1

Notifiable Transactions

Sammy Chau / Katherine ManAssistant Vice President

Compliance and Monitoring DepartmentListing Division, HKEx

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Agenda

I. General

II. Definition of transaction

III. Classification of transactions and size tests computation

IV. Announcement, circular and shareholder approval requirements

V. Special considerations for transactions

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I. General

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• Purposes of NT Rules• Who are subject to NT Rules?• Points to note

5

Purposes of NT Rules

• Assess the impact of a transaction:– Shareholders are informed– Shareholders can vote on significant transactions

• Reinforce the general disclosure principle of price-sensitive information

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Who are subject to NT Rules? (1)

“Listed issuer” means:

- the listed issuer itself; and

- its subsidiaries.

“Subsidiary” includes:

(a) “subsidiary undertaking” under the Companies Ordinance;

(b) a consolidated subsidiary under HKFRS / IFRS; and

(c) an acquisition target to be consolidated in the next audited consolidated accounts.

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Who are subject to NT Rules? (2)

Are transactions conducted via a jointly controlled entity (JCE) subject to NT Rules?

Listco A Company X

JCE 1

Listco A Company Y

JCE 2

50% * 50% 51% * 49%

Example 1 Example 2

* Listco A does not have control over JCE 1 and 2

Note: See FAQ Series 7 – No. 1

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Who are subject to NT Rules? (3)

Are transactions conducted via an associated company subject to NT Rules?

Listco A Company Z

Associated Co.

30% 70%

Example

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• A notifiable transaction may also be subject to other Rules, e.g.

Disclosure of price-sensitive information

Advances to entities

Connected transactions

Spin-offs

Points to note

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II. Definition of transaction

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• Definition of “transaction” • Examples

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Definition of “transaction”

• The Rules set out a non-exhaustive list.

They are principally outside the issuer’s ordinary and usual course of business and/or have an impact on the issuer’s operation, e.g.

a) Acquisition or disposal of assets

b) An option to subscribe for shares or buy or sell assets

c) Entering into or terminating a finance lease

d) Entering into or terminating operating leases with significant impact on the company’s operation

e) Providing financial assistance

f) Formation of JV

• Exclude some transactions of a revenue nature in the ordinary and usual course of business

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Example 1 – Acquisition of properties

Listco A

Acquisition of a property

Fact:

• Listco A is engaged in property development and property investment businesses.

Is the acquisition of a property by Listco A subject to NT Rules?

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Example 2 – Placing & top-up subscription (Listing Decision 75-3)

Before placing & subscription

After placing, but before subscription

After placing & subscription

Listco A

Listco B

46 shares (46%)

Listco A

Listco B

36 shares (36%)

Listco A

Listco B

46 shares (42%)

Whether the placing and top-up subscription constitute a “transaction” for Listco A?

Fact:

• Listco B conducts a standard top-up placing and subscription exercise.

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Example 3 – Placing deposits to a non-banking company

Does placing of deposits by Listco A to Company X constitute a “transaction”?

Parent Co.

Listco A(PRC issuer)

Company X(a non banking

finance company)Place deposits

>50%>50%

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Example 4 – Treasury activities (Listing Decision 53-2)

Listco A

Appoint a fund manager to manage and invest surplus cash

Whether the above investment activities constitute a “transaction”?

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Example 5 – Self construction of a factory

Listco(Car manufacturer)

Land

Building Materials

Whether the acquisitions of land and building materials will be treated as a “transaction”?

Car manufacturing

factory

• Aggregation does not apply when:– “an asset is being constructed, developed or refurbished by or on

behalf of a listed issuer for its own use in its ordinary and usual course of business…where the sole basis for aggregation is rule 14.23(3)* ”

* Form parts of one asset

Construct

into

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III. Classification of transactions and size tests computation

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• Classification of NT• 5 size tests• General principles• Specific circumstances• Alternative size tests• Aggregation of transactions

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Classification of NT

NT category Size test results

Share transaction • Acquisition of assets and the consideration involves securities for which listing is sought

– All percentage ratios are less than 5%

Discloseable transaction 5% or above, but all below 25%

Major transaction 25% or above, but all below 75% (for disposal) or 100% (for acquisition)

Very substantial disposal (VSD) 75% or above

Very substantial acquisition (VSA) 100% or above

Reverse takeover (RTO) See definition in MB R14.06(6)/ GEM R19.06(6)

A transaction involving both an acquisition and a disposal will be classified by reference to the larger of the acquisition or disposal.

