SFC and HKEX keep rights issues and open offers under scrutiny

The Securities and Futures Commission (SFC) and The Stock Exchange of Hong Kong Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), are closely monitoring rights issues and open offers that substantially dilute the interests of non-subscribing minority shareholders (highly dilutive offers).

The SFC and the Exchange are concerned that in some cases such corporate actions have not been conducted in a manner that affords fair and equal treatment to all shareholders. Such corporate actions, absent any demonstrable commercial rationale, cast doubt on whether the directors of the listed companies have complied with the requirement to act in the best interests of shareholders.

The SFC and the Exchange emphasise the importance of fair and equal treatment of all shareholders when conducting rights issues and open offers. The SFC and the Exchange have been working closely to monitor such transactions and review the relevant Listing Rules.

The Exchange has adopted a rigorous approach to vetting the relevant draft announcements, including making enquiries where the terms of proposed offers or related transactions raised concerns about unfair dilution of non-subscribing minority shareholders’ interests. To enhance transparency and facilitate market understanding of how it interprets and applies the Listing Rule requirements in relation to highly dilutive offers and share consolidations/subdivisions, the Exchange today released two listing decisions where it published the rationale for its decisions in refusing to grant approval in two recent cases.

The SFC has made enquiries into cases where the terms of the proposed offers were highly dilutive and/or where the issuers conducted fundraisings repeatedly, over a relatively short period to ascertain whether there has been a contravention of the Securities and Futures Ordinance.

Listed companies are expected to observe and fully comply with their obligations under the Listing Rules and other regulations, including the importance of treating shareholders fairly and equally,” said Mr Brian Ho, the SFC’s Executive Director of Corporate Finance. “We will continue to closely monitor these transactions to protect the interests of shareholders and uphold the quality of our markets.

David Graham

The listing decisions reflect the Exchange’s approach in handling highly dilutive offers and share consolidations/subdivisions, which have been endorsed by the Listing Committee,” said Mr David Graham, HKEX’s Chief Regulatory Officer and Head of Listing. “We will continue to review our rules and practices to address developments in the market.

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