documents issued by a new applicant must, as an overriding principle, contain such particulars and information which, according to the particular nature of the issuer and the securities for which listing is sought, is necessary to enable an investor to make an informed assessment of the activities, assets and liabilities, financial position, management and prospects of the issuer and of its profits and losses and of the rights attaching to such securities. 16. Listing Rule 13.09(1) provides that the Exchange, shareholders and the public should be informed by a listed issuer, as soon as reasonably practicable, of any information which is expected to be price-sensitive 3. (Updated January 2013) ANALYSIS 17. The Exchange acknowledged that the requirements concerning the transfer of domestic shares or A shares to the H-share market were governed by PRC law and were subject to change, re-interpretation and clarification from time to time. 18. However, the Exchange also considered that information regarding the transfer of domestic shares to H shares / shares between the A-share and H-share markets was material information for purposes of Rule 2.13 and Rule 13.09(1) ) 3. Listing applicants, listed companies and their directors were therefore under an obligation to ensure that all material details of the transfer process were disclosed and explained to public shareholders. 4

5 19. The appropriate methods for explaining the process of transferring domestic shares or A shares to the H-share market could vary based on the circumstances of the individual company including, but not limited to, previous public statements the company has made regarding the subject, and the amount of information in the public domain on the subject generally, including published interpretations of relevant PRC laws, rules, regulations and administrative procedures. 20. In the present case, the Exchange noted that: a. The domestic shares of Company X were identical in all material respects to H shares except that dividends on domestic shares were payable in renminbi and the H shares would be held on the Hong Kong share registrar of Company X. b. Company X s articles of association had been reviewed by the CSRC and established a clear methodology for the transfer of domestic shares to H shares under which no further approval from Company X s shareholders would be required for the transfer. c. There were no published interpretations of relevant PRC laws, rules, regulations or administrative procedures relating to the transfer of domestic shares or A shares to H shares. d. Company X had made disclosure in the Risk factors section of the listing document that any future re-registration of domestic shares held on the China Securities Depository and Clearing Corporation Limited into H shares could have a material adverse effect on the market price of Company X s H shares and result in dilution of shareholdings of the investors subscribing shares in the Global Offering. e. Company X would publicly announce the transfer methodology to the public in a listing document (its IPO prospectus) that included significant details of the transfer process including the required mechanics for withdrawal of domestic shares from the China Securities Depository and Clearing Corporation Limited and the re-registration of such shares on Company X s share registrar maintained in Hong Kong. f. Company X would issue an announcement to inform shareholders and the public of any transfer of domestic shares to the H-share market not less than three days prior to the proposed effective date. 21. Based on the above, the Exchange considered that Company X had adequately explained the process of transferring its domestic shares to the H-share market for purposes of Rule No further approval from the shareholders of Company X in general meetings and/or class meetings would be required for the transfer, listing and sale of shares held by Company Y in the form of H shares. 5

6 22. The Exchange agreed that Company X could apply to list all or any portion of its domestic shares on the Exchange as H shares in advance to ensure that the transfer process could be completed promptly upon notice to the Exchange and delivery of shares for inclusion in the Hong Kong share registrar. However, as the listing of additional shares after a company s initial listing was ordinarily considered to be a purely administrative matter, the Exchange did not require such prior application as a condition for the transfer, listing and sale of shares in the form of H shares. DECISION 23. Based on the fact that Company X had established a clear methodology for the transfer of domestic shares to H shares and had publicly announced that methodology to investors together with other appropriate disclosure regarding the transfer process in a listing document published before any proposed transfer, the Exchange determined that: (i) (ii) subject to prior approval by the CSRC and compliance with the transfer procedures duly established and announced by Company X, domestic shares of Company X could be transferred to Hong Kong, listed on the Exchange as H shares and sold in the open market; the transfer of domestic shares to Hong Kong would be required to meet the established administrative procedures for listing at the Exchange, including the submission of necessary documentation and the delivery of the shares for inclusion in the Hong Kong share registrar; (iii) Company X could apply to list all or any portion of its domestic shares on the Exchange as H shares in advance of any proposed transfer to ensure that the transfer process could be completed promptly upon notice to the Exchange and delivery of shares for inclusion in the Hong Kong share registrar. However, as the listing of additional shares after a company s initial listing was ordinarily considered by the Exchange to be a purely administrative matter, the Exchange did not require such prior application as a condition for the transfer, listing and sale of shares in the form of H shares; and (iv) no further approval by the shareholders of Company X in general meetings and/or class meetings would be required for the transfer, listing and sale of domestic shares held by Company Y in the form of H shares. Note: 1. Rule 9.12 has been repealed since November The formal application form (Form C1) no longer applies to new listing applicants after the rule amendments in November (Updated September 2010) 6

7 3. Following the statutory backing of an issuer s continuing obligation to disclose inside information, consequential amendments were made to the Rules with effect from 1 January The old Rule 13.09(1) is now replaced by Rules 13.09(1) and (2)(a) which require disclosure of (i) information necessary to avoid a false market and (ii) inside information which requires disclosure under the Inside Information Provisions. (Updated January 2013) 7

8 HKEx LISTING DECISION Cite as HKEx-LD54-2 (June 2006) Summary Name of Party Subject Company A a Main Board listed issuer and its subsidiaries (the Group ) Whether the requirement of management continuity under Listing Rule 8.05(1)(b) and Paragraph 2 of Practice Note 3 could be satisfied where the management function was largely vested in one dominant director throughout the track record period? Listing Rule Listing Rule 8.05(1)(b); Paragraph 2 of Practice Note 3 Decision Based on the above facts and the circumstances of the case and the Exchange s analysis of the Listing Rules, the Exchange determined that the requirement of management continuity under Listing Rule 8.05(1)(b) and Paragraph 2 of Practice Note 3 was satisfied. SUMMARY OF FACTS 1. In the second financial year of the track record period, the Group was reorganised and Company A became the Group s holding company. Throughout the track record period the principal business of the Group was carried out by Subsidiary B. 2. The composition of the respective boards of directors of Company A and Subsidiary B were as follows: Company A There were seven members on the board of directors at the time of listing, including two executive directors (that is Mr. X and Mr. Y), two nonexecutive directors and three independent non-executive directors. The Group s management control was vested in the executive directors. However, only Mr. X remained on the board of directors throughout the track record period. Mr. Y joined the Group in the second financial year of the track record period. Subsidiary B Five members had been appointed to the board of directors of Subsidiary B during the track record period, including two executive directors, and three non-executive directors. While Mr. X and his wife remained as executive directors up to the time of listing, only one non-executive director remained on the board at the time of listing. 1

9 3. For the purpose of demonstrating management continuity under Listing Rule 8.05(1)(b) and Paragraph 2 of Practice Note 3, the sponsor of Company A submitted that management responsibilities for the Group had always been vested in Mr. X throughout the track record period and up to the time of listing based on the following facts : a. Mr. X besides being the executive director of Company A was also the founding member, the chairman, legal representative and general manager of the Group throughout the track record period. Mr. X was therefore responsible for the overall management and the strategic development of the Group. Mr. Y assisted Mr. X in business development of the Group and was responsible for the discharge of the Group s finance and administrative functions; b. At the level of Subsidiary B, only Mr. X and his wife were executive directors during the track record period up to the time of listing. The remaining three directors were non-executive directors. Two of the nonexecutive directors were respectively appointed by Mr. X s wife and by another close family member of Mr. X who acted as controlling shareholders. These non-executive directors were board representatives of the controlling shareholders and did not participate in the day-to-day management of Subsidiary B. One of them resigned during the track record period. The other non-executive director was appointed by a minority shareholder and resigned during the track record period. THE ISSUE RAISED FOR CONSIDERATION 4. Whether the requirement of management continuity under Listing Rule 8.05(1)(b) and Paragraph 2 of Practice Note 3 could be satisfied where the management function was largely vested in one dominant director throughout the track record period? APPLICABLE LISTING RULES OR PRINCIPLES 5. Listing Rule 8.05(1)(b) provides that in order to meet the profit test, a new applicant must have an adequate trading record under substantially the same management and ownership. In particular, the issuer or its group must satisfy management continuity for at least the three preceding financial years. 6. Paragraph 2 of Practice Note 3 of the Listing Rules gives further guidance on the interpretation of the requirement for substantially the same management as follow: In all cases the trading record period of a new applicant must enable the Exchange and investors to make an informed 2