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5 size tests (1)

Assets ratio Total assets of the subject of the transaction

Total assets of the issuer

Profits ratio Profits* attributable to the subject of the transaction

Profits* of the issuer

* means net profit before taxation and minority interests

Revenue ratio Revenue** attributable to the subject of the transaction

Revenue** of the issuer

** means revenue arising from the principal activities of the entity

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5 size tests (2)

Consideration ratio Consideration

Issuer’s total market capitalisation***

*** means the average closing price of the issuer’s securities for the 5 business days immediately before the transaction date

Equity capital ratio Nominal value of the issuer’s equity capital issued as consideration

Nominal value of the issuer’s existing equity capital

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General principles (1)

1. The source of issuer’s figures is its published information.

2. The source of target’s figures is its audited accounts or other acceptable accounts.

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General principles (2)

3. Acquisition/ disposal of equity capital resulting in consolidation/ de-consolidation?

− Yes - 100%

− No - % bought or sold

4. Transaction via non wholly owned subsidiary Same size test computation as for transactions via wholly owned

subsidiary

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Specific circumstances: Deemed disposal (1)

• Assets, profits and revenue ratios

• Consideration ratio:

= Value of the shares issued to allottees, excluding those issued for maintaining the allottees’ % interest in the subsidiary

Results in de-consolidation from issuer’s account

100% of the target

Remain consolidated/ de-consolidated

% of the equity interest decreased

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Specific circumstances: Deemed disposal (2)

Before After

Listco A

Subsidiary B

90% (90 shares)

Mr. X

10% (10 shares)

Listco A

Subsidiary B

82% (90 shares)

Mr. X

18% (20 shares)

Numerator for the consideration ratio

• No. of shares required for Mr. X to maintain his interest in Subsidiary B

= 110 shares x 10% = 11 shares

• Numerator for the consideration ratio:

= (20 shares – 11 shares) x fair value of the shares

Example: Computation of consideration ratio

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Specific circumstances: Financial assistance

Assets ratio &

Consideration ratio

Value of the financial assistance + any monetary advantage

Revenue ratio &

Profits ratio

Annual interest income (if any)

Equity capital ratio NA

How should the percentage ratios apply to provision of financial assistance by an issuer?

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Specific circumstances: Formation of JV (Listing Decision 2-1)

Under the JV agreement:

• Total investment cost: RMB330 million

• Registered capital: RMB110 million (contributed in cash)

• The difference will be funded by proceeds from property sales, bank loans or shareholders’ loan

Listco B JV partner

JV Company

60% 40%

Which percentage ratios are applicable?

What should be the numerator of the percentage ratios?

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Specific circumstances: When the consideration differs from the asset value (R14.15(1))

• Consideration: $50 million

• Market price of the consideration shares: HK$70 million

• Fair value of the property: HK$100 million

What should be the numerator of the consideration ratio?

Listco CAcquisition of a property

Settled by consideration shares

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Specific circumstances: When the consideration cannot be determined (FAQ Series 7- No. 8)

Under the agreement, Listco D has to pay:

• cash consideration: HK$1 million; plus

• future amount payable upon completion, which is based on the valuation of the Target at the time of completion

How should Listco D calculate the consideration ratio?

Listco D

Target

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• Issuers cannot exercise discretion:

Grant of option a transaction

Exercise or transfer of option not a transaction

• Issuers can exercise discretion:

Grant of option normally not a transaction unless there is a premium

Exercise or transfer of option a transaction

Specific circumstances: Option arrangements (1)

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Specific circumstances: Option arrangements (2)

Prior approval for exercise of option

• At the time of entering into an option, issuer may seek shareholder approval for the exercise of the option.

• Shareholder approval is not required upon exercise of the option if:

the relevant information is disclosed to shareholders; and

no change of the relevant facts at the time of exercise

No similar provision in the connected transaction Rules

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Alternative size tests

• We may disregard a size test calculation if:

– it produces an anomalous result; or

– it is inappropriate to the sphere of activity of the issuer.

• Issuers must provide appropriate alternative tests for our consideration.

• We will consider: substance of transactions and not only their legal form whether size tests results vary significantly

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Example 1 – Acquisition of listed securities as investment(FAQ Series 7- No. 12)

Size tests Numerators of the alternative test

Assets ratio Fair value of shares being acquired

Profits/ revenue ratio Dividend income

Fact:

• Listco A proposes to acquire 5% interest in Target X as an investment which will be classified as available for sale financial assets.

Our view:

How should Listco A compute the assets, profits and revenue ratios?

