Chapter 14

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Question:

If a listed subsidiary issues new shares by way of a general mandate to acquire assets, what are the notifiable transaction implications for the listed parent?

Answer:

An allotment of shares by the listed subsidiary would be a deemed disposal for the listed parent and the transaction, depending on the size tests as defined in Main Board Rule 14.04(9) / GEM Rule 19.04(9), may fall to be treated as a very substantial disposal, major transaction or discloseable transaction of the listed parent and be subject to the relevant notifiable transaction requirements under Main Board Chapter 14 / GEM Chapter 19.

Furthermore, the acquisition of assets by the listed subsidiary would constitute an acquisition of assets by the listed parent (or its subsidiary). The transaction, depending on the size tests defined in Main Board Rule 14.04(9) / GEM Rule 19.04(9), may fall to be treated as a very substantial acquisition, major transaction or discloseable transaction of the listed parent and be subject to the relevant notifiable transaction requirements under Main Board Chapter 14 / GEM Chapter 19.

FAQ Series 8, FAQ No. 41. Issue 10
LR reference: Main Board Rules 14.04, 14.29 / GEM Rules 19.04, 19.29
Released on 28/11/2008

Question:

An issuer will enter into a lease transaction as a lessee and recognise the right-of-use asset according to HKFRS/IFRS 16.

(a) How should the issuer classify the lease under the definition of "transaction"?
(b) Does the revenue exemption under Main Board Rule 14.04(1)(g) apply to the lease?
(c) How should it calculate the percentage ratios for the lease?
(d) If the lease is entered into by the issuer with a connected person, will it be treated as a one-off connected transaction or continuing connected transaction?

Answer:

(a) The issuer will recognise an asset representing its right to use the leased asset. This will be regarded as an acquisition of asset under the definition of transaction set out in Main Board Rule 14.04(1)(a).

The classification of transaction into a finance lease or operating lease under Main Board Rule 14.04(1)(c) or 14.04(1)(d) will not apply where the issuer acts as lessee.
(b) No. The transaction is of a capital nature.
(c) Listed issuers are required to compute the assets and consideration ratios. The numerator will be the value of the right-of-use asset recognised by the issuer (which includes the present value of lease payments) according to HKFRS/IFRS 16.
(d) Where the lease is subject to an agreement with fixed terms, it is treated as a one-off connected transaction (i.e. an acquisition of capital assets).

FAQ Series N/A, FAQ No. 045-2018
LR reference: Main Board Rules 14.04(1)(a), 14.04(1)(c), 14.04(1)(d), 14.04(1)(g), 14.07, 14.22, 14.23, 14A.24(1), 14A.24(3), 14A.31 / GEM Rules 19.04(1)(a), 19.04(1)(c), 19.04(1)(d), 19.04(1)(g), 19.07, 19.22, 19.23, 20.22(1), 20.22(3), 20.29
Released on 28/09/2018

Question:

An issuer (as a lessee) has entered into a 5-year contract to lease a warehouse from a third party and recognized the right-of-use asset according to HKFRS/IFRS16.

If the issuer subsequently proposes to early terminate the lease by the end of the third year,

(a) how should the issuer classify the termination of the lease under the definition of “transaction”?
(b) how should it calculate the percentage ratios for the termination of lease?

Answer:

(a) The proposed termination of lease will result in a decrease in the amount of right-of-use asset recognised by the issuer. This will be regarded as a disposal of asset under the definition of transaction set out in Main Board Rule 14.04(1)(a).
(b) The issuer should compute (i) the assets ratio based on the value of the remaining right-of-use asset; and (ii) the consideration ratio based on the penalty or fee, if any, payable by the issuer for terminating the lease.

FAQ Series N/A, FAQ No. 045A-2018
LR reference: Main Board Rules 14.04(1)(a), 14.07 / GEM Rules 19.04(1)(a), 19.07
Released on 17/04/2020

Question:

HKFRS/IFRS 16 will become effective for annual accounting periods beginning on or after 1 January 2019.

When listed issuers apply HKFRS/IFRS 16 retrospectively to recognise the right-of-use assets arising from existing leases, are they required to re-comply with the notifiable or connected transaction Rules for these leases?

Answer:

Listed issuers are not required to re-comply with the notifiable or connected transaction Rules for leases under fixed terms or framework agreements entered into by the issuers before the adoption of HKFRS/IFRS 16. Where existing leases have been classified as continuing connected transactions under Chapter 14A of the Main Board Rules, the issuers should continue to comply with the relevant Rule requirements.

FAQ Series N/A, FAQ No. 048-2018
LR reference: Main Board Rules 14.04(1)(a), 14.04(1)(c), 14.04(1)(d), 14A.24(1), 14A.24(3), 14A.31 / GEM Rules 19.04(1)(a), 19.04(1)(c), 19.04(1)(d), 20.22(1), 20.22(3), 20.29
Released on 28/09/2018

Question:

Under a proposed transaction, Company A will transfer the legal ownership of an asset to Company B and lease the asset back from Company B. Company A has an option to buy back the asset at the end of the lease period.

According to HKFRS/IFRS 16, the proposed transaction will be accounted for as a financing arrangement by each of Company A and Company B (and not a sale and leaseback transaction).

How should Company A and Company B classify the proposed transaction under Chapter 14?

Answer:

The transfer of the legal ownership of the asset constitutes a disposal of asset by Company A and an acquisition of asset by Company B under Main Board Rule 14.04(1)(a).

For Company B, the proposed transaction also involves provision of financial assistance under Main Board Rule 14.04(1)(e).

FAQ Series N/A, FAQ No. 052-2018
LR reference: Main Board Rules 14.04(1)(a), 14.04(1)(e) / GEM Rules 19.04(1)(a), 19.04(1)(e)
Released on 28/09/2018

Question:

An issuer will enter into a lease transaction as a lessee (e.g. lease of retail outlets for operating its retail business).

Under the agreement, the annual lease payment will include: i) a fixed dollar amount (fixed lease payments); and ii) a variable amount determined as a percentage of the issuer’s annual sales generated from the leased properties (variable lease payments).

According to HKFRS/IFRS 16, the issuer will recognize a right-of-use asset taking into account the fixed lease payments. The actual variable lease payments linked to sales will be recognized as expenses in the issuer’s profit or loss accounts in the periods in which they are incurred.

(a) How should the issuer calculate the percentage ratios for the lease under Chapter 14 of the Main Board Rules?
(b) If the lessor is a connected person, how should the issuer classify the lease under Chapter 14A of the Main Board Rules?

Answer:

(a) The recognition of a right-of-use asset in relation to the fixed lease payments will be regarded as an acquisition of asset under the definition of transaction set out in Main Board Rule 14.04(1)(a). The issuer is required to compute the assets and consideration ratios by using the value of the right-of-use asset as the numerator. (see FAQ045-2018(a) and (c))

The variable lease payments linked to sales will be expenses incurred by the issuer in its ordinary and usual course of business. They are revenue in nature and are not subject to Chapter 14.
(b) Where the lessor is a connected person:
 
(i) The recognition of a right-of-use asset will constitute a one-off connected acquisition. The issuer is required to compute the assets and consideration ratios by using the value of the right-of-use asset as the numerator (see FAQ045-2018(d))
(ii) The variable lease payments linked to sales will be recorded as expenses by the issuer over the term of the lease. They will be treated as a continuing connected transaction under Main Board Rule 14A.31.

The issuer is required to set annual caps on the variable lease payments to be made each year under the agreement, and calculate the revenue, assets and consideration ratios.

The lease will be classified under Chapter 14A by reference to the largest percentage ratio.

(Note: There are other types of variable lease payments (e.g. variable lease payments depending on an index or rate) that are included in the initial measurement of right-of-use asset under HKFRS/IFRS 16. The treatment would be the same as fixed lease payments for the purpose of Chapters 14 and 14A.)

FAQ Series N/A, FAQ No. 046A-2018
LR reference: Main Board Rules 14.04(1)(a), 14.07, 14A.24(1), 14A.31 / GEM Rules 19.04(1)(a), 19.07, 20.22(1), 20.29
Released on 07/12/2018

Question:

Under Main Board Rule 14.04(1)(c), the definition of transaction includes entering into or terminating finance leases.

Does this Rule apply to a finance lease where the issuer acts as a lessor? If yes, how should the issuer calculate the percentage ratios?

Answer:

Main Board Rule 14.04(1)(c) applies. Under HKFRS/IFRS 16, lessors will continue to classify leases into operating leases or finance leases and account for the two types of leases differently.

The issuer should calculate the percentage ratios for (i) the disposal of the underlying asset and (ii) the provision of financial assistance, and classify the finance lease based on the highest percentage ratio.

FAQ Series N/A, FAQ No. 051-2018
LR reference: Main Board Rules 14.04(1)(c), 14.07 / GEM Rules 19.04(1)(c), 19.07
Released on 28/09/2018

Question:

Under Main Board Rule 14.04(1)(d), the definition of transaction includes entering into or terminating operating leases which have a significant impact on the operations of the listed issuer concerned.

Does this Rule apply to an operating lease entered into by an issuer acting as lessor?

Answer:

Yes. Under HKFRS/IFRS 16, lessors will continue to classify leases into operating leases or finance leases and account for the two types of leases differently.

FAQ Series N/A, FAQ No. 049-2018
LR reference: Main Board Rules 14.04(1)(d), 14.07 / GEM Rules 19.04(1)(d), 19.07
Released on 28/09/2018

Question:

Does the term "joint venture entity" under Main Board Rule 14.04(1)(f) / GEM Rule 19.04(1)(f) only refer to an entity which will be accounted for as a jointly controlled entity in the accounts of the listed issuer concerned?

Answer:

No. The term "joint venture entity" under Main Board Rule 14.04(1)(f) / GEM Rule 19.04(1)(f) may refer to any entity in any form which is to be jointly established by a listed issuer and any other party / parties, but is not limited to an entity which will be accounted for as a jointly controlled entity in the listed issuer's accounts.

FAQ Series 7, FAQ No. 4
LR reference: Main Board Rules 14.04(1)(f) / GEM Rules 19.04(1)(f)
Released on 28/11/2008

Question:

Main Board Rule 14.15(2) / GEM Rule 19.15(2) sets out the requirements for calculating the consideration ratio for a transaction involving establishment of a joint venture entity. Are the assets ratio, profits ratio and the revenue ratio applicable to a transaction involving formation of a joint venture entity?

If the joint venture partner proposes to inject its assets (other than cash) as capital contribution for setting up the joint venture entity, is it necessary to calculate the percentage ratios for the asset injection?

Answer:

For the purpose of classifying a transaction involving formation of a joint venture entity, the listed issuer is normally required to compute the assets ratio and the consideration ratio, and the consideration determined with reference to Main Board Rule 14.15(2) / GEM Rule 19.15(2) would form the numerator for each of these ratios. As to the profits and revenue ratios, they would normally be inapplicable as the joint venture entity would be newly set up and its profits and revenue figures would not be available.

Nevertheless, where the formation of joint venture entity involves injection of assets (other than cash) by the listed issuer and/or any joint venture partner into the joint venture entity, the listed issuer should consider whether the transaction would result in an acquisition and/or disposal of assets by the listed issuer. In the circumstances described, if the joint venture entity is to be accounted for as a subsidiary of the listed issuer, the injection of assets by the joint venture partner into the joint venture entity would in effect result in an acquisition of such assets by the listed issuer. The listed issuer should compute the percentage ratios of such acquisition for classifying the transaction.

