Listing Rules and Guidance: Contents
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PN15 Practice with Regard to Proposals Submitted by Issuers to Effect the Separate Listing on the Exchange or Elsewhere of Assets or Businesses Wholly or Partly Within their Existing Groups
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The Stock Exchange of Hong Kong Limited
Practice Note 15
to the Rules Governing the Listing of Securities (the "Exchange Listing Rules")
Issued pursuant to rule 1.06 of the Exchange Listing Rules
PRACTICE WITH REGARD TO PROPOSALS SUBMITTED BY ISSUERS TO EFFECT THE SEPARATE LISTING ON THE EXCHANGE OR ELSEWHERE OF ASSETS OR BUSINESSES WHOLLY OR PARTLY WITHIN THEIR EXISTING GROUPS
Terms used in the Practice Note which are defined or interpreted in the Exchange Listing Rules shall have the same meaning as in the Exchange Listing Rules.
This Practice Note is intended to set out the Exchange's policy with regard to proposals submitted by issuers to effect the separate listing on the Exchange or elsewhere of assets or businesses wholly or partly within their existing groups ("spin-offs"). This Practice Note sets out the principles which the Exchange applies when considering spin-off applications. Issuers are reminded that they are required to submit their spin-off proposals to the Exchange for its approval.
Note: This Practice Note is normally only applicable to an issuer and entity which is a subsidiary of the issuer at the time of submission of the spin-off proposal. However, the Exchange will treat an entity as if it were a subsidiary of an issuer for the purpose of this Practice Note if such entity is at the time of submission of the issuer's spin-off proposal, an associated company of the issuer and was, at any time during the latest completed financial year of the issuer (comprising at least 12 months) up to the date of submission of the spin-off proposal, a subsidiary of the issuer.
In such circumstances, the entity will be required to comply with the requirements of this Practice Note and will be treated as if it has remained as a subsidiary of the issuer. The issuer is required to substantiate to the satisfaction of the Exchange the changes in the beneficial ownership of the entity's issued shares in the period stated above.
The principles, which apply equally whether the entity to be spun off is to be listed in Hong Kong or overseas, are as follows:
Where the entity ("Newco") to be spun-off by the existing issuer ("Parent") is to be listed on the stock market operated by the Exchange other than GEM, it must satisfy all requirements of the Exchange Listing Rules falling on new listing applicants, including the basic listing criteria contained in Chapter 8 of the Exchange Listing Rules.
In recognition that the original listing of the Parent will have been approved on the basis of the Parent's portfolio of businesses at the time of listing, and that the expectation of investors at that time would have been that the Parent would continue to develop those businesses, the Listing Committee would not normally consider a spin-off application within three years of the date of listing of the Parent.
Note: For a listed issuer that has transferred from GEM to the Main Board under Chapter 9A, its original listing date on GEM shall be regarded for the purpose of (b) as the date of listing of the Parent.
The Listing Committee must be satisfied that, after the listing of Newco, the Parent would retain a sufficient level of operations and sufficient assets to support its separate listing status. In particular, it would not be acceptable to the Listing Committee that one business (Newco's) supported two listing statuses (the Parent's and Newco's). In other words, the Parent itself would be required to retain, in addition to its interest in Newco, sufficient assets and operations of its own, excluding its interest in Newco, to satisfy independently the requirements of Chapter 8 of the Exchange Listing Rules.
Where the Parent, excluding its interest in Newco, cannot meet the minimum profit requirement of Rule 8.05, the Exchange may grant a waiver to the Parent if the Parent is able to demonstrate that it, excluding its interest in Newco, fails to meet the minimum profit requirement of Rule 8.05 due solely to an exceptional factor or a significant market downturn. The Parent must also demonstrate to the satisfaction of the Exchange that such factor was temporary in nature and is not likely to continue or recur in the future or that appropriate measures have been taken by the Parent to negate the impact on its profit of the market downturn (as the case may be). In addition, the Parent, excluding its interest in Newco, must have an aggregate profit attributable to shareholders of not less than HK$50 million in respect of any three out of the five financial years immediately preceding the spin-off application.
Note: For the purpose of meeting the minimum aggregate profit requirement referred to above, the Parent must satisfy the following criteria:
In the case of (b) or (c) above, the Parent must demonstrate to the satisfaction of the Exchange that the profit/loss of any financial year whose profit/loss is not taken into account in the calculation of the minimum net profit of HK$50 million was affected by the exceptional factor and/or significant market downturn.
In considering an application for listing by way of spin-off, the Listing Committee would apply the following principles:
The Listing Committee expects the Parent to have due regard to the interests of its existing shareholders by providing them with an assured entitlement to shares in Newco, either by way of a distribution in specie of existing shares in Newco or by way of preferred application in any offering of existing or new shares in Newco. The percentage of shares in Newco allocated to the assured entitlement tranche would be determined by the directors of the Parent and by its advisers, and all shareholders of the Parent would be treated equally. There would be no bar to the controlling shareholder receiving his proportion of shares under such entitlement. Where Newco is proposed to be listed elsewhere than in Hong Kong, and where shares in Newco under the assured entitlement can only be made available to existing shareholders of the Parent by way of a public offering in Hong Kong, the Listing Committee would consider submissions as to why the assured entitlement requirement would not be for the benefit of the Parent or its shareholders. Further, the minority shareholders of the Parent may by resolution in general meeting resolve to waive the assured entitlement, even where Newco is to be listed in Hong Kong.
Note: In case where Newco is made subject to this Practice Note by virtue of the Note to paragraph 2, the Parent should use its best endeavours to provide its shareholders an assured entitlement to the shares in Newco. Whether such assured entitlement is available will be taken into account by the Exchange when considering whether to approve the spin-off proposal.
An issuer must announce its spin-off listing application by the time it lodges the Form A1 (or its equivalent in any overseas jurisdiction). Where an overseas jurisdiction requires a confidential filing, the matter should be discussed with the Listing Division before the filing. Until announcement of the application, strict confidentiality should be maintained and, if there is a leakage of information or a significant, unexplained movement in the price or turnover volume of the Parent's securities, an earlier announcement would be required.
This Practice Note takes effect from 12th May, 1997.
Hong Kong 8th May, 1997
Revised on 6th September, 2000
Revised on 16th July, 2001
Revised on 31st March, 2004
Revised on 25th June, 2007
Revised on 1st January, 2009
Revised on 1st January, 2013