10 assessment of the management s ability to manage the applicant s business and the likely performance of that business in the future. In order to make this assessment the applicant must be able to satisfy the Exchange that its main business or businesses, as at the time of listing, have normally been managed by substantially the same persons throughout the period of the qualifying trading record and that such persons are the management of the new applicant. 7. Reference is made to Listing Decision HKEx-LD45-1 published in the First Quarter of Paragraphs 9-12 thereof set out the analysis of the Exchange over the question of management as follow: 9. The Exchange ordinarily considers management continuity under Listing Rule 8.05(1)(b) and Paragraph 2 of Practice Note 3 to be a question of fact. 10. In the Consultation Paper on Proposed Amendments to the Listing Rules Relating to Initial Listing Criteria and Continuing Eligibility published in July 2002 (the Consultation Paper ), paragraph 31 clearly stated that the Exchange has interpreted the management continuity requirement to mean that applicants must demonstrate that there has been no change in the majority of the applicant s board of directors and senior management of its principal operating subsidiaries during the three financial year track record period. Paragraph 2 of Practice Note 3 requires that management continuity must continue up to the date of listing. 11. Based on this interpretation of the Listing Rules, when examining whether Company A and its predecessor satisfied the management continuity requirement, the Exchange followed the practice of concentrating on a review of the substance of the management, particularly considering whether: a. an identifiable group of individuals most relevant and responsible for the track record results of a listing applicant remained in positions of responsibility with the enterprise under review throughout the relevant track record period; and b. such group of individuals would form the core management of the applicant at the time of listing and thereafter. 3

11 12. When assessing the relevance of individual members of a management team to the track record results of Company A and its predecessor, the Exchange followed the practice of ordinarily attributing proportionately greater responsibility to officers with more senior positions than those with more junior positions. This practice is intended to reflect the formal responsibilities of senior officers in their corporate roles. In its determination process, the Exchange ordinarily considers special facts and circumstances of an individual case to enable appropriate adjustments to be made in its final conclusion. THE ANALYSIS 8. In determining whether management continuity had been demonstrated in the present case, the Exchange adopted the approach as set out in Listing Decision HKEx-LD45-1 (First Quarter of 2005) above. 9. The Exchange s review therefore involved an assessment of the demonstrated importance of the responsibilities that were bestowed upon Mr. X with respect to the business operations of the Group in light of the management composition of Company A and Subsidiary B; and whether on the facts of the case the contributions from Mr. X had been proved to have continued throughout the track record period and up to the time of listing. THE DECISION 10. Based on the above facts and the circumstances of the case and the Exchange s analysis of the Listing Rules, the Exchange determined that the requirement for management continuity under Listing Rule 8.05(1)(b) and Paragraph 2 of Practice Note 3 was satisfied. 4

12 HKEx LISTING DECISION Cite as HKEx-LD54-1 (June 2006) Summary Name of Party Subject Listing Rules Decision Company A a Main Board listed issuer and its subsidiaries (the Group ) Whether and how the requirement of management continuity under Listing Rule 8.05(1)(b) and Paragraph 2 of Practice Note 3 could be satisfied in a case where the listing applicant is a group comprising a number of subsidiaries? Listing Rule 8.05(1)(b); Paragraph 2 of Practice Note 3 of the Listing Rules The Exchange determined that the requirement of management continuity had been satisfied if the core management group most relevant to the trading record results of Company A had continued to serve on the board of directors and/or at the senior management level in Company A and its respective key operating subsidiaries throughout the three-year trading record period and up to the time of listing. SUMMARY OF FACTS 1. Company A had been incorporated at the end of the trading record period. The controlling shareholder of Company A transferred to the Group, among other things, its assets and equity interests in subsidiaries that form the various divisions of Company A in a pre-listing reorganisation. When listed, the Group would comprise more than thirty subsidiaries. 2. Company A s seven executive directors, six non-executive directors and three independent non-executive directors were appointed on the establishment of Company A. 3. The sponsor submitted the following evidence to demonstrate that the management continuity requirement had been satisfied: a. Company A - Five of the seven executive directors of Company A had held senior management positions in or had managed the operations of key subsidiaries in the Group throughout the trading record period. In addition, substantially all of the individuals holding key positions in the senior management of Company A also held or had held key management 1