FAQ Series 7, FAQ No. 5
LR reference: Main Board Rules 14.04(1)(f), 14.07 / GEM Rules 19.04(1)(f), 19.07
Released on 28/11/2008

Question:

(a) Does the revenue exemption under Main Board Rule 14.04(1)(g) apply to the acquisitions and disposals of securities that are carried out by a listed issuer for treasury management purposes?
(b) Is a listed issuer required to aggregate all its securities transactions within a 12 month period for the purpose of the notifiable transaction Rules?
(c) During the last six months, a listed issuer acquired 3,000,000 shares in Company A, which was not a discloseable transaction based on the size tests calculated on an aggregated basis. The issuer subsequently sold 1,000,000 shares in that company to a third party.

If the issuer proposes to acquire another 5,000,000 shares in Company A, how should it aggregate the proposed acquisition with the earlier transactions?

Answer:

(a) No. The revenue exemption applies to securities transactions only if they are carried out by any member of the issuer’s group that is (i) a banking company; (ii) an insurance company; or (iii) a securities house that is mainly engaged in regulated activities under the Securities and Futures Ordinance.
(b) The securities transactions will be aggregated in accordance with Rules 14.22 and 14.23. Normally the issuer is required to aggregate its securities transactions if they are made within a 12 month period and fall under any one of the following circumstances:
 
they involve acquisition or disposal of securities or an interest in one particular company or group of companies; or
they are entered into by the issuer with the same party or with parties connected or otherwise associated with one another; or
they together lead to substantial involvement by the issuer in a business activity which did not previously form part of the listed issuer’s principal business activities.
(c) In the circumstances described, the transactions were made within a 12-month period. The issuer should aggregate the proposed acquisition of 5,000,000 shares in Company A with its previous acquisitions of 2,000,000 shares. The numerator of the consideration ratio would be the sum of i) the consideration for the proposed acquisition of 5,000,000 shares and ii) the consideration for 2,000,000 shares last acquired by the issuer prior to the current proposed acquisition.
 

FAQ Series N/A, FAQ No. 057-2019
LR reference: Main Board Rules 14.04(1)(g),
14.22, 14.23 / GEM Rules 19.04(1)(g), 19.22, 19.23
Released on 30/09/2019

Question:

An issuer proposes to liquidate a subsidiary.

Is the proposed voluntary liquidation of the subsidiary subject to the notifiable transaction requirements?

Answer:

The process of voluntary liquidation does not constitute a "transaction". However, the liquidation process may involve certain transactions that are subject to notifiable transaction Rules, for example, disposal of the subsidiary's assets.

FAQ Series 9, FAQ No. 1
LR reference: Main Board Rules 14.04(1) / GEM Rules 19.04(1)
Released on 14/12/2009

Question:

Listco proposes to form a joint venture with an independent third party.

According to the joint venture agreement, the transfer of interest in the joint venture by Listco or the joint venture partner to any third parties is subject to a right of first refusal of the other shareholder. Is the grant of the right of first refusal by/to Listco a transaction under the notifiable transaction rules?

Answer:

In this case, the right of first refusal gives Listco or the joint venture partner (as the case may be) the right to acquire the other's interest in the joint venture before the other can dispose of it to any third party. Granting the right of first refusal by/to Listco is not a notifiable transaction given that (i) no consideration is payable for the right and (ii) Listco will still have the discretion on whether to acquire or dispose of (as the case may be) the interest in the joint venture when the right is exercised. If Listco or the joint venture partner exercises the right of first refusal, the disposal or acquisition by Listco would be a transaction.

FAQ Series 9, FAQ No. 2
LR reference: Main Board Rules 14.04(1) / GEM Rules 19.04(1)
Released on 14/12/2009

Question:

The court has ordered Listco to sell its property to settle an outstanding loan.

Is the forced sale of the property by court order subject to the notifiable transaction requirements?

Answer:

Since Listco is bound to follow the court order and has no discretion to act in an opposite manner, the sale of the property by the court order is not regarded as a "transaction". Therefore the notifiable transaction requirements are not applicable in this situation. Nevertheless, if the information is inside information which requires disclosure under the Inside Information Provisions, Listco must also simultaneously announce the information under Main Board Rule 13.09(2)(a)/ GEM Rule 17.10(2)(a)1.

FAQ Series 9, FAQ No. 3
LR reference: Main Board Rules 14.04(1)(a) / GEM Rules 19.04(1)(a)
Released on 14/12/2009 (Updated on 2/1/2013)

Question:

Do the notifiable transaction rules apply to share repurchases by an issuer?

Answer:

Repurchases by an issuer of its own shares are normally not subject to the notifiable transaction rules.

FAQ Series 9, FAQ No. 4
LR reference: Main Board Rules 14.04(1)(a) / GEM Rules 19.04(1)(a)
Released on 14/12/2009

Question:

Company A is an associated company of Listco. Company A proposes to issue new shares to Mr. X (the Proposed Issue).

The Proposed Issue would dilute Listco's interest in Company A. Is it a transaction for Listco under Chapter 14? Is it a connected transaction for Listco under Chapter 14A if Mr. X is a connected person of Listco?

Answer:

The Proposed Issue is not a transaction for Listco under both Chapters 14 and 14A as Company A is not a subsidiary of Listco.

FAQ Series 20, FAQ No. 1
LR reference: Main Board Rules 14.04(1)(a), 14A.25 / GEM Rules 19.04(1)(a), 20.23
Released on 28/2/2013 (Updated on 1/7/2014)

Question:

Listco is a property developer and from time to time maintains term deposits and balances with various banks. It now proposes to place cash deposits with Company A on normal commercial terms.

Company A is a finance company approved by regulatory authorities in the Mainland. It only provides financial services to its group companies including Listco.

As Company A is a connected person, the proposed placing of cash deposits would be a connected transaction for Listco under Chapter 14A. Would it also constitute a transaction under Chapter 14?

Answer:

Yes. The proposed placing of cash deposits would be regarded as Listco providing financial assistance to Company A which falls within the definition of "transaction" under both Rules 14.04(1)(e) and 14A.24(4).

FAQ Series 20, FAQ No. 2
LR reference: Main Board Rules 14.04(1)(e), 14A.24(4) / GEM Rules 19.04(1)(e), 20.22(4)
Released on 28/2/2013 (Updated on 1/7/2014)

Question:

Mr. X is Listco's executive director. He has been providing financial assistance to support Listco's business.

Listco proposes to provide Mr. X with a corporate credit card for payment of his travelling expenses related to Listco's business. If he also uses the corporate credit card for payment of his personal purchases, Listco would set off the payment against the amount due from Listco to Mr. X.

Would the use of the corporate credit card for payment of Mr. X's personal expenses constitute a transaction for Listco under Chapters 14 and 14A?

Answer:

Yes. Listco is liable for settling any payment made through the corporate credit card. Allowing Mr. X to use the card for payment of his personal expenses is a means to provide financial assistance to Mr. X. It falls within the definition of "transaction" under both Rules 14.04(1)(e) and 14A.24(4).

FAQ Series 20, FAQ No. 3
LR reference: Main Board Rules 14.04(1)(e), 14A.24(4) / GEM Rules 19.04(1)(e), 20.22(4)
Released on 28/2/2013 (Updated on 1/7/2014)

Question:

A listed issuer has published an audited interim accounts.

Can the listed issuer refer to profits and revenue figures shown in such accounts for computation of the profits ratio and revenue ratio?

Answer:

Under Main Board Rules 14.16 and 14.17 / GEM Rules 19.16 and 19.17, the profits and revenue figures to be used by a listed issuer as the basis of the profits ratio and revenue ratio must be the figures shown in its latest published audited accounts. This normally refers to the annual accounts of the listed issuer as the use of the profits and revenue figures shown in such accounts would provide a more meaningful measurement of the relative size of a transaction to the listed issuer based on the profitability and level of activity of a full financial year.

FAQ Series 7, FAQ No. 6
LR reference: Main Board Rules 14.04(2), 14.17 / GEM Rules 19.04(2), 19.17
Released on 28/11/2008

Question:

What does “control of over a majority of assets in which it has invested” in Rule 18.03(1)(a) mean?

Answer:

It means the Mineral Company must have an interest greater than 50% (by value) in its total assets (which shall have the same meaning as defined in Rule 14.04(12)).

GL52-13 Appendix 1, FAQ No. 4
LR reference: Main Board Rules 18.03(1)(a), 14.04(12) / GEM Rules 18A.03(1)(a), 19.04(12)
Released on 26/5/2010 (Updated in February 2020)

Question:

How should an issuer compute the percentage ratios for providing financial assistance to a third party?

Answer:

For assets ratio and consideration ratio, the numerator will be the value of the financial assistance plus any "monetary advantage" (see Main Board Rule 14.12/ GEM Rule 19.12) accruing to the borrower.

The revenue ratio and profits ratio are applicable when there is an identifiable income from providing the financial assistance (e.g. interest income). The annual amount will be used as the numerator for calculating these ratios.

FAQ Series 9, FAQ No. 5
LR reference: Main Board Rules 14.07 / GEM Rules 19.07
Released on 14/12/2009

Question:

Listco proposes to subscribe for some convertible bonds issued by Company X which is an independent third party. Listco will have the sole discretion on whether to convert the bonds into Company X's new shares according to the terms of the bonds.

Is the subscription of the convertible bonds a transaction for Listco under the notifiable transaction rules?

If Listco exercises the conversion rights attached to the bonds, the acquisition of Company X's interest would be a major transaction or above. Can Listco seek prior shareholder approval for any exercise of the conversion rights when it subscribes for the bonds?

Answer:

Subscription of the convertible bonds is a form of financial assistance provided by Listco to Company X. Listco should compute the percentage ratios for classifying the subscription under the notifiable transaction rules.

When Listco proposes to exercise any conversion rights attached to the bonds, it will have to comply with the applicable notifiable transaction requirements for the acquisition of an interest in Company X.

Under the notifiable transaction rules, it is acceptable for Listco to obtain prior shareholder approval for the exercise of the conversion rights at the time of subscription of the convertible bonds provided that it can provide sufficient information to its shareholders to assess the transaction.

FAQ Series 9, FAQ No. 6
LR reference: Main Board Rules 14.07 / GEM Rules 19.07
Released on 14/12/2009

Question:

A listed issuer proposes to grant a RMB20 million loan (“Proposed Loan”) to its substantial shareholder, Mr. X.

Separately, the issuer has borrowed funds (“Issuer’s Loan”) from Mr. X, which remains outstanding at the time of the Proposed Loan.

Can the issuer offset the Issuer’s Loan against the Proposed Loan when calculating the percentage ratios under Chapters 14 and 14A?

Answer:

No. The Proposed Loan should be classified on a standalone basis.

FAQ Series N/A, FAQ No. 073-2021
LR reference: Main Board Rules 14.07, 14A.87 / GEM Rules 19.07, 20.87
Released on 21/5/2021

Question:

Can negative goodwill be excluded from total assets in calculating asset ratio?

Answer:

No. Negative goodwill must be included in accordance with SSAP 30 which states that negative goodwill should be presented as a deduction from the assets of the reporting enterprise, in the same balance sheet classification as goodwill.

FAQ Series 1, FAQ No. 44
LR reference: Main Board Rules 14.07(1) / GEM Rules 19.07(1)
Released on 30/3/2004 (updated in February 2020)

Question:

On the acquisition of an asset, say an equity interest, will the total assets test be applicable?

Answer:

Yes. If the book value of an asset to the vendor is unknown, the issuer must use the value of assets to be recorded in its books as the numerator of the total assets test. This would be the consideration payable, together with liabilities assumed (if any).

FAQ Series 1, FAQ No. 45
LR reference: Main Board Rules 14.07(1) / GEM Rules 19.07(1)
Released on 30/3/2004

Question:

Do profits ratio and revenue ratio apply to an acquisition of fixed assets (e.g. equipment and machinery) by an issuer for its own use in its ordinary and usual course of business?

Answer:

The revenue and profits ratios are not applicable if these assets do not have an identifiable income stream.

