HONG KONG: SFC Issues Takeovers Bulletin

Tuesday October 3 2017

The Securities and Futures Commission (SFC) has published the Takeovers Bulletin. It is a newsletter aimed at helping participants in Hong Kong’s financial markets better understand the Codes on Takeovers and Mergers and Share Buy-backs.

The highlights of the bulletin include:

• Cold shoulder order imposed on Yeung Wing Yee for breach of mandatory offer requirement
• Public censure of Chen ChiTe and Kenneth C.M. Lo for breaches of dealing provisions
• Public censure of China Life Insurance (Overseas) Company Limited for dealing disclosure breaches
• Scheme of arrangement results announcements
• Revision to Practice Note 12
• Review of monthly update announcements
• Reminder to fund managers on the discontinuation of HKEX’s Portfolio Valuation service
• Quarterly update on the Takeovers Team’s activities

Scheme of arrangement results announcements

Rule 19.1 requires an announcement be released by 7:00 p.m. on each closing date setting out, among other things, the total number of shares for which acceptances of an offer have been received. In the context of a scheme of arrangement, this Rule is modified in practice to require (i) the announcement be published on the date on which any court or shareholder meeting to approve the scheme of arrangement is held; and (ii) disclosure of the information prescribed in Rule 2.9, ie, the number of shares voted for and against the resolution and the number of shareholders voting for and against it.

Disclosure of the number of shareholders voting for and against the resolution is consistent with the requirement in certain jurisdictions (eg, the Cayman Islands and Bermuda) that a scheme of arrangement must be subject to approval by a majority in number representing 75% in value of the shareholders present and voting.

In order to facilitate greater transparency and in light of the number of shares typically held within the Central Clearing and Settlement System (CCASS) established and operated by Hong Kong Securities Clearing Company Limited, the announcement of the results of any court or shareholder meeting to approve a scheme of arrangement should, in addition to the details required under Rule 2.9, disclose the number of CCASS participants (as defined under the General Rules of CCASS) instructing HKSCC Nominees Limited to vote for and against the resolution and the number of shares held by such CCASS participants.

Revision to Practice Note 12

The SFC have been consulted by potential offerors or their advisers about the earliest time that a potential offeror might be permitted to approach shareholders of an offeree company to obtain irrevocable commitments for a potential offer.

Note 4 to Rules 3.1, 3.2 and 3.3 provides that “[a]n offeror may approach a very restricted number of sophisticated investors who have a controlling shareholding to obtain an irrevocable commitment. In all other cases the Executive must be consulted before any approach is made to a shareholder to obtain an irrevocable commitment in connection with an offer. In appropriate circumstances, the Executive may permit particular shareholders to be called and informed of details of a proposed offer which has not been publicly announced. …”.

As Note 4 suggests, the Executive’s consent is not required where an offeror wishes to approach a very restricted number of sophisticated investors who have a controlling shareholding to obtain an irrevocable commitment. In such cases, it is therefore not necessary for the parties to seek the Executive’s consent. This is consistent with the principle under Rule 1.4 which provides that the maintenance of confidentiality before the announcement of an offer is crucial. We have amended Practice Note 12 to clarify this.

A marked-up version and a clean version of revised Practice Note 12 can be found in the “Regulatory functions – Listings & takeovers – Takeovers and Mergers – Practice Notes” section of the SFC website.

Reminder to fund managers on the discontinuation of HKEX’s Portfolio Valuation service

In Issue No. 26 (September 2013) of the Takeovers Bulletin, the SFC mentioned that to ensure timely and appropriate compliance with dealing disclosure obligations under Rule 22 of the Takeovers Code, one of the steps that fund managers might take is to subscribe to the New Alerts service on the HKEX website (www.hkex.com.hk) to receive relevant announcements and information. This applies equally to any relevant party.

HKEX has announced that at the end of September 2017 it will discontinue its Portfolio Valuation service on its website. In this regard, the SFC has issued a reminder to fund managers and other users who subscribed to HKEX News Alerts using the “Your Portfolio” service that they will need to resubscribe using the “Your Alert” service to keep receiving all relevant company announcements. Existing subscriptions made via the “Your Alert” service will not be affected.

Click on the link above for further details.