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Example 2 – Group restructuring(Listing Decision 62-2)

Before AfterListco B

Subsidiary X Subsidiary Y

Target

100% 70%

Listco B

Subsidiary X Subsidiary Y

Target

100% 70%

Facts:• Disposal of 100% in Target by Listco B (through Subsidiary X)• Acquisition of 100% in Target by Listco B (through Subsidiary Y)

100% 100%

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Aggregation of transactions

• Prevent circumvention of Rules by splitting a transaction

• Aggregation of a series of transactions: completed within 12 months or are otherwise related.

• Non-exhaustive factors we consider: with the same party or parties connected

involve interests in one particular company or group of companies

parts of one asset

lead to substantial involvement in a new business

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Points to note (1)

• Aggregation is not automatic only because one factor is triggered.

• We will also consider the effect of aggregation: whether aggregation would result in a higher transaction classification.

• New classification only applies to current transaction.

First Transaction

Second Transaction

If aggregated

Will aggregation result in a higher classification?

Second Transaction

Major Discloseable Major No Discloseable

Major Discloseable VSA Yes VSA

e.g.

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Points to note (2)

• Prior consultation with the Exchange

Exceptions:• The issuer has already decided to aggregate the proposed transaction

with the previous transaction(s)

• The proposed transaction, even when aggregated with the previous transaction(s), will not be a NT

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Example 1 – Acquisition of machinery from related suppliers(Listing Decision 64-1)

Facts:

• Listco A proposes to acquire different models of machinery from members of Group X (a major supplier) under different contracts.

• The machinery acquired under each contract is functional on its own and does not form part of an assembled machine.

• Each contract was negotiated independently.

Will the Exchange aggregate acquisitions of machinery?

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Example 2 – Acquisition of adjacent lands(Listing Decision 64-2)

Facts:

• Listco B acquired Land 1 in June.

• It acquires Land 2 one month later.

• Land 1 and 2 are adjacent to each other.

• They will be re-developed into a single residential property for sale.

• The 2 acquisitions are not inter-conditional.

Will the Exchange aggregate acquisitions of Land 1 and 2?

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IV. Announcement, circular and shareholder approval requirements

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• Overview

• Suspension

• Announcement

• Shareholder approval

• Circular

• Documentary requirements for listing applications by listed issuers

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Overview

Transaction Type

Notify Exchange

SuspensionPublish Announce-ment

Shareholders’ approval

Publish Circular

Accountants’ report

Treated as new listing

Share transaction

Yes Yes Yes No if shares are issued under general mandate

No No No

Discloseable Yes No, unless PSI

Yes No No No No

Major Yes Yes Yes Yes Yes Yes for acquisition

No

VSD Yes Yes Yes Yes Yes Yes No

VSA Yes Yes Yes Yes Yes Yes No

RTO Yes Yes Yes Yes Yes Yes Yes

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When required?

• A short suspension is required for a share transaction, major transaction, VSA, VSD or RTO; or any discloseable transaction which is price sensitive,

until publication of the announcement.

Suspension

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Announcement (1)

When required?

Initial announcement• After finalisation of the terms of a NT

Further announcements

• Expert reports

− Exploration for natural resources activities

− Profit forecast within 21 days after discloseable transaction announcement

• Poll results after general meeting

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Announcement (2)

When required?

Further announcements (cont’d)

• Changes after initial announcement:– termination of a previously announced NT– material change in terms of the NT– material delay in completion of the agreement

• Option arrangements:– expiry of the option– option holder notifying the grantor of non-exercise of the option– transfer of the option to a third party

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Announcement (3)Content requirements

• General principle– Information must be clearly presented, and must be accurate and

complete in all material respects and not be misleading or deceptive

• Specific disclosures e.g. - general nature of the transaction

- description of the target - terms of the transaction (e.g. consideration)

- reasons for and impact of the transaction

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Announcement (4)

Common pitfalls

Frequent omissions:

• Principal business activities of the counterparty

• Date of the transaction and independence of the counterparty

• Value of the subject asset

• Net profits of the target asset

• Gain or loss on disposal and the basis of calculation

Inadequate disclosures:

• Basis of consideration

• Reasons for entering into the transaction

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Announcement (5)

Waivers from disclosure requirements

• Granted only in limited circumstances

• We will consider: materiality of the information alternative disclosures proposed by the issuer sufficient information for shareholders/ investors to make an informed

investment decision unduly burdensome/ impractical

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Example – Waiver from disclosure requirements

Facts

• Listco A proposes a major acquisition involving issuance of consideration shares change in control

• Listco A must disclose the Target’s financial information in the announcement.

• Takeovers Code: Disclosure of “unaudited” financial information will constitute profit forecasts, which must be reported by an auditor and/or a financial advisor.