FAQ Series 9, FAQ No. 7
LR reference: Main Board Rules 14.07(2) and (3) / GEM Rules 19.07(2) and (3)
Released on 14/12/2009

Question:

If an issuer disposes of listed investment, should it adopt the turnover of the listed investment or the dividend income from the listed investment as the numerator of the revenue test?

Answer:

If the target is not consolidated in the accounts of the issuer, it should use the dividend income as the numerator. If the target is consolidated in the books of the issuer, it should use the revenue as disclosed in the annual report as the numerator.

FAQ Series 1, FAQ No. 46
LR reference: Main Board Rules 14.07(3) / GEM Rules 19.07(3)
Released on 30/3/2004

Question:

How should the market capitalisation be calculated?

Answer:

Normally, in the absence of changes to the number of shares in issue, market capitalisation will be calculated using the simple average closing price for the five business days immediately before the date of the transaction and the number of shares in issue at the date of the transaction. Where such calculation produces anomalous results, for example, if there have been issues of new securities during the five business day period immediately before the transaction, the Exchange may require issuers to submit alternative computation that provides

FAQ Series 1, FAQ No. 47
LR reference: Main Board Rules 14.07(4) / GEM Rules 19.07(4)
Released on 30/3/2004 (updated in February 2020)

Question:

Should the total market capitalisation include preference shares and warrants when calculating the consideration ratio?

Answer:

No. Market capitalisation is based on equity shares only and should not include preference shares and warrants.

FAQ Series 1, FAQ No. 48
LR reference: Main Board Rules 14.07(4) / GEM Rules 19.07(4)
Released on 30/3/2004 (updated in February 2020)

Question:

How is the market capitalisation calculated if the issuer has unlisted shares or shares listed in other markets, such as H-Share issuers with A and B Shares?

Answer:

The market capitalisation for the purpose of the consideration test is calculated with reference to the total issued share capital of the issuer.

(i) For an H-Share issuer with A and/or B Shares listed on a PRC stock exchange, the market value of A and/or B shares is calculated based on the average closing price of the respective shares for the five business days preceding the date of the transaction.
(ii) For an H-issuer which has unlisted shares, the market value of unlisted shares is calculated by reference to the average closing price of its H shares for the five business days preceding the date of the transaction.
(iii) For an issuer dually listed on the Exchange and an overseas stock exchange and has one class of listed shares traded on both exchanges, its market capitalisation is calculated based on the total number of issued shares and the average closing price of the shares quoted on the Exchange for the five business days preceding the date of the transaction.

FAQ Series 1, FAQ No. 49
LR reference: Main Board Rules 14.07(4), 19A.38A / GEM Rules 19.07(4), 25.34C
Released on 30/3/2004 (Updated in October 2020)

Question:

In the case of an H-share issuer whose domestic shares are quoted on NEEQ, how should the issuer calculate its market capitalisation for the purpose of calculating the consideration ratio of a notifiable or connected transaction?

Answer:

The market capitalisation is calculated based on the issuer’s total number of shares in issue including H shares and domestic shares. The market value of the domestic shares is calculated by reference to the average closing price of its H shares for the 5 days preceding the date of the transaction.

FAQ Series N/A, FAQ No. 069-2019
LR reference: Main Board Rules 14.07(4), 19A.38A / GEM Rules 19.07(4), 25.34C
Released on 30/09/2019 (Updated in October 2020)

Question:

A listed issuer proposes to settle the consideration payable for an acquisition by issuance of a convertible note.
Is the listed issuer required to calculate the equity capital ratio? If yes, what figure should be used as the numerator of the equity capital ratio?

Answer:

Yes. The listed issuer is required to calculate the equity capital ratio. The numerator should be the nominal value of the maximum number of shares that may be issued by the listed issuer assuming full conversion of the convertible note.

FAQ Series 7, FAQ No. 7
LR reference: Main Board Rules 14.07(5) / GEM Rules 19.07(5)
Released on 28/11/2008

Question:

An issuer proposes to enter into an acquisition. Its subsidiary will issue new shares to the vendor to satisfy part of the consideration.

Is the issuer required to calculate the equity capital ratio for classifying the proposed acquisition?

Answer:

The equity capital ratio is intended to apply to a transaction involving issue of equity capital of the listed issuer itself as consideration, including any securities convertible into the issuer's equity capital.

In this case, the equity capital ratio is not applicable as the proposed acquisition involves issue of the securities of a subsidiary but not the issuer.

FAQ Series 9, FAQ No. 10
LR reference: Main Board Rules 14.07(5) / GEM Rules 19.07(5)
Released on 14/12/2009

Question:

For the purpose of computing the revenue test of a banking company, which figure should be used for the denominator?

Answer:

Net interest income plus other operating income. Operating income is as defined in FD-1: Financial Disclosure by Locally Incorporated Authorized Institutions in the Supervisory Policy Manual issued by the HKMA.

FAQ Series 1, FAQ No. 50
LR reference: Main Board Rules 14.14 / GEM Rules 19.14
Released on 30/3/2004 (Updated in February 2020)

Question:

A listed issuer proposes to acquire a target company from a third party vendor. The consideration for the acquisition includes (i) a fixed amount of cash and (ii) a further amount that may be payable by the listed issuer after completion of the acquisition upon occurrence of certain future events. Such further amount will be determined based on the valuation of the target company agreed by the parties at the relevant time.

How should the listed issuer calculate the consideration ratio?

Answer:

Under Main Board Rule 14.15(4) / GEM Rule 19.15(4), when calculating the consideration ratio, if the listed issuer may pay consideration in the future, the consideration is the maximum total consideration payable under the agreement.

For the proposed acquisition of the target company, the numerator of the consideration ratio should include the fixed amount of cash as well as the maximum value of the further consideration that may be paid by the listed issuer in the future. If the total consideration is not subject to a maximum or such maximum value cannot be determined, the proposed acquisition will normally be classified as a very substantial acquisition, notwithstanding the transaction class into which it otherwise falls.

FAQ Series 7, FAQ No. 8
LR reference: Main Board Rules 14.15(4) / GEM Rules 19.15(4)
Released on 28/11/2008

Question:

A listed issuer has been publishing unaudited quarterly results for the first 3 and 9 months of each financial year, which include a condensed consolidated balance sheet as at the end of the reporting period.

Can the listed issuer refer to the total assets shown in the unaudited quarterly results recently published by the listed issuer when calculating the assets ratio?

Answer:

For a GEM issuer, GEM Rule 19.16 provides that the issuer must refer to the total assets shown in its latest published audited accounts or half-year, quarterly or other interim report (whichever is more recent) for the purpose of calculating the assets ratio. In the circumstances described, a GEM issuer can refer to the total assets shown in its latest published quarterly results when calculating the assets ratio.

For a Main Board issuer, Main Board Rule 14.16 provides that the issuer must refer to the total assets shown in its latest published audited accounts or interim report (whichever is more recent). While the rule makes no references to quarterly accounts, where the Main Board issuer has adopted quarterly reporting as recommended by the Code on Corporate Governance Practices set out in Appendix 14 to the Main Board Rules, it is acceptable for the issuer to refer to the total assets shown in its recently published quarterly results when calculating the assets ratio.

FAQ Series 7, FAQ No. 9
LR reference: Main Board Rules 14.16 / GEM Rules 19.16
Released on 28/11/2008

Question:

A listed issuer has recently published the preliminary announcement of its results for latest financial year according to the Listing Rules. The listed issuer has not yet published the relevant annual report. When computing the assets ratio, profits ratio and revenue ratio, can the listed issuer refer to the figures shown in the preliminary results announcement?

Answer:

Under Main Board Rules 14.16 and 14.17 / GEM Rules 19.16 and 19.17, the listed issuer should refer to the total assets, profits and revenue figures shown in its latest published audited accounts. Where the preliminary results announcement published by the listed issuer is based on its audited financial statements, the listed issuer should refer to the audited figures shown in such announcement for computing the assets, profits and revenue ratios.

There may be situations where the audit of the listed issuer's accounts has not yet been completed and the listed issuer has published the preliminary results announcement based on its accounts which have been agreed with the auditors. In such circumstances, the listed issuer must ensure accuracy of the figures used for computing the assets, profits and revenue ratios. In rare circumstances, where any such figures need to be revised in the audited accounts subsequently available, the listed issuer should re-compute the relevant percentage ratios and comply with any additional requirements if the proposed transaction should fall under a higher classification.

FAQ Series 7, FAQ No. 10
LR reference: Main Board Rules 14.16, 14.17 / GEM Rules 19.16, 19.17
Released on 28/11/2008

Question:

How should the total assets be adjusted if the dividend has a scrip alternative and subsequently scrip shares are issued?

If the dividend is proposed by a listed subsidiary of the issuer, is any adjustment required to be made by the issuer to its total assets?

Answer:

A scrip dividend will not have an impact on total assets. However the issuer may not at the relevant time be able to determine to what extent scrip shares will be issued. Therefore where adjustment is being made for the proposed dividend, the issuer should assume that the total dividend is paid in cash unless the number of scrip shares to be issued is known.

Adjustment to total assets should be made to the extent that the total consolidated assets will be reduced by the dividend to be paid by the subsidiary.

FAQ Series 1, FAQ No. 52
LR reference: Main Board Rules 14.16(1) / GEM Rules 19.16(1)
Released on 30/3/2004 (updated in February 2020)

Question:

If an issuer has incurred a net loss in its latest published accounts, is it still required to submit a five tests calculation for all potential notifiable transactions?

Answer:

Yes, the issuer is still required to submit a five tests calculation, together with alternative tests in respect of profit test (such as a gross profit comparison) for our consideration.

FAQ Series 1, FAQ No. 53
LR reference: Main Board Rules 14.20 / GEM Rules 19.20
Released on 30/3/2004 (updated in February 2020)

Question:

A listed issuer is proposing a group restructuring under which one of its wholly owned subsidiaries would transfer certain fixed assets to a 70%-owned subsidiary of the listed issuer at fair value of the assets.

Is the proposed group restructuring subject to the requirements under Chapter 14 of the Main Board Rules / Chapter 19 of the GEM Rules?

Answer:

In the case of a group restructuring, the Exchange will take into account the substance of the transaction and its impact on the listed issuer group as a whole when applying the notifiable transaction requirements.

In the circumstances described, the proposed group restructuring would involve a disposal of fixed assets by one subsidiary and an acquisition of the same assets by another subsidiary. Calculations of the percentage ratios may produce an anomalous result for the purpose of classifying the transaction. The Exchange may accept alternative size tests calculated by the listed issuer based on the net disposal of the listed issuer's interest in the fixed assets.

FAQ Series 7, FAQ No. 2
LR reference: Main Board Rules 14.20, 14.04(1)(a) / GEM Rules 19.20, 19.04(1)(a)
Released on 28/11/2008

Question:

A listed issuer proposes to acquire a minority interest in a target company (5% of its equity capital) as an investment which will be classified as available-for-sale financial assets in the listed issuer's accounts.

How should the listed issuer compute the assets ratio, profits ratio and revenue ratio?

Answer:

The proposed transaction involves acquisition of an equity capital. According to Main Board Rule 14.28 / GEM Rule 19.28, when calculating the assets, profits and revenue ratios, the value of the target company's total assets, profits and revenue calculated in accordance with Main Board Rule 14.27 / GEM Rule 19.27 is to be multiplied by the percentage of equity interest being acquired by the listed issuer.

However, where these percentage ratios produce an anomalous result, listed issuer may submit alternative tests for the Exchange's consideration pursuant to Main Board Rule 14.20 / GEM Rule 19.20. In the circumstances described, it is normally acceptable for the listed issuer to use the fair value of the interest in the target company to be acquired (determined in accordance with the applicable accounting standards adopted by the listed issuer) as the numerator of the alternative test to the assets ratio. As to the profits and revenue ratios, the listed issuer may submit alternative tests calculated with reference to the dividend declared by the target company and any dividend policy established by the target company for the Exchange's consideration.

