SFC Publishes New Issue of Takeovers Bulletin

The Securities and Futures Commission (SFC) has published its latest issue of the Takeovers Bulletin covering, amongst others, the following areas:

  • Where a listed company has requested suspension of trading of its shares pending publication of a Takeovers Code – related announcement, the suspension should be kept as short as possible. In this regard, the SFC sets out some non-exhaustive guidance on good practices to help keep such trading suspensions to a minimum. Reference is also made to the new Guidance Letter (GL83-15) (see further below) recently issued by The Stock Exchange of Hong Kong Limited (Stock Exchange).
  • A new Practice Note 21 has been issued to provide guidance on the grant of waivers of the mandatory offer obligation under Note 6(a) to Rule 26.1 of the Takeovers Code. Note 6(a) relates to acquisitions by one member of a concert party from another resulting in the former’s shareholding crossing the threshold which triggers the mandatory offer obligation. The SFC emphasizes that a waiver is a concession which is granted only in comparatively limited circumstances. Notes 6(a)(i) and (ii) provide that:

“The Executive would normally grant the acquirer of such voting rights a waiver from such general offer obligation if:–

  1. the acquirer is a member of a group of companies comprising a company and its subsidiaries and the acquirer has acquired the voting rights from another member of such group of companies; or
  2. the acquirer is a member of a group of persons comprising an individual, his close relatives and related trusts, and companies controlled by him, his close relatives or related trusts, and the acquirer has acquired the voting rights from another member of such group of persons.”

Criteria set out in Note 6(a) that the Executive will take into account in deciding whether to grant a waiver include:

  1. "whether the leader of the group or the largest individual shareholding has changed and whether the balance between the shareholdings in the group has changed significantly
  2. the price paid for the shares acquired; and the relationship between the persons acting in concert and how long they have been acting in concert.”

Particular points to note are that:

  • Notes 6(a)(i) and (ii) are to be interpreted strictly;
  • Other than the stated criteria, the Executive and the Takeovers Panel may also take into account all other relevant facts and circumstances;
  • In determining the leader of the concert group for the purpose of Note 6(a)(i) above, the focus will be on the holder or controller of the relevant voting rights. The fact that one member of the concert group may have taken a leading role in terms of managerial and executive decisions is unlikely of itself to be determinative;
  • A substantial or atypical premium paid for the shares acquired would normally indicate a premium for control and therefore considered as an important factor in determining whether the grant of a waiver under the Note is appropriate. However, the absence of a control premium is unlikely of itself to be determinative of whether it is appropriate to grant a waiver under Note 6. Each case will rest on its own facts and circumstances;
  • The relationship between the persons acting in concert and how long they have been acting in concert are fact specific matters and often necessitate the Executive raising enquiries. The Executive should be given sufficient time to raise enquiries and analyse the responses; and
  • Note 6(a) provides that the factors set out in Note 7 to Rule 26.1 may also be relevant in considering whether to grant a waiver under Note 6(a). These factors include whether (i) the vendor was an “insider”; (ii) there was a payment of a very high price for the voting rights; (iii) the parties negotiated options over the retained voting rights; and (iv) the purchaser’s nomination of board representation is supported by the vendor. Again these factors are highly fact specific and are examined on a case-by-case basis.

Copies of the Takeovers Bulletin and Practice Note 21 can be downloaded via the links below:



Possible Judicial Appeal Against Takeovers Panel’s Findings by Alibaba Group

According to a voluntary announcement of Alibaba Health Information Technology Limited (Alibaba Health), Alibaba Group Holding Limited (Alibaba Group) was said to be evaluating a possible judicial appeal against the Takeovers Panel’s finding of a breach of the Takeovers Code by Alibaba Group.

In 2014 when Alibaba Group became the controlling shareholder of Alibaba Health through subscription of shares (Subscription), a whitewash waiver was granted by the Takeovers Panel at the time. In a non-disciplinary review in relation to the Subscription, the Takeovers Panel ruled on 23 April 2016 that there was a breach of Rule 25 (special deal with certain shareholders) of the Takeovers Code by Alibaba Group, which caused the original whitewash waiver to be invalidated and this in turn would have resulted in a mandatory general offer obligation arising. However, the Takeovers Panel granted a new waiver for the requirement for Alibaba Group to undertake a mandatory general offer for the shares of Alibaba Health in view of Alibaba Health’s share price performance subsequent to the Subscription.

Although Alibaba Group does not need to launch a full buyout, it is said in the announcement that it is evaluating a possible judicial appeal against the Panel’s finding of a breach as it believes that it has fully complied with the Takeovers Code in connection with its investment in Alibaba Health.

The Takeovers Panel’s written ruling is expected to be published in about two weeks’ time from the date of the announcement and will contain more details on the facts of the case.

A copy of the voluntary announcement of Alibaba Health can be downloaded via the link below:


SFC Formally Adopts Initiatives to Enhance Fund Authorization Process

Following a six-month pilot arrangement of authorization procedures for unit trusts and mutual funds, the SFC announced that it would formally adopt its initiatives (Revamped Process) for new fund applications and new mandatory provident funds and pooled retirement fund products from 9 May 2016.

