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HKEx-LD105-1 (September 2010)

Parties Company A — a Main Board issuer, incorporated overseas

Company B — a company listed on a Mainland stock exchange
Issue Whether Company A's proposal was subject to Practice Note 15 and, if so, whether it was permissible under the Rules
Listing Rules Main Board Rule 6.12, Paragraphs 2 and 3(c) of Practice Note 15
Decision Practice Note 15 applied to Company A's proposal and the Exchange did not consider the proposal acceptable


1. Company A proposed to:
a. sell its main business (the Business) to Company B in exchange for a controlling interest in Company B (the Disposal). This would be a very substantial disposal. After the Disposal, Company A would hold Company B as a subsidiary; and
b. withdraw its listing from the Main Board under Rule 6.12 and list its shares on GEM.
These arrangements would be inter-conditional.
2. Company A submitted that the purpose of the Disposal was to achieve a listing of the Business on the Mainland stock exchange.
3. After the Disposal, it would operate the Business through Company B and retain another business (the Remaining Business). The Remaining Business, acquired by Company A about a year ago, was substantially smaller than the Business.
4. Company A acknowledged that the Disposal was a spin-off under PN15. The Remaining Business could not meet the profit requirements under Rule 8.05 and therefore paragraph 3(c) of PN15.
5. However, Company A considered that PN15 should not apply in this case because it would cease to be a Main Board issuer upon completion of the proposal.


6. Rule 6.12(4) states that subject to Rule 6.15, if an issuer has no alternative listing under 6.11, it may not voluntarily withdraw its listing on the Main Board without the Exchange's permission unless:
the shareholders and holders of any other class of listed securities, if applicable, other than the directors (excluding independent non-executive directors), chief executive and controlling shareholders, are offered a reasonable cash alternative or other reasonable alternative.
7. Paragraph 2 of PN15 states that:-
... This Practice Note sets out the principles which the Exchange applies when considering spin-off applications. Issuers are reminded that they are required to submit their spin-off proposals to the Exchange for its approval. ...
8. Paragraph 3(c) of PN15 states that:-
The Listing Committee must be satisfied that, after the listing of Newco, the Parent would retain a sufficient level of operations and sufficient assets to support its separate listing status. In particular, it would not be acceptable to the Listing Committee that one business (Newco's) supported two listing statuses (the Parent's and Newco's). In other words, the Parent itself would be required to retain, in addition to its interest in Newco, sufficient assets and operations of its own, excluding its interest in Newco, to satisfy independently the requirements of Chapter 8 of the Exchange Listing Rules.


9. The Disposal was a spin-off under PN15. Company A, as a Main Board issuer, was required to submit its spin-off proposal to the Exchange for approval despite its intended withdrawal of listing. It had to satisfy the Exchange at the time of its spin-off application that it could comply with all the requirements in PN15. However, Company A was unable to do so.
10. The reason for Company A's proposal to withdraw its listing from the Main Board and apply for a listing on GEM was to facilitate a spin-off without complying with the PN15 requirements. The Exchange considered this unacceptable and had a concern about the company's suitability for listing on GEM.


11. PN15 applied to Company A's proposal and the Exchange did not consider the proposal acceptable.