FAQ Series 7, FAQ No. 12
LR reference: Main Board Rules 14.20, 14.28 / GEM Rules 19.20, 19.28
Released on 28/11/2008

Question:

A listed issuer has published its latest annual audited accounts. It has also completed the disposal of a major subsidiary to a third party after the year end, details of which were disclosed by the listed issuer.
The listed issuer now proposes to acquire a target company. When computing the assets ratio for such acquisition, the total assets figure of the listed issuer shown in its latest audited accounts would need to be adjusted for the disposal according to Main Board Rule 14.18 / GEM Rule 19.18. When computing the profits and revenue ratios for the acquisition, would it be necessary to adjust the listed issuer's profits and revenue figures to exclude the results of the disposed subsidiary?

Answer:

The requirement of Main Board Rule 14.18 / GEM 19.18 only applies to the total assets figure of the listed issuer.

Main Board Rule 14.17 / GEM Rule 19.17 provides the circumstances under which the Exchange may prepare to accept the exclusion of profits and revenue from the discontinued operations of a listed issuer for the purpose of the profits ratio and revenue ratio respectively.

In the circumstances described, the disposal of a major subsidiary may not fall under the situation described in Main Board Rule 14.17 / GEM Rule 19.17. Nevertheless, if the calculations of the profits and/or revenue ratios produce an anomalous result, the Exchange may require the listed issuer to submit alternative size tests by excluding the results of the disposed subsidiary under Main Board Rule 14.20 / GEM Rule 19.20. The listed issuer should consult the Exchange when calculating the percentage ratios for the proposed acquisition.

FAQ Series 7, FAQ No. 11
LR reference: Main Board Rules 14.20, 14.17, 14.18 / GEM Rules 19.20, 19.17, 19.18
Released on 28/11/2008 (Updated on 01/10/2019)

Question:

The latest audited accounts of Listco cover a period of 18 months due to the change in financial year end date.

Should Listco use the annualised profits and revenue for computing the profits ratio and the revenue ratio?

Answer:

While the Listing Rules require an issuer to calculate the revenue and profits ratios based on figures in its latest audited accounts, these calculations may produce anomalous results in the circumstances described and alternative size tests using annualised figures may be acceptable. Listco should consult the Exchange if it proposes to adopt the alternative size tests.

FAQ Series 9, FAQ No. 8
LR reference: Main Board Rules 14.20, 14.07(2) and (3), 14.17 / GEM Rules 19.20, 19.07(2) and (3), 19.17
Released on 14/12/2009

Question:

A listed issuer has recently completed an acquisition of the 80% interest in a target company, which constituted a major transaction, and it had complied with the applicable requirements under the Listing Rules. The listed issuer now proposes to acquire the remaining 20% interest in the same company which will by itself constitute a discloseable transaction.

Would the Exchange apply Main Board Rule 14.22 / GEM Rule 19.22 to aggregate the proposed acquisition with the previous major transaction in the following scenarios?

(a) The proposed acquisition when aggregated with the completed transaction would be classified as a major transaction.
(b) The proposed acquisition when aggregated with the completed transaction would be classified as a very substantial acquisition.

Answer:

The Exchange would consider the proposed acquisition and the completed transaction as a series of transactions as they involve acquisition of interest in one particular company and are entered into by the listed issuer within a short period of time.

In determining whether to aggregate these transactions, the Exchange would also take into account the classification of the completed transaction, and whether the series of transactions when aggregated would result in a higher transaction classification and therefore be subject to additional Rule requirements.

In scenario (a), the listed issuer had complied with the major transaction requirements in respect of the completed transaction and the Exchange would not require the listed issuer to reclassify the proposed acquisition by aggregating it with the completed transaction.

In scenario (b), the Exchange would require the listed issuer to aggregate the proposed acquisition with the completed transaction and the listed issuer would need to comply with the very substantial acquisition requirements in respect of the proposed acquisition.

FAQ Series 7, FAQ No. 14
LR reference: Main Board Rules 14.22 / GEM Rules 19.22
Released on 28/11/2008

Question:

A listed issuer has recently completed an acquisition which did not constitute a notifiable transaction. The listed issuer now proposes another acquisition which will constitute a discloseable transaction on a standalone basis. However, these acquisitions when aggregated would be classified as a major transaction.

If the Exchange requires aggregation of the currently proposed acquisition with the previous acquisition, Main Board Rule 14.22 / GEM Rule 19.22 provides that the listed issuer must comply with the requirements for the relevant classification of the transaction when aggregated. How would the major transaction requirement apply to these acquisitions?

Answer:

Normally, the major transaction requirement would only apply to the currently proposed acquisition but not the previous acquisition.

Nevertheless, the listed issuer should ensure adequate information relating to the previous acquisition be disclosed in the announcement and circular of the proposed acquisition if such information is necessary for shareholders to make a properly informed decision on how to vote in respect of the proposed acquisition.

FAQ Series 7, FAQ No. 15
LR reference: Main Board Rules 14.22 / GEM Rules 19.22
Released on 28/11/2008

Question:

The Listing Rules provide that the Exchange may require an issuer to aggregate a series of transactions if they are all completed within a 12 month period or are otherwise related.

How is the "12 month period" determined — with reference to the date of completion of the transactions or to their agreement dates?

Answer:

The "12 month period" should be calculated by reference to the completion date of the previous transaction(s).

FAQ Series 9, FAQ No. 11
LR reference: Main Board Rules 14.22 / GEM Rules 19.22
Released on 14/12/2009

Question:

If an issuer completes a series of acquisitions with different parties within a 12 month period, each of which is not major (as defined in Chapter 14) but their cumulative size exceeds the 25% threshold, will this company be treated as a Mineral Company upon completion of the transactions?

Answer:

Yes. The principles of aggregation under Rule 14.22 apply to transactions undertaken by all listed companies, including those that enter into a series of small acquisitions of Mineral or Petroleum Assets.

GL52-13 Appendix 1, FAQ No. 14
LR reference: Main Board Rules 14.22 / GEM Rules 19.22
Released on 26/5/2010 (Updated in February 2020)

Question:

An issuer from time to time enters into leases (e.g. leases of properties, or leases of machinery and equipment) that are necessary for its business operations.

Will the issuer be required to aggregate its lease transactions entered into with the same party within a period of 12-months?

Answer:

There will be no change in the application of the aggregation Rules to lease transactions after the issuer adopting the HKFRS/IFRS 16.

In the circumstances described, generally the Exchange would not require aggregation of the lease transactions solely because they are made with the same party. When applying the aggregation Rules, the Exchange would consider whether the lease transactions are connected or related in substance and whether there is a concern about "splitting" of a lease transaction into smaller ones to circumvent the notifiable/connected transaction requirements. It would take into account relevant factors including:

- whether the leases are made under a master agreement or negotiated and concluded at the same time;
- whether the leased assets form part of one asset, and/or
- whether the leases would together lead to substantial involvement by the issuer in a new business activity.

(See also Listing Decisions LD76-3 (2009) and LD64-1 (2008) where the principles and guidance provided also apply to leases of properties or fixed assets by issuers.)

Nevertheless, as the Exchange would have to consider all relevant facts and circumstances of the particular case when determining whether aggregation of transactions is required, the issuer should consult the Exchange as required under Main Board Rule 14.23B or 14A.84.

FAQ Series N/A, FAQ No. 046-2018
LR reference: Main Board Rules 14.22, 14.23, 14A.24(1), 14A.24(3), 14A.31 / GEM Rules 19.22, 19.23, 20.22(1), 20.22(3), 20.29
Released on 28/09/2018

Question:

A listed issuer proposes to acquire certain wealth management products (e.g. index or asset linked deposits) from a licensed bank (Bank A) for treasury management purpose. It holds other wealth management products issued by Bank A and other banks.

How should the issuer compute the percentage ratios for the proposed transaction under Chapter 14?

Answer:

Normally the issuer is required to aggregate its investment in wealth management products acquired from the same bank.

In computing the percentage ratios, the numerator of the assets ratio and the consideration ratio would be the sum of the acquisition costs of (i) wealth management products to be acquired under the proposed transaction and (ii) wealth management products which were acquired from Bank A which remain outstanding at the time of the proposed transaction. The numerator of the revenue ratio and profit ratio would be calculated based on the aggregate annual interest income recognised by the issuer from these products.

FAQ Series N/A, FAQ No. 074-2021
LR reference: Main Board Rules 14.22, 14.23 / GEM Rules 19.22, 19.23
Released on 21/5/2021

Question:

Should an issuer consult the Exchange under Main Board Rule 14.23B (GEM Rule 19.23B) if:

(a) the proposed transactions, even when aggregated with the previous transaction(s), will not exceed the percentage ratios to be treated as a notifiable transaction or a connected transaction subject to the announcement, reporting and/or shareholders' approval requirements; or
(b) the issuer has already decided to aggregate the proposed transaction with the previous transaction(s) and comply with the requirements for the relevant classification of the transaction when aggregated?

Answer:

No. The purpose of the Rules is to provide guidance to issuers to comply before entering into the transaction. Circumstances in (a) and (b) do not involve any risk of non-compliance with the Rules.

FAQ Series 8, FAQ No. 43.
LR reference: Main Board Rules 14.23A, 14A.84, 14A.85, 14A.86 / GEM Rules 19.23A, 20.82, 20.83, 20.84
Released on 28/11/2008 (updated in February 2020)

Question:

Main Board Rule 14.23A provides that the Exchange will not aggregate a series of transactions carried out by an issuer in the course of construction, development or refurbishment of an asset for the issuer's own use in its ordinary and usual course of business if the sole basis for aggregation is that the transactions form parts of one asset.

Does the Rule apply to the transactions carried out by Listco in the course of construction of a property for (1) its own use as an office; or (2) rental purpose as an investment property?

Answer:

(1) Given that the property is constructed for Listco's own use in its ordinary and usual course of business, the Rule will apply in the circumstances described.
(2) The Rule will apply if property investment is an ordinary and usual course of business of Listco.

In the above situations, Listco should note that each individual contract or agreement with a third party vendor is itself a transaction and subject to the notifiable transaction requirements if it exceeds the threshold(s) triggering the notifiable transaction rules.

FAQ Series 9, FAQ No. 12
LR reference: Main Board Rules 14.23A / GEM Rules 19.23A
Released on 14/12/2009

Question:

Under the amended rule, if a transaction involves a major acquisition and a discloseable disposal, does it mean that only the acquisition and not the disposal requires shareholder approval?

Answer:

The rule amendment only clarifies the content requirements for the circular. It does not change the requirement as to how to classify a transaction as a whole to determine whether shareholder approval is required. In the circumstances described, the transaction as a whole would be classified as a major transaction and requires shareholder approval.

FAQ Series 11, FAQ No. 9
LR reference: Main Board Rules 14.24 / GEM Rules 19.24
Released on 20/5/2010

Question:

Listco proposes to sell its interest in a subsidiary in return for cash and the buyer's interest in a target (the Transaction). The sale of the subsidiary is a major transaction and the acquisition of the target is a discloseable transaction.

Does the circular need to include the following information?

an accountants' report on the target company
a valuation report on the target's property interests (the target is a property company)
pro forma financial information showing the impact of the Transaction on Listco

Answer:

As the acquisition is a discloseable transaction, the circular need not contain an accountants' report on the target or a valuation report on the target's property interests.

The circular also does not need to contain pro forma financial information on the Transaction because the Rules do not require this information for a major disposal or a discloseable acquisition.

FAQ Series 11, FAQ No. 10
LR reference: Main Board Rules 14.24 / GEM Rules 19.24
Released on 20/5/2010

Question:

A listed issuer proposes to acquire an equity interest in a target company which has commenced operation for less than one year. Would the listed issuer be required to use the annualized profits or revenue (as the case may be) of the target company as the numerators of the profits ratio or the revenue ratio?