Under the Revamped Process, new fund applications are classified into:

  1. the “Standard Applications” stream to cover less complicated fund applications meeting certain specific criteria; and
  2. the “Non-standard Applications” stream to cover other fund applications.

The Revamped Process will also be extended to eligible Mainland funds seeking authorization under the mutual recognition of funds arrangement between the Mainland and Hong Kong.

A copy of the SFC press release can be downloaded via the link below:


Listing Rules - Related Developments

Stock Exchange Publishes New Guidance Letters and Listing Decisions

The Stock Exchange has published two new Guidance Letters:

(i) GL87-16 – This Guidance Letter provides guidance to listed issuers subject to rumours or market commentaries with allegations of fraud, material accounting or corporate governance irregularities which may require a trading halt in their securities. Main points include the following:

  • If such allegations have, or are likely to have, an effect on the issuer’s share price such that, in the view of the Stock Exchange, there is or is likely to be a false or disorderly market in the listed issuer’s securities, the issuer must make a clarification announcement promptly
  • If the issuer cannot promptly publish a clarification announcement to prevent the possible development of a false or disorderly market, it must apply for a trading halt. The duration of any trading halt should be as short as possible. The issuer must ensure that trading resumes as soon as practicable following publication of a clarification announcement
  • The clarification announcement should make reference to the allegations and inform the market about the issuer’s position regarding each allegation so as to avoid a false or disorderly market. To the extent possible, the clarification announcement should also contain particulars to address, or to refute, the allegations. The issuer should also disclose any inside information required to be disclosed under Part XIVA of the Securities and Futures Ordinance where applicable, or an appropriate negative statement
  • The Stock Exchange would not normally pre-vet the clarification announcement. However, following publication of the clarification announcement, the Stock Exchange may continue to follow up with the issuer on any further disclosures, reviews or investigations it considers necessary on matters that have arisen out of the allegations.

(ii) GL88-16 – This Guidance Letter provides guidance on the Stock Exchange’s approach in handling bonus issue of shares by listed companies. Under the current trading arrangements, there is a time interval between the ex-entitlement date for a bonus issue (the ex-date) and the date of allotment of the bonus shares (the allotment date). The previous closing share price is adjusted downward on the ex-date but the bonus shares would not be available for trading until the allotment date, causing a squeeze in the availability of shares and significant price fluctuations during the ex-entitlement period. The Stock Exchange noted untoward price fluctuations in a number of cases where listed companies conducted bonus issues of shares with a large distribution ratio.

The Stock Exchange considers that it is the responsibility of listed companies to ensure that their issues of bonus shares are conducted in a fair and orderly manner. Therefore, the Stock Exchange may not grant listing approval for large scale bonus issues of shares where there is reasonable likelihood of disorderly trading during the ex-entitlement period. Generally, the Stock Exchange is likely to raise concern about the operation of an orderly market when a company proposes a bonus issue of 200% or more of the existing issued shares. In these circumstances, the Stock Exchange will normally expect listed companies to adopt a share subdivision to achieve the same effect. The Stock Exchange will only grant listing approval for large scale bonus issue of shares in exceptional circumstances. Listed companies are also reminded to follow the guidance set out in the “Guide on distribution of dividend and other entitlements” when planning their bonus issues. In particular, the time interval between the ex-date and the allotment date should be kept as short as practicable.

Separately, the Stock Exchange has issued two new Listing Decisions:

  1. LD100-2016 – on reasons for rejected certain new listing applications in 2015; and
  2. LD101-2016 – on the Stock Exchange’s returning certain new listing applications in 2015 where the application proof of prospectuses and/or other documents are not substantially complete as required under the Listing Rules.

Copies of these new Guidance Letters and Listing Decisions can be downloaded via the respective links below:





SFC Enforcement Action

SFC Commences Market Misconduct Tribunal Proceedings Against Yorkey for Late Disclosure of Inside Information

The SFC has commented proceedings in the Market Misconduct Tribunal (MMT) against Yorkey Optical International (Cayman) Limited (Yorkey) and its Chief Executive Officer (CEO) and Financial Controller in respect of Yorkey’s failure to disclose inside information as soon as reasonably practicable in breach of the Securities and Futures Ordinance.

The background of the case was that Yorkey’s management had previously published expectations of significant growth and increasing profitability for the second half of 2012 in Yorkey’s interim results. Contrary to such expectations, Yorkey sustained material losses in the second half of 2012 and its financial performance deteriorated significantly. However, when this information came to the knowledge of Yorkey and its CEO from around mid-December 2012 or mid-January 2013 at the latest, it did not issue any profit warning announcement nor did it disclose information of the deterioration in its financial position. The public was only informed of such deterioration until the publication of Yorkey’s 2012 final results on 25 March 2013.

A copy of the SFC’s Notice of Commencement of Proceedings can be downloaded via the link below: