Entire Section

  • 2021

    Select By Rule or Topic: Download the consolidated index here

    Please visit Archive to view marked-up versions and versions that have been superseded or withdrawn.

    This section comprises decisions on cases handled by the Listing Committee and/or the Listing Division, to enhance transparency and market understanding of their interpretation of the Listing Rules. Each decision was based on its specific circumstances and is not a precedent for future cases. 

    Effective from 1 January 2011, listing decisions will be published under a new naming format as illustrated below:

    Before 1 January 2011 On or After 1 January 2011
     
    HKEx-LD100-1
    HKEx-LD100-2
    HKEx-LD101-1
     
    HKEx-LD1-2011
    HKEx-LD2-2011
    HKEx-LD3-2011

    Listing decisions published before 1 January 2011 continue to bear the old references.

    LD Series Number First
    Release
    Date (Last
    Update
    Date)
    (mm/yyyy)
    Listing Rules/ Topics Particulars
    LD131-2021 07/2021
     
    Main Board Rule 14.06B Whether the Exchange would waive Rule 14.06B so that the proposed acquisition of the Target Company by Company A would not be classified as a reverse takeover
    LD130-2021 07/2021
     
    Main Board Rules 14.06B and 14.06C Whether Company A's proposed acquisition of the Target Company constituted a reverse takeover

    • LD131-2021

      View Current PDF

      HKEX LISTING DECISION
      HKEX-LD131-2021 (published in July 2021)

      Parties    Company A – a Main Board issuer

      Target Company – a company listed on a PRC stock exchange

      Company X – the controlling shareholder of Company A and the Target Company

      Company Y – a state-owned enterprise which indirectly held 51% interest in Company X

      The Provincial Government – a provincial government in the PRC which held 49% interest in Company X
       
      Issue    Whether the Exchange would waive Rule 14.06B so that the proposed acquisition of the Target Company by Company A would not be classified as a reverse takeover
       
      Listing Rules    Main Board Rule 14.06B
       
      Decision    The Exchange agreed to waive Rule 14.06B. The proposed acquisition was classified as a very substantial acquisition.
       
       
      FACTS
       
      1.    Company A operated port terminals in the PRC.
       
      2.    Company X (being the controlling shareholder of Company A and the Target Company) was originally wholly owned by the Provincial Government. About a year ago, Company Y acquired 51% equity interest in Company X from the Provincial Government. This constituted a change in control of Company A under the Takeovers Code.
       
        Proposed transaction
       
      3.    Company A proposed a merger with the Target Company which also operated port terminals in the PRC (the Proposed Merger). The Proposed Merger would constitute a reverse takeover (RTO) under the bright line test set out in Note 2 to Rule 14.06B as it was a very substantial acquisition from Company X, an associate of Company Y, within 36 months of Company Y gaining control of Company A through Company X. The profit ratio was about 120%. Other size tests were below 100%.
       
      4.    The Proposed Merger would allow Company A to expand its existing port terminal business by integrating its port-related resources with those held by the Target Company and bring synergy amongst the port operators controlled by Company X. Company A submitted that the Proposed Merger was not an attempt to achieve a listing of new business and sought a waiver from applying the bright line test of Rule 14.06B to the merger.
       
      APPLICABLE LISTING RULES
       
      5.    Rule 14.06B defines a "reverse takeover" as "an acquisition or a series of acquisitions of assets by a listed issuer which, in the opinion of the Exchange, constitutes, or is part of a transaction and/or arrangement or series of transactions and/or arrangements which constitute, an attempt to achieve a listing of the acquisition targets (as defined in rule 14.04(2A)) and a means to circumvent the requirements for new applicants set out in Chapter 8 of the Listing Rules." This is a principle based test.
       
      6.    Note 1 to Rule 14.06B sets out the factors that the Exchange will normally consider in assessing whether the acquisition or series of acquisitions is a RTO transaction under the principle based test.
       