13 positions in or managed the operations of key subsidiaries in the Group throughout the trading record period. b. Principal operating subsidiaries - The directors had identified five key operating subsidiaries out of a group of thirty subsidiaries as the entities most significant to the results of the Group in terms of revenue, profits and assets. The management profiles of these five key operating subsidiaries were as follows: Subsidiary A - Three of the four current executive directors of Subsidiary A were executive directors throughout the trading record period and the other current executive director had been the deputy manager of Subsidiary A responsible for overseeing the day-to-day operations prior to his promotion as executive director. Subsidiary B - Two of the four current executive directors of Subsidiary B were executive directors throughout the trading record period. In addition, five of the six senior management staff continued to serve throughout the trading record period. Subsidiary C - Two of the four current executive directors of Subsidiary C had been senior managers of Subsidiary C during the trading record period. In addition, the outgoing chief executive officer of Subsidiary C had assumed other senior management duties for other companies within the Group. Subsidiary D - Prior to its incorporation in the last financial year of Company A s trading record period, Subsidiary D had not existed as an incorporated entity. However, all the executive directors had been senior management staff of Subsidiary D prior to its incorporation. In addition, three of the five managers of Subsidiary D continued to serve throughout the trading record period. Subsidiary E - Two of the three current executive directors served as executive directors of Subsidiary E for more than nine years. The current chief executive officer and his current deputies had been appointed prior to the commencement of the trading record period. c. Information relating to experience and particulars of the individuals most relevant to the Group s performance during the trading record period in respect of Company A and key operating subsidiaries had been submitted to the Exchange for its review. 2

14 THE ISSUE RAISED FOR CONSIDERATION 4. Whether and how the requirement of management continuity under Listing Rule 8.05(1)(b) and Paragraph 2 of Practice Note 3 could be satisfied in a case where the listing applicant is a group comprising a number of subsidiaries? APPLICABLE LISTING RULES OR PRINCIPLE 5. Listing Rule 8.05(1)(b) provides that in order to meet the profit test, a new applicant must have an adequate trading record under substantially the same management and ownership. This means that the new applicant or its group must, among other criteria, satisfy management continuity for at least the three preceding financial years. 6. Paragraph 2 of Practice Note 3 of the Listing Rules gives further guidance on the interpretation of the requirement for substantially the same management as follows: In all cases the trading record period of a new applicant must enable the Exchange and investors to make an informed assessment of the management s ability to manage the applicant s business and the likely performance of that business in the future. In order to make this assessment the applicant must be able to satisfy the Exchange that its main business or businesses, as at the time of listing, have normally been managed by substantially the same persons throughout the period of the qualifying trading record and that such persons are the management of the new applicant. 7. The Listing Decision HKEx-LD45-1 ( HKEx-LD45-1 ) published in the First Quarter of Paragraphs 9-12 thereof set out the analysis of the Exchange concerning the question of management as follows: 9. The Exchange ordinarily considers management continuity under Listing Rule 8.05(1)(b) and Paragraph 2 of Practice Note 3 to be a question of fact. 10. In the Consultation Paper on Proposed Amendments to the Listing Rules Relating to Initial Listing Criteria and Continuing Eligibility published in July 2002 (the Consultation Paper ), paragraph 31 clearly stated that the Exchange has interpreted the management continuity requirement to mean that applicants must demonstrate that there has been no change in the majority of the applicant s 3

