Companies seeking capital in the current global market of uncertainty and reduced credit availability will have to exhaust all means of financing. Secondary offerings such as rights offerings may give such companies a relatively quick method of tapping into additional capital. In the last two quarters, Dorsey & Whitney Hong Kong has been called upon on numerous occasions to assist our Sydney office and Australian clients in their efforts to access Hong Kong, one of Asia’s most active financial markets, via private placements and offerings to professional investors in connection with dividend reinvestment plans and rights offerings in their home jurisdiction.
With interest rates low and equity markets on an upward trend, investors in Hong Kong seem to have an appetite for moves into the equity markets. Following gains on Wall Street, on May 19, 2009 Hong Kong’s market benchmark the Hang Seng Index edged above the 250-day moving average of 17,207.3 points, gaining 54.65 percent from the year’s low on March 9, 2009.
Generally speaking, any prospectus distributed in Hong Kong which offers for subscription for or purchase of shares in or debentures of a company incorporated outside of Hong Kong must comply with the form and content requirements of the Companies Ordinance of Hong Kong ("Companies Ordinance"). In addition, under the Securities and Futures Ordinace of Hong Kong ("SFO"), advertising, invitations or documents (including verbal offers) from outside of Hong Kong which contain invitations or offers to acquire shares of a company are prohibited unless authorized by the Securities and Futures Commission of Hong Kong.
Various provisions of the Companies Ordinance and the SFO exempt key categories of securities transactions and advertisements from the prospectus requirements and advertising prohibitions. Specifically, the Seventeenth Schedule to the Companies Ordinance provides a safe harbor from the prospectus form and content requirements for, amongst others, the following types of offers:
- Offers to professional investors. The definition of “professional investors” in the Companies Ordinance (as defined in the SFO) includes banks, financial institutions, insurance companies, and, more importantly, a class of prescribed persons similar to “accredited investors” in the United States.
- Private placements. An offer to not more than 50 persons in Hong Kong is exempt from the prospectus requirements provided the statutory prescribed legends are contained within the offering materials. Shares sold in a private placement may not be sold in Hong Kong for six months following the date of the initial sale.
- De minimis offers. An offer that does not exceed HKD5 million (approximately USD641,000) is exempt from the prospectus requirements provided the prescribed legends are contained within the offering materials.
- Minimum denomination offers. An offer where the minimum consideration payable by each investor is greater than HKD500,000 (approximately USD64,100) is exempt from the prospectus requirements provided the statutory prescribed legends are contained within the offering materials.
Further, offerings exempt from the prospectus requirements under the Companies Ordinance are also exempt from the SFO advertising restrictions under Section 103(2)(ga) of the SFO and Section 2(1)(b)(ii) of the Companies Ordinance. Accordingly, offerings that meet these requirements may be a relatively low cost option for companies seeking additional capital to access Hong Kong capital in connection with secondary financing exercises in their home jurisdiction.