Answer:

Under Main Board Rules 14.26 and 14.27/ GEM Rules 19.26 and 19.27, the numerators of the profits ratio and the revenue ratio are to be calculated by reference to the profits and revenue attributable to the target company's capital as disclosed in its accounts.

Listing Rules do not require the listed issuer to annualize the profits or the revenue of the target company when computing the percentage ratios. However, the results of such calculations may be regarded by the Exchange as anomalous and alternative tests may be required to assess the relative size of the target company compared to the listed issuer group.

FAQ Series 7, FAQ No. 13
LR reference: Main Board Rules 14.26, 14.27 / GEM Rules 19.26, 19.27
Released on 28/11/2008

Question:

If a listed subsidiary conducts a placing of new shares by way of a general mandate, would it also constitute a notifiable transaction for the listed parent?

Answer:

An allotment of shares by the listed subsidiary would also be a deemed disposal for the listed parent as it would result in a reduction in the percentage equity interest of the listed parent in such subsidiary. Accordingly, the transaction, depending on the size tests as defined in Main Board Rule 14.04(9) / GEM Rule 19.04(9), may fall to be treated as a very substantial disposal, major transaction or discloseable transaction of the listed parent and subject to relevant notifiable transaction requirements under Main Board Chapter 14 and GEM Chapter 19.

Where the size of the deemed disposal falls to be a major transaction or above, the placing is subject to approval by shareholders of the listed parent. The Exchange ordinarily expects the listed parent in these circumstances to maintain control over the matter by making the general mandate of the listed subsidiary conditional on it not triggering a major transaction for the listed parent. Issuers should make prior consultation with the Exchange if they anticipate any practical issues relating to compliance in this connection.

FAQ Series 8, FAQ No. 42. Issue 10
LR reference: Main Board Rules 14.29, 14.04 / GEM Rules 19.29, 19.04
Released on 28/11/2008

Question:

What are the procedures issuers should follow prior to the morning pre-opening trading session or the afternoon trading session in reviewing the publication status of its announcement and considering whether notifying the HKEx that a trading suspension may be required?

Answer:

The assessment of whether a trading halt or suspension will be required is based on the trading halt or suspension policy having regard to the two factors: nature of announcement and publication of the announcement on the HKEx website.

Trading halt or suspension arising from publication failures will be required where the subject matter of the announcement is information necessary to avoid a false market in the issuer's securities or is inside information which needs to be disclosed under the Inside Information Provisions (Listing Rules MB 13.09 / GEM 17.10) or relates to a notifiable transaction and a trading halt or suspension is required under Listing Rules MB 14.37 / GEM 19.37. For pre-vetted announcements, this determination will be agreed with the Listing Division of the HKEx before clearance of the announcement. For post-vetted announcement, the issuer will make the assessment. In either case this assessment should be also generally reflected in the headline categories selected by the issuers.

An issuer should take reasonable steps to gain comfort that publication of its announcement on the HKEx website has been successful. Such steps may include noting receipt of e-mail confirmation from HKEx and checking the HKEx website directly.

Where, for whatever reason the publication of the announcement on the HKEx website is delayed (by reference to the trading halt or suspension policy above), the issuer should contact the Listing Division of the HKEx immediately and where appropriate, request a trading halt or suspension.

FAQ Series 3, FAQ No. 144
LR reference: Main Board Rules 13.09, 13.10A, 14.37 / GEM Rules 17.10, 17.11A, 19.37
Released on 22/3/2007 (Updated on 2/1/2013)

Question:

What is the trading halt/ suspension policy applicable to Main Board and GEM issuers in respect of publication of announcements containing inside information and/or notifiable transactions?

Answer:

Trading in the securities of an issuer may be halted or suspended due to publication failure (i.e. to publish an announcement on HKEx websites) where the subject matter of the announcement is information discloseable under Listing Rules MB 13.09/ GEM 17.10 or relates to a notifiable transaction and trading halt or suspension is required under Listing Rules MB 14.37/ GEM 19.37. This is consistent with the principle set out in Chapter 6 of Main Board Rules/ Chapter 9 of GEM Rules on trading halts and suspensions, i.e. that halt or suspension is only required where the HKEx considers it necessary for the protection of the investor or the maintenance of an orderly market.

Where an obligation to issue an announcement containing inside information has arisen for an issuer, it should publish the announcement during the next available publication window. For example, where the issuer has signed an agreement in relation to a notifiable transaction that is inside information after trading hours on a normal business day, and an announcement is published on the HKEx website by 8.30 a.m. of the next business day (i.e. either during the publication windows from 4.30 p.m. to 11.00 p.m. of that business day, or between 6.00 a.m. to 8.30 a.m. of the next business day), no trading halt or suspension would be necessary. Similarly, where an agreement is signed after the morning trading session and an announcement is published on the HKEx website between 12.00 noon to 12.30 p.m. of the same business day, no trading halt or suspension is necessary. In both circumstances where an announcement cannot be published before the next trading session, a halt or suspension in the trading of the issuer's securities would be required until commencement of the trading session (morning or afternoon) after the publication of the announcement. For example, where the announcement is published during the 12.00 noon to 12.30 p.m. publication window of the next business day, the issuer may apply for resumption of trading in its securities at 1.00 p.m.

Where an issuer's obligation to publish an announcement relating to inside information is triggered during trading hours (for example, where confidentiality cannot be maintained and an obligation to publish an announcement on inside information arises under Listing Rule MB 13.09/ GEM 17.10 or in the circumstances described in Listing Rules MB 14.37 / GEM 19.37), the issuer should request a halt or suspension in trading of its securities, and publish an announcement as soon as possible during the next publication window. Resumption in trading of the issuer's securities may take place during the commencement of the next trading session after the publication of the announcement.

A resumption announcement should clearly set out that an application will be made for resumption in the trading of securities and the expected time of resumption (i.e. at the commencement of the next trading session after the publication of the announcement).

Issuers are reminded of their obligations to submit an announcement for clearance by the Exchange before publication where the subject matter of the announcement requires pre-vetting under the Listing Rules. Please refer to the Guide on Pre-vetting requirements and Selection of Headline Categories for Announcements at http://www.hkex.com.hk/eng/rulesreg/listrules/guidref/guide_pre_vetting_req.htm which sets out categories of announcements requiring pre-vetting.

Issuers are also reminded that they should manage their affairs, particularly with regard to the signing of agreements, to ensure that there will be continuous and informed trading of their securities save in exceptional circumstances. It follows that, as far as practicable, issuers should seek to ensure that complex and lengthy announcements are disseminated as soon as possible during either the lunchtime publication window or outside trading hours to allow investors adequate time to consider the content of such disclosures.

FAQ Series 3, FAQ No. 178
LR reference: Main Board Rules Chapter 6, 13.09, 13.10A, 14.37 / GEM Rules Chapter 9, 17.10, 17.11A, 19.37
Released on 22/3/2007 (Updated on 25/7/2016)

Question:

Listco A proposes to vary certain terms of a major transaction after it has been approved by its shareholders.

The resolutions passed by the Listco A's shareholders in respect of the major transaction have given the directors the authority to take all steps necessary or expedient to implement the major transaction. Will Listco A be required to re-comply with the shareholders' approval requirement in respect of the revised transaction?

Answer:

Depending on the nature and materiality of the changes in the terms, Listco A may be required to re-comply with the shareholders' approval requirement for the revised transaction.

In the circumstances described, while the directors of Listco A are authorised to take steps that they consider necessary or expedient to implement the major transaction, any changes to the terms of the transaction so made by the directors should be non-material as a material change would in substance give rise to a new transaction and should not be made without prior shareholders' approval.

FAQ Series 7, FAQ No. 16
LR reference: Main Board Rules 14.40 / GEM Rules 19.40
Released on 28/11/2008

Question:

Where written shareholder approval has been obtained for a transaction, the amended rule requires an information circular to be despatched within 15 business days after publication of the announcement.

If the stock market is open for only half day due to a typhoon or other reason, is it counted as a business day?

Answer:

The Listing Rules define a "business day" as any day on which the Exchange is open for the business of securities dealing. Accordingly if, for whatever reason, the Exchange is open for the business of dealing in securities for only half day, it is counted as a business day.

FAQ Series 11, FAQ No. 11
LR reference: Main Board Rules 1.01, 14.41, 14A.46, 14A.48 / GEM Rules 1.01, 19.41, 20.44, 20.46
Released on 20/5/2010 (Updated on 1/7/2014)

Question:

Listco proposes a major transaction involving acquisition of a target company. Listco's controlling shareholder holds 60% of Listco and has given written approval for the acquisition.

If Listco subsequently becomes aware that the reporting accountants would issue a modified opinion in the accountants' report of the target company, is Listco required to convene a general meeting to seek shareholder approval of the major transaction?

Answer:

Under Main Board Rule 14.86, the Exchange will not accept a written shareholder approval of a major transaction if the reporting accountants give a modified opinion in the accountants' report. Listco should convene a general meeting to seek shareholder approval of the major transaction.

FAQ Series 9, FAQ No. 18
LR reference: Main Board Rules 14.44, 14.86 / GEM Rules 19.44, 19.86
Released on 14/12/2009 (Updated on 1/3/2019)

Question:

An issuer proposes to obtain written shareholder approval of a major transaction and make relevant disclosure in the announcement. Does the issuer need to obtain the Exchange's prior approval of this arrangement before it publishes the announcement?

Answer:

The Listing Rules do not specifically require an issuer to seek the Exchange's prior consent for the written shareholder approval of a major transaction. Nevertheless, if the written approval is to be given by a group of shareholders, the Rules require the issuer to provide sufficient information to the Exchange to demonstrate that the shareholders are a "closely allied group of shareholders".

If the major transaction is also a connected transaction, a waiver from convening the general meeting is required under the connected transaction rules.

FAQ Series 9, FAQ No. 17
LR reference: Main Board Rules 14.44, 14A.06(5), 14A.37 / GEM Rules 19.44, 20.06(5), 20.35
Released on 14/12/2009 (Updated on 1/7/2014)

Question:

Main Board Rule 14.58(2) / GEM Rule 19.58(3) requires the announcement of a notifiable transaction to disclose the identity of the counterparty.

Is a listed issuer required to disclose the identity of the ultimate beneficial owner of the counterparty in the announcement of a notifiable transaction?

Answer:

Main Board Rules 14.58 to 14.60 / GEM Rules 19.58 to 19.60 set out the minimum disclosure requirements for announcements of different types of notifiable transactions.

Main Board Rule 14.58(3) / GEM Rule 19.58(4) requires the announcement to contain a confirmation that the counterparty and its ultimate beneficial owner are independent of the listed group and the connected persons of the listed issuer. Disclosure of the identity of the counterparty's ultimate beneficial owner would be required under this rule where they are not independent third parties.

Notwithstanding the above, when determining the amount of information that needs to be disclosed in a notifiable transaction announcement, the listed issuer must also observe the general principle for disclosure under Main Board Rule 2.13 / GEM Rule 17.56 and disclose information (including the identity of the counterparty’s ultimate beneficial owner) that enables shareholders and investors to make an informed assessment of the transaction. 

FAQ Series 7, FAQ No. 17
LR reference: Main Board Rules 14.58(2), 14.58(3) / GEM Rules 19.58(3), 19.58(4)
Released on 28/11/2008 (Updated on 01/10/2019)

Question:

The Listing Rules require an issuer to disclose in the announcement the basis for determining the consideration for the transaction. How much detail should be provided by the issuer?

Answer:

The disclosure is intended to help shareholders understand how the issuer's directors determined the consideration. The level of detail will depend on the circumstances of each case. Nevertheless, the directors are normally expected to describe the key factors that they have taken into account when making the determination.