15 board of directors and senior management of its principal operating subsidiaries during the three financial year track record period. Paragraph 2 of Practice Note 3 requires that management continuity must continue up to the date of listing. 11. Based on this interpretation of the Listing Rules, when examining whether Company A and its predecessor satisfied the management continuity requirement, the Exchange followed the practice of concentrating on a review of the substance of the management, particularly considering whether: a. an identifiable group of individuals most relevant and responsible for the track record results of a listing applicant remained in positions of responsibility with the enterprise under review throughout the relevant track record period; and b. such group of individuals would form the core management of the applicant at the time of listing and thereafter. 12. When assessing the relevance of individual members of a management team to the track record results of Company A and its predecessor, the Exchange followed the practice of ordinarily attributing proportionately greater responsibility to officers with more senior positions than those with more junior positions. This practice is intended to reflect the formal responsibilities of senior officers in their corporate roles. In its determination process, the Exchange ordinarily considers special facts and circumstances of an individual case to enable appropriate adjustments to be made in its final conclusion. THE ANALYSIS 8. When assessing the relevance of individual members of a management team to the trading record results of a listing applicant, the Exchange followed the established practice as set out in HKEx-LD45-1 of attributing proportionately greater responsibility to more senior officers and those with responsibility at the group level and less responsibility to more junior corporate officials and those with responsibility at the operating subsidiary level with consideration given to the relative size of the companies at the operating subsidiary level. This practice is intended to reflect the formal responsibilities of the senior officers in their 4

16 corporate roles. In addition, the Exchange noted that its focus on the substance of a listing applicant s management when examining management continuity of a listing applicant meant that in some cases management continuity requirement could be satisfied where less than a majority of the board of directors and senior management continued to serve throughout the three financial year trading record period. 9. Following the above analysis and based on the factual circumstances of the case as submitted by the sponsor, the Exchange was satisfied that a majority of the executive directors and key members in the senior management of Company A and the key operating subsidiaries had continued to serve throughout the trading record period up to the time of listing for the purpose of Listing Rule 8.05(1)(b). THE DECISION 10. Based on the above facts and the circumstances of the case and the Exchange s analysis of the Listing Rules, the Exchange determined that the requirement of management continuity had been satisfied if the core management group most relevant to the trading record results of Company A had continued to serve on the board of directors and/or at the senior management level in Company A and its respective key operating subsidiaries throughout the three-year trading record period and up to the time of listing. 5

17 HKEx LISTING DECISION Cite as HKEx-LD53 2 [April 2006] Summary Name of Party Company A - a Main Board listed company The Group Company A and its subsidiaries Subsidiary X a wholly owned subsidiary of Company A Subject Whether the appointment of and the grant of a mandate to external professional fund manager to manage and invest the Group's surplus cash reserves under the terms of a fund management agreement and the transactions contemplated under such agreement constituted notifiable transactions? Listing Rule Listing Rules 13.09(1), 14.04(1)(a) and 14.04(1)(g) Decision The Exchange determined that the fund management agreement Subsidiary X entered into and the transactions contemplated under such agreement would be exempted under Listing Rule 14.04(1)(g) and Company A would not be required to comply with the requirements for notifiable transactions under Chapter 14 of the Listing Rules. SUMMARY OF FACTS 1. The Group was principally engaged in the marketing and distribution of electronic components, and the design and manufacture of electronic products. The Group had maintained a robust cash position over the past year. 2. For treasury management purposes, Subsidiary X entered into a discretionary management agreement (the "Fund Management Agreement") and appointed an external professional investment banker (the "Fund Manager") to manage and invest the Group's surplus cash reserves and other liquid investments. For this purpose, Subsidiary X transferred a sum of US$10 million into the portfolio account opened with and maintained by the Fund Manager representing surplus funds in excess of the Group's working capital requirement with a view to obtaining a better return thereon (the "Portfolio"). 1

