China: SFC publishes PN19 on China takeovers chain principle

Friday September 28 2012

The Securities and Futures Commission has published a new Practice Note, PN19, on the “chain principle”. The China “chain principle” is where, as a result of acquiring statutory control of a company (which need not be a Code company), a person or group of persons may in turn obtain or consolidate control over a second company because the first company holds 30% or more of the voting rights of the second. In such cases, Note 8 to Rule 26.1 provides that the acquirer of the first company may trigger an obligation to make a mandatory general offer for the other company. This is known as a chain principle offer.

The Executive has from time to time been consulted about how to determine the offer price where a China chain principle offer has been triggered. Practice Note 19 provides guidance on this issue.

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