FAQ Series 9, FAQ No. 13
LR reference: Main Board Rules 14.58(5) / GEM Rules 19.58(6)
Released on 14/12/2009

Question:

Main Board Rule 14.58(6) / GEM Rule 19.58(7) requires disclosure of the book value of the assets being the subject of the notifiable transaction in the announcement.

In the case of an acquisition of equity capital, should the total assets or the net assets of the target company be disclosed in the announcement?

Answer:

It is normally acceptable for the listed issuer to disclose the net asset value shown in the target company's latest accounts as defined in Main Board Rule 14.04(2)(b) / GEM Rule 19.04(2)(b).

Nevertheless, the listed issuer should also disclose any other material information concerning the assets and liabilities of the target company that the issuer considers necessary to enable shareholders and investors to properly assess the value of the target company under Main Board Rule 2.13 / GEM Rule 17.56.

FAQ Series 7, FAQ No. 18
LR reference: Main Board Rules 14.58(6) / GEM Rules 19.58(7)
Released on 28/11/2008

Question:

A listed issuer proposes to acquire interest in a target company which uses accounting standards different from those of the listed issuer.

When disclosing the target company's financial information required under Main Board Rules 14.58(6) and (7) / GEM Rules 19.58(7) and (8), can the listed issuer refer to the relevant figures shown in the target company's accounts?

Answer:

Under Main Board Rule 2.13 / GEM Rule 17.56, the listed issuer must ensure the information contained in its announcement be accurate and complete in all material respects and not misleading or deceptive.

In circumstances described, reference can be made to Main Board Rule 14.07 / GEM Rule 19.07 which requires the listed issuer to perform, where applicable, an appropriate and meaningful reconciliation of the relevant figures of the target company for the purpose of calculating the percentage ratios. In such situation, the listed issuer should consider disclosing the target company's financial information based on the accounting standards of the listed issuer for the purposes of Main Board Rules 14.58(6) and (7) / GEM Rules 19.58(7) and (8).

Where the listed issuer discloses relevant figures shown in the target company's accounts for the purposes of Main Board Rules 14.58(6) and (7) / GEM Rules 19.58(7) and (8), it should make reference to the accounting standards adopted by the target company and where applicable, provide an explanation of any principal differences between the accounting standards of the listed issuer and the target company which may have a material impact on the financial information of the target company contained in the announcement.

FAQ Series 7, FAQ No. 19
LR reference: Main Board Rules 14.58(6), 14.58(7) / GEM Rules 19.58(7), 19.58(8)
Released on 28/11/2008

Question:

Main Board Rule 14.58(7) / GEM Rule 19.58(8) requires listed issuers to disclose in the announcement the net profits (both before and after taxation and extraordinary items) attributable to the assets which are the subject of the transaction for the two financial years immediately preceding the transaction.

Is the requirement applicable to a transaction involving acquisition or disposal of real property? If yes, what information should be disclosed?

Answer:

It would depend on whether the property to be acquired / disposed of by the listed issuer is a revenue-generating asset with an identifiable income stream. Where the listed issuer proposes to acquire / dispose of a property held for rental purpose, it would be required to disclose the net rental income generated from such property before and after taxation taking into account all related disbursements such as expenses for managing the property and allowances to maintain it in a condition to command its rent.

FAQ Series 7, FAQ No. 20
LR reference: Main Board Rules 14.58(7) / GEM Rules 19.58(7)
Released on 28/11/2008

Question:

The Listing Rules require an issuer to disclose in the announcement "where applicable, the net profits (both before and after taxation and extraordinary items) attributable to the assets which are the subject of the transaction for the two financial years immediately preceding the transaction".

Is the requirement applicable if the target company recorded net losses for the last 2 years or it has a trading record of less than 2 years?

Answer:

Yes. The disclosure requirement applies to the net profits or losses attributable to the target company for the two financial years immediately preceding the transaction, or if less, the period since its incorporation or establishment.

FAQ Series 9, FAQ No. 14
LR reference: Main Board Rules 14.58(7) / GEM Rules 19.58(8)
Released on 14/12/2009

Question:

Listco proposes to dispose of its interest in a subsidiary.

The gain or loss on the disposal can only be ascertained at the completion of the disposal. Is Listco required to disclose this gain or loss in its announcement when it enters into the agreement for the proposed disposal?

Answer:

Although the actual gain or loss on the disposal is yet to be determined, Listco should disclose the expected gain or loss and its basis in the announcement under the rule. If Listco expects that there will be a difference between the actual gain or loss on the disposal and the disclosed amount, it should explain in the announcement the reason for the difference.

FAQ Series 9, FAQ No. 15
LR reference: Main Board Rules 14.60(3)(a) / GEM Rules 19.60(3)(a)
Released on 14/12/2009

Question:

The Rule requires an issuer to disclose in the announcement information on the shareholders who have approved or will approve the major transaction by way of a written certificate.

After issuing an announcement for a major transaction, Listco decides to obtain a written shareholder approval of the major transaction. Is it required to issue a further announcement to disclose this fact?

Answer:

Yes. Listco should issue a further announcement to disclose the information required under Main Board Rule 14.60(5).

FAQ Series 9, FAQ No. 16
LR reference: Main Board Rules 14.60(5) / GEM Rules 19.60(5)
Released on 14/12/2009

Question:

Will valuations of Natural Resource assets (i.e. Reserves) based on discounted cash flows ("DCF") be regarded as profit forecasts under Rule 14.61 which is required to be reviewed by the reporting accountants?

Answer:

No. However, issuers must disclose all relevant assumptions and the reason DCF was chosen as a valuation method.

GL52-13 Appendix 1, FAQ No. 20
LR reference: Main Board Rules 11.17, 14.61, 18.34, Appendix 1A(34)(2), Appendix 1B(29)(2) / GEM Rules 14.29, 19.61, 18A.34, Appendix 1A(34)(2), Appendix 1B(29)(2)
Released on 26/5/2010 (Updated in February 2020)

Question:

What are the disclosure requirements under Section 436 of the New Companies Ordinance for a Hong Kong incorporated issuer in relation to the publication of non-statutory accounts in its:

(a) Annual/interim results announcement; and
(b) interim report, quarterly results announcement / financial report, circulars or listing documents?

Answer:

The issuer must include a statement indicating that the statement of comprehensive income for a full financial year and/or the statement of financial position at a financial year end (the "Statements") presented in the account are not statutory financial statements under the New Companies Ordinance. The issuer must also disclose whether (i) an auditor's report had been prepared; and (ii) the auditors gave a qualified or modified audit opinion on the Statements.

 

For details, please refer to Accounting Bulletin 6 "Guidance on the Requirements of Section 436 of the Hong Kong Companies Ordinance Cap.622" issued by Hong Kong Institute of Certified Public Accountants at:
https://www.hkicpa.org.hk/-/media/HKICPA-Website/Members-Handbook/volumeII/ab6.pdf

FAQ Series 31, FAQ No. 13
LR reference: Main Board Rules 13.48, 13.49(1), 13.49(6), 14.66 to 14.69, 11.03 & 11.04, 11.16 to 11.19, 14.61 & 14.62, 4.25 to 4.29 / GEM Rules 18.49, 18.53, 18.66, 18.78, 18.79, 19.66 to 19.69, 14.03 & 14.06, 14.29 to 14.31, 19.61 & 19.62, 7.27 to 7.31
Released on 11/9/2015 (Updated the hyperlink to Accounting Bulletin 6 in October 2019) (Updated in February 2020)

Question:

A listed issuer proposes to acquire a target company, which constitutes a notifiable transaction. The listed issuer has prepared a valuation of the target company using the discounted cashflow method, which is regarded as a profit forecast under Main Board Rule 14.61/ GEM Rule 19.61.

Is the listed issuer required to disclose such valuation in its announcement and circular for the notifiable transaction and comply with Main Board Rule 14.62/ GEM Rule 19.62 and paragraph 29(2) of Appendix 1B to the Main Board Rules/ GEM Rules?

Answer:

Under the Listing Rules, there is no specific requirement for the listed issuer to disclose the profit forecast for the target company to be acquired. However, the listed issuer must observe the general disclosure principle under Main Board Rule 2.13/ GEM Rule 17.56. For example, where the valuation of the target company was a primary factor in forming the basis for the consideration or other material terms of the transaction, disclosure of the valuation would need to be made in the relevant announcement and circular.

Where a notifiable transaction announcement / circular contains a profit forecast in respect of the listed issuer or a company which is/ is proposed to become, one of its subsidiaries, the listed issuer is required to comply with Main Board Rule 14.62 / GEM Rule 19.62 and paragraph 29(2) of Appendix 1B to the Main Board Rules/ GEM Rules (as the case may be).

FAQ Series 7, FAQ No. 21
LR reference: Main Board Rules 14.62, 14.66(2), 2.13, Appendix 1B Paragraph 29(2) / GEM Rules 19.62, 19.66(3), 17.56, Appendix 1B Paragraph 29(2)
Released on 28/11/2008 (Updated on 30/9/2009)

Question:

A listed issuer proposes to acquire a revenue generating asset, which constitutes a notifiable transaction. There is a valuation of such asset prepared using the discounted cashflow method, which is regarded as a profit forecast under Main Board Rule 14.61/ GEM Rule 19.61.

Will the listed issuer be required to comply with the formal reporting requirements under Main Board Rule 14.62/ GEM Rule 19.62 if it discloses the valuation of the revenue generating asset in its announcement issued under the notifiable transaction rules?

Answer:

Under Main Board Rule 14.62 / GEM Rule 19.62, the formal reporting requirements apply where the announcement contains a profit forecast in respect of the listed issuer or a company which is/ is proposed to become, one of its subsidiaries.

In this case, while the profit forecast made in respect of the revenue generating asset may not fall within Main Board Rule 14.62 / GEM Rule 19.62, the listed issuer must ensure compliance with Main Board Rule 2.13 / GEM Rule 17.56 when its announcement contains profit forecast of the asset to be acquired, particularly where the assets are material to the listed issuer.
The listed issuer should also note that where the proposed acquisition constitutes a major transaction or above that requires a circular, it is required to comply with the formal reporting requirements in respect of the profit forecast of the asset contained in the circular pursuant to Paragraph 29(2) of Appendix 1B to the Main Board Rules / GEM Rules.

FAQ Series 7, FAQ No. 22
LR reference: Main Board Rules 14.62, 14.66(2), 2.13, Appendix 1B Paragraph 29(2) / GEM Rules 19.62, 19.66(3), 17.56, Appendix 1B Paragraph 29(2)
Released on 28/11/2008 (Updated on 30/9/2009)

Question:

A listed issuer has obtained written shareholders' approval for a proposed major transaction under Main Board Rule 14.44/ GEM Rule 19.44. The Exchange has accepted the written shareholders' approval in lieu of holding a general meeting based on the information provided by the listed issuer.

As there will not be any voting on the proposed transaction at general meeting, is the circular for such transaction required to contain a recommendation from the directors as to the voting action that shareholders should take pursuant to Main Board Rule 14.63(2)(c)/GEM Rule 19.63(2)(c)?

Answer:

Main Board Rule 14.63(2)/GEM Rule 19.63(2) sets out certain information that need to be contained in the circular for a notifiable transaction if voting or shareholders' approval is required. Pursuant to Main Board Rule 14.63(2)(c)/GEM Rule 19.63(2)(c), the circular for the proposed transaction must contain a recommendation from the directors as to the voting action that shareholders should take, indicating whether or not the proposed transaction is, in the opinion of the directors, fair and reasonable and in the interest of the shareholders as a whole.

In circumstances described, while the directors' recommendation to shareholders on how to vote would no longer be necessary, the circular must disclose the directors' opinion as to whether the proposed transaction is fair and reasonable and in the interest of the shareholders' as a whole.