18 3. The Fund Manager and its ultimate beneficial owner were independent third parties. 4. The Fund Management Agreement conferred upon the Fund Manager the full authority to invest in and realize any investments authorised under the investment guideline as agreed by Subsidiary X (the "Authorised Investments"). Although Subsidiary X would have the right to give special written instructions to the Fund Manager requiring it to alter the holdings or investment positioning of the Portfolio that would not normally have been done under the Fund Manager's normal discretion or under the existing agreed upon strategic asset allocation, the Fund Manager's acceptance of such instructions must be obtained. 5. The scope of the Authorised Investments would comprise a balanced mix of fixed income, equity and alternative investments. Fixed income instruments could include, but are not limited to, fixed income instruments of investment and below investment grade bonds, money market investments, other bond-like vehicles and derivatives thereof. Alternative investments could also include, but are not limited to, funds, securities, notes or other instruments linked to commodities, real estates, hedge funds, fund of hedge funds and other alternative investments. 6. Company A sought guidance from the Exchange on the applicability of the relevant Listing Rules to the Fund Management Agreement, in particular, whether the transactions contemplated under such agreement would constitute notifiable transactions under Chapter 14 of the Listing Rules. THE ISSUE RAISED FOR CONSIDERATION 7. Whether the appointment of and the grant of a mandate to external professional fund manager to manage and invest the Group's surplus cash reserves under the terms of a fund management agreement and the transactions contemplated under such agreement constituted notifiable transactions? APPLICABLE LISTING RULE OR PRINCIPLE 8. Rule 14.04(1)(a) states that for the purposes of Chapter 14 (Notifiable Transactions), any reference to a transaction by a listed issuer includes the acquisition or disposal of assets, including deemed disposals as referred to in rule Rule 14.04(1)(g) provides that "to the extent not expressly provided in rules 14.04(1)(a) to (f), excludes any transaction of a revenue nature in the ordinary and usual course of business (as referred to in rule 14.04(8)) of the listed issuer". 2

19 10. Rule 13.09(1) which imposes a general disclosure obligation on issuers provides as follows: Generally and apart from compliance with all the specific requirements in this Chapter, an issuer shall keep the Exchange, members of the issuer and other holders of its listed securities informed as soon as reasonably practicable of any information relating to the group (including information on any major new developments in the group s sphere of activity which is not public knowledge) which: (a) (b) (c) is necessary to enable them and the public to appraise the position of the group; or is necessary to avoid the establishment of a false market in its securities; or might be reasonably expected materially to affect market activity in and the price of its securities. ANALYSIS 11. The Exchange notes that treasury activities such as the grant of mandate and allocation of surplus cash or other liquid assets to external fund manager or the reallocation of externally managed assets from one external fund manager to another are prima facie "transactions" that would fall within the ambit of Chapter 14 of the Listing Rules. Depending on the terms of the Fund Management Agreement entered into between Company A and the Fund Manager, and on where control/ownership of the funds rests pursuant to the agreement, a transfer of assets to or from the Fund Manager for treasury purposes could constitute an acquisition or disposal of assets under Listing Rule 14.04(1)(a). 12. The Exchange takes the view that legitimate short-term investments for treasury management purposes are not intended to fall within the ambit of the Chapter 14 rules. The Exchange also notes that given this position transactions could be devised to appear to be for treasury purposes in an attempt to defeat or circumvent the purpose of the notification and shareholder approval requirements in Chapter 14. Therefore an analysis would be required on a case by case basis to differentiate transactions and arrangements caught by the scope of Chapter 14 of the Listing Rules from those exempt. 13. The Exchange considered that legitimate treasury activities should be treated as bona fide transactions for the purpose of utilizing surplus cash reserves. In general, investments for treasury purposes should be in liquid stocks and short-term in nature. Listing Rule 14.04(1)(g) excludes any transaction of a revenue nature in 3

20 the ordinary and usual course of business from the scope of Chapter 14 of the Listing Rules. The Exchange considered that Listing Rule 14.04(1)(g) should be interpreted to exempt treasury activities where the listed issuer has a clearly stated and established a treasury policy and transactions contemplated are conducted in accordance with such treasury policy. 14. Where it would be necessary to determine whether transactions should be treated as treasury activities, the Exchange would consider them on a case by case basis and require information from the issuer regarding its established treasury policy, treatment of previous transactions and purpose of the activities. 15. However, an issuer must continuously review the circumstances and consider whether the other disclosure obligations that may be relevant and need to be complied with, such as the general disclosure obligation under Listing Rule 13.09(1), to keep the market informed of all price-sensitive information. DECISION 16. Having considered the facts of the case and an analysis of the purpose of the relevant Listing Rules, the Exchange determined that the Fund Management Agreement entered into between Subsidiary X and the Fund Manager and the transactions contemplated under such agreement would be exempted under Listing Rule 14.04(1)(g), subject to the guidance set out in paragraph 13, and Company A would not be required to comply with the requirements for notifiable transactions under Chapter 14 of the Listing Rules. 4