      7.    Note 2 to Rule 14.06B contains two specific forms of RTOs (the bright line tests). It states that:

      "Without limiting the generality of rule 14.06B, the following transactions are normally reverse takeovers (the bright line tests):
        (a)    acquisition or a series of acquisitions (aggregated under rules 14.22 and 14.23) of assets constituting a very substantial acquisition where there is or which will result in a change in control (as defined in the Takeovers Code) of the listed issuer (other than at the level of its subsidiaries); or
        (b)    acquisition(s) of assets from a person or a group of persons or any of his/their associates pursuant to an agreement, arrangement or understanding entered into by the listed issuer within 36 months of such person or group of persons gaining control (as defined in the Takeovers Code) of the listed issuer (other than at the level of its subsidiaries), where such gaining of control had not been regarded as a reverse takeover, which individually or together constitute(s) a very substantial acquisition. For the purpose of determining whether the acquisition(s) constitute(s) a very substantial acquisition,…"
       
      8.    The Exchange Guidance Letter (HKEX-GL104-19) on reverse takeovers explains that the RTO rules are principle based, anti-avoidance provisions designed to prevent the circumvention of new listing requirements for the assets acquired and/or to be acquired. Paragraph 6 of the guidance letter states that:

      "In applying the RTO Rules, the Exchange has regard to the following:
       
        •    The RTO Rules are principle based, anti-avoidance provisions designed to prevent the circumvention of new listing requirements for the assets acquired and/or to be acquired. As such, the Exchange would apply the RTO Rules purposively and the six assessment factors described in the Rules provide guidance to the market on factors that the Exchange would normally consider in a RTO assessment. The applications of these assessment factors would vary from case to case, depending on the specific circumstances of the issuer.
       
        •    As the RTO Rules are principle based, they should provide a framework for addressing backdoor listings and sufficient flexibility to address changing RTO structures, without imposing undue restrictions on legitimate business activities of issuers.
       
        •    The RTO Rules are not intended to restrict legitimate business activities of listed issuers, including business expansion or diversification that is part of the issuer’s business strategies related to its existing business, or is consistent with the issuer’s size and resources.
       
        •    When applying the RTO Rules, the Exchange’s approach is targeted towards transactions that represent an attempt to circumvent the new listing requirements, particularly those involving companies engaging in "shell" activities, as indicated by the factors (a) change in control or de facto control of the listed issuer and (b) fundamental change in the issuer’s principal business."
       
      ANALYSIS
       
      9.    The Proposed Merger fell under the bright line test of Rule 14.06B as it involved a very substantial acquisition from an associate of Company A’s controlling shareholder (i.e. Company Y) within 36 months from the change in control. Having considered the specific circumstances of this case, the Exchange agreed that the Proposed Merger was not a backdoor listing of new business by the incoming controlling shareholder:
       
        (a)    Company A’s existing port terminal business was of a substantial size. The Proposed Merger would not result in a fundamental change to Company A’s principal business as it was in line with Company A’s strategies to expand its port terminal business and the size of the merger was not significant to Company A.
       
        (b)    The Proposed Merger represented an internal restructuring of the port-related businesses held under Company X. Company Y, through Company X, controlled Company A and the Target Company before the Proposed Merger and would continue to do so after the merger. There was no injection of asset or business from Company Y.
       
      CONCLUSION
       
      10.    The Exchange agreed to waive Rule 14.06B. The Proposed Merger was classified as a very substantial acquisition and connected transaction.
       

    • LD130-2021

      View Current PDF

      HKEX LISTING DECISION
      HKEX-LD130-2021 (published in July 2021)

      Parties Company A – a Main Board issuer

      Company B – the controlling shareholder of Company A

      Target Company – a company owned by Company B
       
      Issue Whether Company A's proposed acquisition of the Target Company constituted a reverse takeover
       
      Listing Rules    Main Board Rules 14.06B and 14.06C
       
      Decision The proposed acquisition constituted an extreme transaction.
       
       
      FACTS
       
      1.    Company A was principally engaged in leasing of properties, production and sale of education-related equipment and money lending. The leasing and education-related equipment businesses contributed over 95% of Company A’s revenue in recent years.
       
      2.    Company B had been the controlling shareholder of Company A for more than three years.
       
        Proposed Acquisition
       
      3.    Company A proposed to acquire the Target Company from Company B (the Proposed Acquisition). It would settle the consideration with cash and by issuing convertible bonds. The Proposed Acquisition would not result in a change in control of Company A.
       
      4.    The Target Company provided financial leasing and factoring services in the PRC. It was substantially larger than Company A, with percentage ratios between 10 and 35 times.
       