FAQ Series 7, FAQ No. 24
LR reference: Main Board Rules 14.63(2)(c) / GEM Rules 19.63(2)(c)
Released on 28/11/2008

Question:

Where a circular in relation to a notifiable transaction contains a profit forecast, paragraph 29(2) of Appendix 1B to the Main Board Rules / GEM Rules requires that the financial advisers must report that they have satisfied themselves that the forecast has been stated by the directors after due and careful enquiry and such report must be set out in the circular.

If no financial advisers have been appointed in connection with the notifiable transaction, can the directors of the listed issuer make their own confirmation that they have made the forecast after due and careful enquiry?

Answer:

In the case of a notifiable transaction, Main Board Rule 14.62(3) / GEM Rule 19.62(3) provides that where the announcement contains a profit forecast and no financial advisers have been appointed in connection with the transaction, the listed issuer may provide a letter from the board of directors confirming they have made the forecast after due and careful enquiry.

In the circumstances described, we may apply the principle of Main Board Rule 14.62(3) / GEM Rule 19.62(3) to the circular and accept the directors' confirmation for the purpose of Paragraph 29(2) of Appendix 1B. The listed issuer should consult the Exchange in advance in such circumstances.

FAQ Series 7, FAQ No. 23
LR reference: Main Board Rules 14.66(2), Appendix 1B Paragraph 29(2) / GEM Rules 19.66(3), Appendix 1B Paragraph 29(2)
Released on 28/11/2008 (Updated on 30/9/2009)

Question:

A listed issuer is preparing its circular in respect of a proposed major acquisition.

Main Board Rule 14.66(10) / GEM Rule 19.66(11) requires the listed issuer' circular to contain a statement of indebtedness of the group as at the most recent practicable date pursuant to paragraph 28 of Appendix 1B to the Main Board Rules/ GEM Rules. Can the listed issuer refer to the indebtedness position of the group disclosed in its latest published audited accounts or interim report?

Answer:

The rule requires the listed issuer to provide up-to-date indebtedness statement of its group in the circular for shareholders' consideration. The Listing Division ordinarily requires the indebtedness statement to be dated not more than 8 weeks before the circular is issued, which follows the guidance set out in our letter of 21 July 2008 to market practitioners in relation to the disclosure of indebtedness statements in listing documents of new applicants. Depending on the despatch date of the circular, the year / period end date for the listed issuer's latest published accounts or interim report may not be regarded as the most recent practicable date.

Further, the listed issuer should note that according to Note 2 to Appendix 1B to the Main Board Rules/ GEM Rules, reference to the "group" under paragraph 28 of Appendix 1B is to be construed as including any company which will become a subsidiary of the listed issuer by reason of an acquisition which has been agreed or proposed since the date to which the latest audited accounts of the listed issuer have been made up.

FAQ Series 7, FAQ No. 25
LR reference: Main Board Rules 14.66(10), Appendix 1B Paragraph 28 / GEM Rules 19.66(11), Appendix 1B Paragraph 28
Released on 28/11/2008 (Updated on 30/9/2009)

Question:

Pursuant to Main Board Rules 14.66(10) and 14.68(1) / GEM Rules 19.66(11) and 19.68(1), a circular relating to a very substantial disposal must contain a statement by the listed issuer's directors on the sufficiency of working capital available to the group pursuant to paragraph 30 of Appendix 1B to the Main Board Rules / GEM Rules.

Where a listed issuer proposes to dispose of a subsidiary which constitutes a very substantial disposal, is it required to prepare the working capital statement on the group or the remaining group?

Answer:

Paragraph 30 of Appendix 1B to the Main Board Rules / GEM Rules requires a working capital statement on the group which includes the listed issuer and its subsidiaries including the subsidiary to be disposed of. Note to Appendix 1B does not qualify paragraph 30 to exclude the subsidiary to be disposed of.

FAQ Series 7, FAQ No. 26
LR reference: Main Board Rules 14.66(10), Appendix 1B Paragraph 30 / GEM Rules 19.66(11), Appendix 1B Paragraph 30
Released on 28/11/2008 (Updated on 30/9/2009)

Question:

Listco's circular for a major acquisition will contain an accountants' report on the target being acquired, a statement on sufficiency of working capital and an indebtedness statement.

(1) The Listing Rules require Listco to provide a letter from its financial advisers or auditors confirming that the working capital statement has been made by the directors after due and careful enquiry and persons or institutions providing finance have confirmed in writing that such facilities exist. Is it acceptable for Listco to provide a confirmation letter from the reporting accountants instead of its financial advisers or auditors?
(2) Does the indebtedness statement need to be reviewed by professional accountants or advisers?

Answer:

(1) We will normally consider it acceptable for the reporting accountants to issue the confirmation letter in respect of the working capital statement contained in the circular.
(2) The Listing Rules do not specifically require a review of the indebtedness statement by professional accountants or advisers. It is up to Listco to decide whether the review is necessary.

FAQ Series 9, FAQ No. 19
LR reference: Main Board Rules 14.66(10) and (12) / GEM Rules 19.66(11) and (13)
Released on 14/12/2009

Question:

Where and for how long should documents on display be published online?

How will these documents be removed from the relevant websites after the expiry of the prescribed display period?

Answer:

Issuers should publish documents on display on both the HKEX website (through EPS under the new headline category “Documents on Display”) and the issuer’s website.

For documents that are published to meet transaction disclosure obligations only, issuers are required to publish them for time period prescribed by the Listing Rules (which is the same as what the Listing Rules originally require for physical display of such documents).

For documents that are published to meet ongoing disclosure obligations (e.g. constitutional documents, audited financial information and previous transaction circulars), these should be published on a continuous basis. There is no time limit on the length of time listing documents should remain online. (Note: These documents are already published online on a continuous basis. Issuers will not have to publish them again to meet any transaction disclosure obligations as such obligations will be removed with the changes to the Listing Rules.)

After the expiry of any relevant display period prescribed by the Listing Rules, issuers should remove the documents on display manually from the EPS themselves and can also remove them from their own website. They should not do so before the expiry of the relevant display period. The Exchange will not automatically remove documents of display from EPS after a relevant display period has expired.

FAQ Series N/A, FAQ No. 075-2021
LR reference: Main Board Rules 4.14, 5.01B(1)(b), 5.02B(2)(b), 14.66(10), 14.67A(2)(b)(viii), 14A.70(13), 15A.21(4), 17.02(2), 19.10(5)(e) and (6), 19A.27(4), 19A.50, 19C.10B, 29.09, 29.10, 36.08(3), Appendix 1A paragraph 53, Appendix 1B paragraph 43, Appendix 1C paragraph 54, Appendix 1D paragraph 27, Appendix 1E paragraph 76, Appendix 1F paragraph 66, Appendix 4 paragraph 9(b), Appendix 7H paragraphs 5 and 15, Appendix 24 / GEM Rules 7.18, 8.01B(1)(b), 8.02B(2)(b), 19.66(11), 19.67A(2), 20.68(13), 23.02(2), 24.09(2), (3), (5)(a),(e) and (6), 25.20(4), 25.37, 32.05(3), 35.10, 35.11, Appendix 1A paragraph 52, Appendix 1B paragraph 42, Appendix 1C paragraph 53, Appendix 4 paragraph 9, Appendix 17
Released on 18/6/2021 (Updated on 01/01/2022)

Question:

Main Board Rule 14.67 / GEM Rule 19.67 sets out specific disclosure requirements for a circular issued in relation to an acquisition constituting a major transaction.

Are listed issuers required to comply with the disclosure requirements under Main Board Rule 14.67 / GEM Rule 19.67 for major transactions involving formation of a joint venture?

Answer:

When determining whether Main Board Rule 14.67 / GEM Rule 19.67 applies, the Exchange will consider whether the proposed transaction involves an acquisition of assets by the listed issuer.

Normally, where the formation of joint venture only involves cash injection by the listed issuer and the joint venture partner(s), the disclosure requirements under Main Board Rule 14.67 / GEM Rule 19.67 would not apply as there is no acquisition of assets by the listed issuer.

Where the formation of joint venture involves injection of assets (other than cash) ("Injected Assets") by the joint venture partner into the joint venture that will become a subsidiary of the listed issuer, such arrangement would in effect result in acquisition of the Injected Assets by the listed issuer. In such case, if the acquisition is classified as a major transaction based on the percentage ratios, the disclosure requirements under Main Board Rule 14.67 / GEM Rule 19.67 would apply.

FAQ Series 7, FAQ No. 27
LR reference: Main Board Rules 14.67 / GEM Rules 19.67
Released on 28/11/2008

Question:

Main Board Rule 14.67(6)(b)(i) / GEM Rule 19.67(6)(b)(i) requires that a circular issued in relation to a major transaction involving acquisition of any revenue-generating assets (other than a business or company) with an identifiable income stream or asset valuation must include "a profit and loss statement and a valuation (where available) for the 3 preceding financial years (or less, where the asset has been held by the vendor for a shorter period) on the identifiable net income stream and valuation in relation to such assets...".

A listed issuer is preparing a circular for its proposed major transaction involving acquisition of some revenue-generating assets. Is the requirement under Main Board Rule 14.67(6)(b)(i) / GEM Rule 19.67(6)(b)(i) applicable if both the profit and loss statement and valuation in respect of the assets to be acquired are not available from the vendor?

Answer:

For the purpose of Main Board Rule 14.67(6)(b)(i)/ GEM 19.67(6)(b)(i), where the target assets to be acquired have an identifiable income stream, a profit and loss statement in respect of such assets must be compiled and derived from the underlying books and records for inclusion in the circular for the proposed major transaction. Therefore, when the listed issuer enters into an agreement for the proposed acquisition, we expect that it will ensure that the relevant books and records are or will be made available to the listed issuer and the reporting accountants for compliance with the rule.

The valuation of the target asset would need to be contained in the circular where it is available.

FAQ Series 7, FAQ No. 28
LR reference: Main Board Rules 14.67(6)(b)(i) / GEM Rules 19.67(6)(b)(i)
Released on 28/11/2008 (Updated on 30/9/2009)

Question:

Are listed issuers required to obtain prior consent from the Exchange in order to defer complying with the disclosure requirements in the initial circular?

Answer:

Yes, the issuers must demonstrate to the satisfaction of the Exchange that the conditions set out in paragraphs (1)(a), (b) and (c) of Main Board Rule 14.67A / GEM Rule 19.67A are met. Issuers are also encouraged to consult the Exchange at the earliest opportunity.

FAQ Series 8, FAQ No. 45. Issue 16
LR reference: Main Board Rules 14.67A(1) / GEM Rules 19.67A(1)
Released on 28/11/2008

Question:

A listed issuer proposes to despatch a circular for a very substantial disposal in mid July 2008. Since the listed issuer has a financial year end date of 31 December, it proposes to include in the circular an accountants' report on the remaining group pursuant to Main Board Rule 14.68(2)(a)(i) Note 1 covering the 3 financial years ended 31 December 2007 and a stub period from 1 January 2008 up to 30 April 2008.

Is the listed issuer required to disclose the financial information during the stub period by way of an announcement upon despatch of the circular?

Answer:

While there is no specific announcement requirement for disclosing the financial information of the remaining group during the stub period reported in the accountants' report under Chapter 14 of the Main Board Rules / Chapter 19 of the GEM Rules, the listed issuer must observe the general disclosure obligation under Main Board Rule 13.09/ GEM Rule 17.10. Where any information which requires disclosure under the Inside Information Provisions emerges during the preparation of the circular in particular the financial information, the issuer must simultaneously announce the information under Main Board Rule 13.09(2)(a) / GEM Rule 17.10(2)(a).

FAQ Series 7, FAQ No. 29
LR reference: Main Board Rules 14.68(2)(a)(i) / GEM Rules 19.68(2)(a)(i)
Released on 28/11/2008 (Updated on 2/1/2013)

Question:

An issuer chooses to disclose the issuer group's financial information with separate disclosure on the disposal target (i.e. option (B) in the rule) in its VSD circular.

