LD58-2013
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HKEx LISTING DECISION
HKEx-LD58-2013 (published in April 2013) (updated in October 2019 (amendments to the reverse takeover Rules))
Parties | Company A — a Main Board issuer under the delisting procedures of Practice Note 17 Target — a company that Company A proposed to acquire under its resumption proposal Vendor — the owner of the Target and an independent third party |
Issue | Whether the Exchange would waive Rule 14.06B so that Company A’s proposed acquisition of the Target would not be classified as a reverse takeover |
Listing Rules | Main Board Rule 14.06B |
Decision | The Exchange refused to waive the Rule |
FACTS
1. | Company A was a long suspended company under the delisting procedures of Practice Note 17. It had ceased most of its business operations and failed to maintain sufficient assets or operations to meet Rule 13.24. |
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2. | Under its resumption proposal, Company A would acquire the Target from the Vendor. The Target's principal business was similar to that of Company A before its trading suspension. |
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3. | The acquisition would be a very substantial acquisition based on the size tests. As a result of the issue of consideration shares to the Vendor under the acquisition, the Vendor would hold more than 90% of Company A's issued share capital and become its controlling shareholder. The Vendor intended to place down its shares in Company A before resumption to meet the public float requirement. |
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4. | As the acquisition was a very substantial acquisition and the Vendor would become a controlling shareholder of Company A, it would be a reverse takeover under Rule 14.06(6)(a). |
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5. | Company A asked the Exchange not to treat the acquisition as a reverse takeover as it believed that the Target would be able to meet the trading record requirements for new listing applicants under Rule 8.05. It referred to the Listing Decision (LD95-1) where the Exchange did not apply the reverse takeover Rules to an issuer's acquisition of a company that could meet Rule 8.05. |
APPLICABLE LISTING RULES
6. | Rule 14.06(6) defines a "reverse takeover" as:
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(Rule 14.06(6) (now Rule 14.06B) was amended on 1 October 2019. See Note 1 below.) |
ANALYSIS
7. | Rule 14.06(6) seeks to prevent circumvention of the new listing requirements. Its introductory paragraph defines "reverse takeover" as an acquisition or a series of acquisitions which represents, in the Exchange's opinion, an attempt to list the assets to be acquired and circumvent the new listing requirements. |
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8. | In addition, paragraphs (a) and (b) of Rule 14.06(6) refer to two specific forms of reverse takeovers which involve a change in control of the issuer and injection of significant assets into it. They are bright line tests to determine a change in control based on the Takeovers Code and to assess an asset injection based on size tests. |
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9. | In this case, the Exchange refused to waive Rule 14.06(6)(a) because:-
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CONCLUSION
10. | The acquisition was a reverse takeover under Rule 14.06(6)(a). Company A must submit a new listing application for its resumption proposal. |
Notes
1 | The reverse takeover Rules have been amended with effect from 1 October 2019. Under the new Rule 14.06B (which incorporates former Rule 14.06(6) with certain modifications):
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2 | The Rule amendments would not change the analysis and conclusion in this case. |