      APPLICABLE LISTING RULES
       
      5.    Rule 14.06B defines a "reverse takeover" as “an acquisition or a series of acquisitions of assets by a listed issuer which, in the opinion of the Exchange, constitutes, or is part of a transaction and/or arrangement or series of transactions and/or arrangements which constitute, an attempt to achieve a listing of the acquisition targets (as defined in rule 14.04(2A)) and a means to circumvent the requirements for new applicants set out in Chapter 8 of the Listing Rules.” This is a principle based test.
       
      6.    Note 1 to Rule 14.06B sets out the factors that the Exchange will normally consider in assessing whether the acquisition or series of acquisitions is a RTO transaction under the principle based test.
       
      7.    Rule 14.06C defines an “extreme transaction” as “an acquisition or a series of acquisitions of assets by a listed issuer, which individually or together with other transactions or arrangements, may, by reference to the factors set out in Note 1 to rule 14.06B, have the effect of achieving a listing of the acquisition targets, but where the issuer can demonstrate that it is not an attempt to circumvent the requirements for new applicants set out in Chapter 8 of the Listing Rules and that:
       
      (1)    (a)    the issuer (other than at the level of its subsidiaries) has been under the control or de facto control (by reference to the factors set out in Note 1(e) to rule 14.06B) of a person or group of persons for a long period (normally not less than 36 months), and the transaction would not result in a change in control or de facto control of the issuer; or
       
        (b) the issuer has been operating a principal business of a substantial size, which will continue after the transaction; and
       
      (2) the acquisition targets meet the requirements of rule 8.04 and rule 8.05 (or rule 8.05A or 8.05B) and the enlarged group meets all the new listing requirements set out in Chapter 8 of the Listing Rules (except rule 8.05).”
       
      8.    The Exchange Guidance Letter (HKEX-GL104-19) on RTO explains that the RTO rules are principle based, anti-avoidance provisions designed to prevent the circumvention of new listing requirements for the assets acquired and/or to be acquired. Paragraph 47 of the guidance letter states that “The Listing Committee may, in principle, allow the issuer to classify its proposed acquisition as an extreme transaction based on the information provided in its written submission and/or draft circular and any additional information requested by the Department. However, this classification is subject to the completion of the financial adviser’s due diligence work on the target business and its submission of a declaration to support that the acquisition target can meet Rule 8.04 and Rule 8.05...”
       
      ANALYSIS
       
      9.    In assessing the principle based test of Rule 14.06B, the Exchange will consider the six assessment factors and whether taken together, an acquisition would be considered an attempt to circumvent the new listing requirements and a means to achieve the listing of the acquisition targets. Where an acquisition has the effect of achieving a listing of the acquisition targets under the principle based test, but the issuer can demonstrate that the acquisition is not an attempt to circumvent the new listing requirement, the “extreme transaction” category may apply if the issuer can satisfy one of the eligibility criteria set out in Rule 14.06C(1).
       
      10.    In this case, the Exchange considered that the Proposed Acquisition would have the effect of achieving a listing of the Target Company’s business because:
       
      (a)    The size of Proposed Acquisition was extreme compared to Company A’s existing businesses (with the percentage ratios of 10 times or more). The existing businesses would become immaterial after the acquisition;
       
      (b)    The Target Company’s business was different from Company A’s core businesses in property leasing and production and sale of education-related equipment. Given the significant size of the Proposed Acquisition, the Proposed Acquisition would result in a fundamental change in Company A’s principal business; and
       
      (c)    Company A argued that the Proposed Acquisition was not an extreme case as it represented an expansion of Company A’s existing money lending business. However, the Exchange noted that the money lending business was small in scale. Further, the Target Company’s business was substantially different from Company A’s money lending business in terms of operating scale, business models and customer base. Company A would be substantially carrying on the Target Company’s business after the Proposed Acquisition.
       
      11.    Nevertheless, the Exchange agreed that the Proposed Acquisition could be classified as an extreme transaction (and not a RTO) under Rule 14.06C having regard to the following:
       
      (a)    Company A had demonstrated that the Target Company could meet the new listing track record requirements (Rule 8.05(1)) and the suitability for listing requirement (Rule 8.04) (subject to the completion of the financial adviser’s due diligence work on the Target Company). The Proposed Acquisition was not an attempt to circumvent the new listing requirements; and
       
      (b)    Company A met the eligibility criterion set out in Rule 14.06C(1)(a) as it had been under control of Company B for more than 36 months and the Proposed Acquisition would not result in a change in control of Company A.
       
      CONCLUSION
       
      12.    The Proposed Acquisition was classified as an extreme transaction under Rule 14.06C.