(a) What financial information about the disposal target should be disclosed?
(b) Can the auditors or reporting accountants give a review opinion on the issuer group's audited financial information? Should the issuer include an accountants' report instead of a review of the financial information?

Answer:

(a) There should be a separate note with information on the disposal target's figures included in the issuer group's balance sheet, income statement and cash flow statement. Normally this includes the target's balance sheet, income statement and cash flow statement. The information is required to prepare pro forma financial information for the remaining group.
(b) The issuer should consult its auditors and reporting accountants, and decide the appropriate type of assurance.

FAQ Series 11, FAQ No. 1
LR reference: Main Board Rules 14.68(2)(a)(i) / GEM Rules 19.68(2)(a)(i)
Released on 20/5/2010

Question:

This rule requires the financial information to comprise the balance sheet, the income statement, the cash flow statement and the statement on changes in equity. What should be included in these statements?

Answer:

They should include, at least, each of the major components and line items presented in the issuer's latest published annual accounts.

FAQ Series 11, FAQ No. 2
LR reference: Main Board Rules 14.68(2)(a)(i) / GEM Rules 19.68(2)(a)(i)
Released on 20/5/2010

Question:

"HKAS 1 (Revised) — Presentation of Financial Statements" requires that an entity presents all income and expense items recognised in a period:

(a) in a single statement of comprehensive income, or
(b) in two statements: a statement displaying components of profit or loss (separate income statement) and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income).

Please clarify the disclosure requirement of "an income statement" under this rule.

Answer:

Either option (a) or (b) is acceptable.

FAQ Series 11, FAQ No. 3
LR reference: Main Board Rules 14.68(2)(a)(i) / GEM Rules 19.68(2)(a)(i)
Released on 20/5/2010

Question:

Can Listco disclose financial information partly under option (A) and partly under option (B) in its VSD circular? For example, can Listco disclose:

the group's financial information with separate disclosure on the disposal target under option (B) for three financial years (ended more than 6 months from the circular date); and
the disposal target's financial information under option (A) for the stub period?

Answer:

No. The issuer should adopt one of the options for the disclosure of financial information for the entire period which includes three financial years and the stub period.

FAQ Series 11, FAQ No. 4
LR reference: Main Board Rules 14.68(2)(a)(i) / GEM Rules 19.68(2)(a)(i)
Released on 20/5/2010

Question:

Which standard should auditors or reporting accountants adopt for the review of financial information under this rule?

Answer:

The review should be conducted according to the relevant HKICPA or IAASB standards. Currently, the applicable standard for a review engagement is HKSRE 2400 / 2410 or ISRE 2400 / 2410.

FAQ Series 11, FAQ No. 6
LR reference: Main Board Rules 14.68(2)(a)(i) / GEM Rules 19.68(2)(a)(i)
Released on 20/5/2010

Question:

Does an issuer need to publish the auditors' or reporting accountants' review report in a VSD circular?

Answer:

No, but the circular must state that the financial information has been reviewed by the issuer's auditors or reporting accountants; and, where applicable, contain details of any modifications in the review report.

(Note: See FAQ 053-2019 for clarification on the use of the term “modification”.)

FAQ Series 11, FAQ No. 7
LR reference: Main Board Rules 14.68(2)(a)(i) / GEM Rules 19.68(2)(a)(i)
Released on 20/5/2010 (Updated on 1/3/2019)

Question:

Note 2 to this rule states that the Exchange may relax the disclosure requirement if the disposal target's assets are not consolidated in the issuer's accounts.

Under what circumstances would the Exchange relax the disclosure requirement?

Answer:

There is a similar rule to exempt the accountants' report requirement for an acquisition of a minority interest in a company that constitutes a major transaction. The rule amendments mirror this exemption for VSDs.

We would consider, for example, whether the issuer has access to the disposal target's books and records to prepare the required information, and whether the circular has provided shareholders with sufficient information about the disposal, etc. We will give the exemption case by case.

FAQ Series 11, FAQ No. 8
LR reference: Main Board Rules 14.68(2)(a)(i) note 2 / GEM Rules 19.68(2)(a)(i) note 2
Released on 20/5/2010

Question:

In a VSD, Listco proposes to sell its interest in a company acquired two years ago. Can Listco include, in the circular, the company's financial information from the acquisition date?

Answer:

The circular should contain the company's financial information for at least three financial years.

FAQ Series 11, FAQ No. 5
LR reference: Main Board Rules 14.68(2)(a)(i), 4.06(1)(a) note / GEM Rules 19.68(2)(a)(i), 7.05(1)(a) note
Released on 20/5/2010

Question:

(i) Given the Exchange has now updated the audit terminology in the Rules with reference to the revised HKSAs on auditor reporting, the terms “modified opinion” and “modified report” are defined in Main Board Rule 1.01/ GEM Rule 1.01. However, there is no definition of “modification” in the Rules.

Please clarify the use of the term “modification”.
(ii) Where the financial information has been reviewed and a review conclusion has been expressed by the auditors/ reporting accountants (e.g. FAQ 004-2017), what is meant by “modification” referred to in the Rules, interpretation and guidance issued by the Exchange?

Please clarify the use of the term “modification” in that context.

Answer:

(i) “Modification” is a generic term which should be read in the context of the Rule.

Audit engagements

The terms “modified opinion” and “modified report” defined in Main Board Rule 1.01/ GEM Rule 1.01 relate to an accountants’ report or auditors’ report containing an audit opinion.

Where a Rule explicitly refers to a “modified opinion”, then the term “modification” should be read in the context of that Rule and should refer to a “modified opinion”.

The same applies when a Rule explicitly refers to a “modified report”, then the term “modification” should be read in the context of that Rule and should refer to a “modified report”.

For reference, the table below summarises the terminologies used in the current Rules and the HKSAs:
 
  Terminology used
Meanings Current Rules HKSAs

Matters that affect the audit opinion:
 -  qualified opinion
 -  adverse opinion
 -  disclaimer of opinion

Modified
opinion
Modified
opinion

Matters that affect the audit opinion:
 -  qualified opinion
 -  adverse opinion
 -  disclaimer of opinion

AND/OR

Matters that do not affect the audit opinion:
 -  emphasis of matter
 -  material uncertainty related to going concern

Modified report No specific
equivalent term
(ii) Where the financial information has been reviewed and a review conclusion has been expressed by the auditors/ reporting accountants, then the term “modification” in the Rules and FAQs should refer to:

Review engagements
 
(a) a modified review conclusion (i.e. qualified conclusion, an adverse conclusion or a disclaimer of conclusion); and/or
(b) an emphasis of matter paragraph or a paragraph to highlight a material uncertainty related to going concern without modifying the review conclusion.
(Note: A review is substantially less in scope than an audit conducted in accordance with relevant HKICPA standards (or equivalent standards issued by IAASB and China Ministry of Finance). Currently, the applicable HKICPA standards for a review engagement are Hong Kong Standards on Review Engagements 2400 (Revised) and 2410.)

FAQ 053-2019
LR reference: Main Board Rules 
1.01, 4.18, 14.68(2)(a)(i), Appendix 1A Paragraph 35, Appendix 1C Paragraph 42(2), Appendix 1E Paragraph 35, Appendix 16 Paragraphs 45(7) and 46(8)/ GEM Rules 1.017.22, 18.50(8), 18.64, 18.76, 19.68(2)(a)(i), Appendix 1A Paragraph 35, Appendix 1C Paragraph 42(2)
Released on 1/3/2019

Question:

Main Board Rule 14.68(3) / GEM Rule 19.68(3) requires disclosure of the financial information on the remaining group under paragraph 32 of Appendix 16 to the Main Board Rules/ GEM Rule 18.41 in a circular for very substantial disposals. Please clarify the reporting period in respect of such disclosure.

Answer:

Where financial information on the issuer's group is contained in the circular (i.e. under Main Board Rule 14.68(2)(a)(i)(B)/ GEM Rule 19.68(2)(a)(i)(B)), the disclosure under Main Board Rule 14.68(3) should cover the same reporting period.

Where financial information on the disposal target is contained in the circular (i.e. under Main Board Rule 14.68(2)(a)(i)(A)/ GEM Rule 19.68(2)(a)(i)(A)), the disclosure under Main Board Rule 14.68(3) should cover the reporting period of the issuer group's previously published financials (i.e. the latest three financial years and, where applicable, the most recent interim period, for which the issuer group's financial information has been published).

FAQ Series 7, FAQ No. 30
LR reference: Main Board Rules 14.68(3) / GEM Rules 19.68(3)
Released on 28/11/2008 (Updated on 2/7/2010)

Question:

Listco has granted an option to Mr. X to acquire an asset from Listco. Mr. X is an independent third party and the option is exercisable at his discretion. Listco has complied with the notifiable transaction Rules as if the option had been exercised.

If Mr. X subsequently becomes a connected person of Listco, would Listco be required to comply with the connected transaction Rules for the grant of the option as if it had been exercised?

Answer:

No. Listco would need to comply with the announcement requirements when the option is exercised, transferred or expired, or when Mr. X notifies Listco that he will not exercise the option.

FAQ Series 20, FAQ No. 4
LR reference: Main Board Rules 14.74, 14.77, 14A.61 / GEM Rules 19.74, 19.77, 20.59
Released on 28/2/2013 (Updated on 1/7/2014)

Question:

A listed issuer proposes to enter into a transaction involving the grant of an option to the listed issuer to acquire an asset from an independent third party. The option is exercisable at the discretion of the listed issuer.

At the time of the grant of the option, the listed issuer does not have any plan or timetable on whether and when it will exercise the option to acquire the target asset.

It proposes to seek shareholders' approval for the exercise of an option, in addition to seeking any shareholders' approval necessary for the entering into of the option.

The actual monetary value of the total consideration payable upon exercise and all other relevant information are known and would be disclosed to the shareholders at the time when the shareholders' approval is obtained. There is no change in any relevant facts at the time of exercise.

(1) Will the listed issuer be required to seek separate shareholders' approval at the time of exercise of the option?
(2) Will the answer to (1) be different if the vendor of the target asset is a connected person of the listed issuer?

Answer:

(1) The listed issuer may, at the time of entering into an option, seek any shareholders' approval necessary for the exercise of the option (in addition to seeking any shareholders' approval necessary for entering into of the option). Such approval, if obtained, will be sufficient for satisfying the shareholders' approval requirement for notifiable transactions pursuant to Main Board Rule 14.76(2)/ GEM Rule 19.76(2).
(2) If the vendor is a connected person of the listed issuer at the time of exercise of the option, the listed issuer will be required to compute the percentage ratios at the time of exercise of the option pursuant to Main Board Rule 14A.79(3) / GEM Rule 20.77(3), irrespective of whether it has sought shareholders' approval for the exercise of option at the time of entering into an option. Depending on the result of the relevant percentage ratios, the listed issuer may be required to comply with the announcement, reporting and shareholders' approval requirements at the time of exercise of the option.

FAQ Series 7, FAQ No. 60
LR reference: Main Board Rules 14A.79(3), 14.76(2) / GEM Rules 20.77(3), 19.76(2)
Released on 28/11/2008 (Updated on 1/7/2014)

Question:

Do the provisions on financial assistance in the New CO affect the Rules relating to financial assistance for issuers incorporated in Hong Kong?

Answer:

No. The provisions on financial assistance in the New CO relate to the provision of financial assistance by a company or its subsidiaries for the acquisition of its own shares only. The Rules govern the provision of financial assistance by issuers (whether for the acquisition of their own shares or otherwise) and, as such, issuers incorporated in Hong Kong must comply with any applicable financial assistance provisions under both the New CO and the Rules.

FAQ Series 26, FAQ No. 13
LR reference: Main Board Rules 14 and 14A / GEM Rules Chapters 19 and 20
Released on 21/2/2014