21 HKEx LISTING DECISION Cite as HKEx-LD53-1 [April 2006] Name of Party Subject Summary Company A - a Main Board listed company. Whether the details published in an announcement concerning the appointment of an executive director had complied with all the requirements of Listing Rule 13.51(2) [all references to Listing Rule 13.51(2) in this Listing Decision are made to its form prior to 1 March 2006]. Listing Rule Listing Rule 13.51(2) Decision The Exchange determined that Company A had failed to comply with all the requirements of Listing Rule 13.51(2) and must publish a further announcement to provide the details that had been omitted from the previous announcement. SUMMARY OF FACTS 1. Company A published an announcement in February 2005 on the appointment of an executive director to its board (the "Appointee") in the newspapers. 2. The announcement provided the following details regarding the Appointee: a. the age; b. years of experience in the relevant fields; c. that she was not connected to any members of the board, senior management or substantial or controlling shareholders; d. that she had no interests in the shares of Company A within the meaning of Part XV of the Securities and Futures Ordinance; e. that no service contract had been entered with Company A; f. the appointment had not been made on a fixed term basis and she would be subject to retirement by rotation and re-election in accordance with the Articles of Association; and g. emolument would be paid based on her experience and qualifications. 3. However, several other details concerning the Appointee as required by Listing Rule 13.51(2) to be stated in the announcement had been omitted. THE ISSUE RAISED FOR CONSIDERATION 4. Whether the details published in an announcement concerning the Appointee's appointment had complied with all the requirements of Listing Rule 13.51(2). 1

22 APPLICABLE LISTING RULE OR PRINCIPLE 5. The Note to Listing Rule 13.51(2) states as follows: Note: Where a new director or supervisor is appointed or the resignation or redesignation of a director or supervisor takes effect, the Exchange must be informed immediately thereafter. The issuer must simultaneously make arrangements to ensure that an announcement of the appointment, resignation or re-designation of the director or supervisor is published in the newspapers as soon as practicable. The issuer shall include the following details of any newly appointed or re-designated director or supervisor in the announcement of his appointment or redesignation: (a) (b) (c) (d) (e) (f) (g) the full name (which should normally be the same as that stated in the declaration and undertaking of the director or supervisor in the form set out in Form B, H or I in Appendix 5) and age; positions held with the issuer and other members of the issuer s group; previous experience including other directorships held in listed public companies in the last three years and other major appointments and qualifications; length or proposed length of service with the issuer; relationships with any directors, senior management or substantial or controlling shareholders of the issuer, or an appropriate negative statement; his interests in shares of the issuer within the meaning of Part XV of the Securities and Futures Ordinance, or an appropriate negative statement; amount of the director s or supervisor s emoluments specified in his service contract and the basis of determining the director s or supervisor s emoluments (including any bonus payments, whether fixed or discretionary in nature); and 2

23 (h) any other matters that need to be brought to the attention of holders of securities of the issuer. The issuer shall also disclose in the announcement of resignation of a director or supervisor the reasons given by the director or supervisor for his resignation (including, but not limited to, any information relating to his disagreement with the board and a statement as to whether or not there are any matters that need to be brought to the attention of holders of securities of the issuer). The Exchange must be informed of any important change in the holding of an executive office. ANALYSIS 6. Company A had failed to state all the details in the announcement as required under the Note to Listing Rule 13.51(2). In particular, Company A had omitted the following items of information: a. the Appointee's position (if any) held with Company A or other members of Company A's group; b. the Appointee's previous experience including directorship held (if any) in public companies in the last three years and any other major appointment and qualification; and c. the exact amount of the Appointee's emoluments and the basis for determining the appointee's emoluments (including any bonus payments, whether fixed or discretionary in nature). 7. Although, the Appointee had not entered into a service contract with Company A, the Exchange considered that the regulatory purpose of disclosure in the Note to Listing Rule 13.51(2) required that full particulars of a director's emoluments should be disclosed irrespective of whether a service contract had been entered into and how much of these emoluments were covered by a service contract Therefore, the Exchange determined that Company A must publish a further announcement to provide the details that had been omitted in the earlier announcement. 1 Footnote: Subsequently, the Exchange amended Listing Rule 13.51(2) in order to convey this intent in clearer terms. Effective on 1 March 2006, the amended Listing Rule 13.51(2)(g) requires that details regarding the amount of a director's emoluments and the basis of determining the director's emoluments (including any bonus payments, whether fixed or discretionary in nature, irrespective of whether the director has or does not have a service contract) and how much of these emoluments are covered by a service contract must be disclosed in the announcement of a director's appointment or re-designation. 3

24 DECISION 9. The Exchange determined that Company A had failed to comply with all the requirements of Listing Rule 13.51(2) and must publish a further announcement to provide the details that had been omitted from the previous announcement. 4

25 HKEx LISTING DECISION Cite as HKEx-LD52-5 (March 2006) Summary Name of Parties Company A a Main Board listing applicant and its subsidiaries (the Group ) Sponsor the sponsor of Company A Associate a subsidiary of the parent company of Sponsor Subject Whether, in a case where Associate subscribed for not more than 2% of the enlarged share capital of Company A through conversion of convertible notes shortly prior to listing at a conversion price discounted to the IPO price which is subject to adjustment based on a guaranteed profit clause, Sponsor could continue to act as a sponsor in the listing application of Company A; and the shares held by Associate could be counted as part of the public float as required under Listing Rule 8.08(1)(a)? Listing Rules Decision Listing Rules 3A.07; 8.08(1)(a); 8.24; and Listing Decision HKEx- LD36-1 (October 2003) The Exchange determined that: based on the revised terms of the subscription agreement removing the right of Associate to further downward adjustment to the conversion price, the Exchange accepted that the Sponsor was independent from Company A notwithstanding Associate s interest in the equity capital in Company A upon listing. Full disclosure of Associate s investment in Company A would be required to be made in the prospectus; and the shares (containing no provision for guaranteed profit) issued to Associate, following the exercise of the conversion right of the convertible notes, should not be regarded as shares held by members of the public. Therefore, Company A must satisfy the public float requirement of 25% under Listing Rule 8.08(1)(a) by other means. 1

26 SUMMARY OF FACTS 1. Associate entered into a subscription agreement to subscribe for a number of convertible notes of Company A (the Investment ) shortly before the date for the hearing of the listing application of Company A by the Listing Committee pursuant to a memorandum of understanding entered into between the parties shortly after the submission of Form A1 by Sponsor. 2. The directors of Company A confirmed that the subscription agreement was negotiated at arms length and contained the following material terms: a. Associate had the option to convert the convertible notes into shares ( Conversion Shares ) at the conversion price ranging from 20% to 35% discount to the IPO price of the shares (depending on the final IPO price of the shares). If converted, the Conversion Share would represent approximately 2% of the enlarged issued share capital of Company A upon listing; b. if Company A could not achieve the profit forecast as set out in the prospectus, Company A would pay to Associate an amount equal to the percentage decrease of the shortfall as adjustment for the amount of consideration paid earlier for the Conversion Shares (i.e. 'Guaranteed Profit'). 3. Associate intended to convert the convertible notes into Conversion Shares before listing.. THE ISSUE RAISED FOR CONSIDERATION 4. Whether, in a case where Associate subscribed for not more than 2% of the enlarged share capital of Company A through conversion of convertible notes shortly prior to listing at a conversion price discounted to the IPO price which is subject to adjustment based on a guaranteed profit clause, a. Sponsor could continue to act as the sponsor in the listing application of Company A; and b. the Conversion Shares held by Associate could be counted as part of the public float required under Listing Rule 8.08(1)(a)? 2