Will the Exchange grant waiver?

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Shareholder approval (1)

When required?

• Major transaction, VSD, VSA and RTO

General principles

• Voting should be made on the terms of the subject transaction

• All voting at general meetings must be taken by poll

• Shareholder approval must be obtained before completion of the transaction

Can an issuer obtain a prior mandate from its shareholders for on-market

disposal of its investments?

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Shareholder approval (2)Material interest

• Any shareholder that has a material interest in the transaction shall abstain from voting

• Factors determining “material interest” include: a party to the transaction or his associate? any benefit confers upon the shareholder or his associate, which is not

available to other shareholders

• No monetary / financial benchmarks for “material interest”

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Example 1 – Material interest in a transaction(Listing Decision 73-1)

>10%

Mr. X (Director)

Vendor

Listco A Target

2%+CEO

0.5% 60%

Facts:• Mr. X is not a party to the VSA• Mr. X had abstained from voting at board meetings• Mr. X is a member of Listco A’s executive committee

Does Mr. X have material interest in the VSA?

Subject matter of

the VSA

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Example 2 – Material interest in a transaction(Listing Decision 73-2)

9%

Mr. Y

Listco A

Listco B

Director & CEO of Listco B andholding a number of outstanding options (about 2% of Listco B’s issued share capital)Facts:

• Listco A proposes to privatise Listco B. a major transaction for Listco A

Do Company X and Mr. Y have material interest in the major transaction?

Company X

>10%

Director & shareholder of Listco A

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Written shareholder approval (1)• Allowed for major transactions if:

no shareholder needs to abstain from voting; and a “closely allied group of shareholders”, holding more than 50% voting

interest, approves the transaction

• A “closely allied group of shareholders”: the number of persons in the group their relationship (e.g. past or present business association) how long have they been shareholders? are they parties “acting in concert” under Takeovers Code? voting pattern on past shareholders’ resolutions (other than routine

resolutions at AGM)

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Written shareholder approval (2)• Not allowed for :

VSA, VSD and RTO qualified opinion on the accountants’ report some natural resources acquisitions that become new ventures of the

issuer

• Other Listing Rules may require shareholder meeting

e.g. specific mandate for issue of consideration shares

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Subsequent change of terms of a transaction

• Material changes of the terms of a transaction after shareholder approval require shareholder re-approval?

Example:

• Listco A agreed to dispose of a property at a consideration of HK$20 million VSD

• The VSD was approved by shareholders.

• The parties now proposes to reduce the consideration to HK$10 million before completion major transaction

Does the change of consideration constitute a material change in terms?

Note: See also FAQ Series 7 – No. 16

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Circular (1)

When required?

• Major transaction, VSD, VSA and RTO

• The circular must be despatched:

within 21 days after publication of the announcement; and

at the same time or before the issuer gives notice of the shareholder meeting (if any)

• Any supplementary circular containing material information

at least 14 days before general meeting

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Circular (2)

Content requirements• General principle

– Information must be clearly presented, and must be accurate and complete in all material respects and not be misleading or deceptive

– Sufficient information for shareholders to vote

• Specific disclosurese.g. - 3 year historical financial information of the target - Pro forma financials of the enlarged/ remaining group - Other expert reports (e.g. valuation report, mining report) - Information on the target and the issuer

e.g. indebtedness statement, working capital sufficiency statement, information on the financial and trading prospects of the issuer

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Historical financial information of the target (1)

NT category Where the target is a business/ company

Where the target is a revenue-generating asset with an identifiable income stream or asset valuation

Major disposal Not required Not required

Major acquisition Accountants’ report on the target* Profit/ loss statement and (where available) valuation of the target

VSD Accountants’ report on the group#

Profit/ loss statement and (where available) valuation of the target

VSA and RTO Accountants’ report on the target* Profit/ loss statement and (where available) valuation of the target

# with separate disclosure of financial information of the disposal target as a discontinuing operation

* No accountants’ report is required if the target itself is listed on the Exchange

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Accountants’ report

• Prepared by qualified and independent CPA

• The accounts must: adopt accounting policies materially consistent with those of the issuer conform with HKFRS or IFRS contain financial statements of the target / group for 3 financial years

before issue of circular relate to a financial period ended 6 months or less before issue of

circular

Historical financial information of the target (2)

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Accountants’ report relief

• We will consider: Information differences Assurance differences Unduly burdensome/ impractical

• Specific relief in the Rules: the target has not or will not become the issuer’s subsidiary

non-public information related to a target company (which is listed and will become the issuer’s subsidiary) is unavailable

Historical financial information of the target (3)

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Example - Waiver from accountants’ report requirements(Listing Decision 74-1)Facts:

• Listco A proposes to acquire a business from a US listed company VSA

• Listco A has practical difficulties in preparing an accountants’ report on the Target Business.

• It proposes to include in its VSA circular:

audited combined financial statements of the Target Business

− prepared in accordance with US GAAP, with a reconciliation to HKFRS

− audited by the vendor’s auditors in accordance with US auditing standard

− GAAP reconciliation reviewed by Listco A’s auditor

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Pro forma financial information (1)

NT category Where the target is a business/ company

Where the target is a revenue-generating asset with an identifiable income stream or asset valuation

Major disposal Not required Not required

Major acquisition

Pro forma statement of assets and liabilities of the enlarged group

Pro forma statement of assets and liabilities of the enlarged group

VSD Pro forma income statement, balance sheet and cashflow statement of the remaining group

Pro forma profit and loss statement and net assets statement on the remaining group

VSA/ RTO Pro forma income statement, balance sheet and cashflow statement of the enlarged group

Pro forma profit and loss statement and net assets statement on the enlarged group

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Pro forma financial information (2)

• Pro forma financials must: clearly state the purpose of their preparation include all appropriate adjustments adopt format and accounting policies consistent with those used by the

issuer

• Pro forma financial information may only be published in respect of: the current financial period the most recently completed financial period the most recent interim period for which information has been published

Point to note: The pro forma income statement and balance sheet may be prepared for

different accounting periods

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Pro forma financial information (3)

• The issuer’s unadjusted information must be derived from the most recent : audited published accounts, published interim reports, published interim or

annual results announcements; accountants’ report; previously published pro forma financials; or published profit forecast or estimate

 

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Other expert reports (1)Report on profit forecast

• Profit forecast is not mandatory

• A circular containing a profit forecast must include: reporting accountants’ or auditors’ report

− accounting policies− calculations for the forecast

financial advisers’ report − forecast has been stated after directors’ due and careful enquiry

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Other expert reports (2)Report on profit forecast (cont’d)

• “Profit forecast” includes:

• any statement which quantifies the anticipated level of future profits or losses

• any profits/ losses estimate for a financial period which has expired but for which the results have not yet been published

• any valuation of assets (other than land and buildings) or businesses based on discounted cash flows or projections of profits, earnings or cash flows

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Other expert reports (3)

Technical report for mining activities

• applicable to Main Board issuers proposing to explore for natural resources as a new venture

• must be prepared by a qualified technical adviser

• must include information e.g.

– estimated reserves

– evidence on which the estimate is based

– details of the technical advisers

• must be prepared not more than 6 months before issue of the circular

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Indebtedness statement• statement of “indebtedness” of the group as at the most recent practicable

date “most recent practicable date” – normally NOT more than 8 weeks before “group” – include any company which will become a subsidiary of the

issuer

Working capital sufficiency statement• confirmation if the issuer has sufficient working capital

normally cover the next 12 months

Indebtedness and working capital sufficiency statements

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Recent Rule amendments (Effective 2 November 2009)

• simplify Rules for listing applications by listed issuers

• remove some existing documentary requirements

• revise timeframe for submission of documents

• reduce number of copies required for submission

Documentary requirements for listing applications by listed issuers

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V. Special considerations for transactions

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• Reverse takeovers

• Spin-off

• Distribution in specie

• Cash companies

• Sufficiency of operations

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MB R14.06(6)/ GEM R19.06(6)

“an acquisition or a series of acquisitions of assets by a listed issuer which, in the opinion of the Exchange, constitutes, or is part of a transaction or arrangement or series of transactions or arrangements which constitute, an attempt to achieve a listing of the assets to be acquired and a means to circumvent the requirements for new applicants set out in Chapter 8 of the Exchange Listing Rules…”

Reverse takeovers (1)

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MB R14.06(6)/ GEM R19.06(6) (cont’d)

“… A “reverse takeover” normally refers to:

(a) an acquisition or a series of acquisitions (aggregated under rules 14.22 and 14.23) of assets constituting a very substantial acquisition where there is or which will result in a change in control (as defined in the Takeovers Code) of the listed issuer (other than at the level of its subsidiaries); or

(b) acquisition(s) of assets from a person or a group of persons or any of his/their associates pursuant to an agreement, arrangement or understanding entered into by the listed issuer within 24 months of such person or group of persons gaining control (as defined in the Takeovers Code) of the listed issuer (other than at the level of its subsidiaries), where such gaining of control had not been regarded as a reverse takeover, which individually or together constitute(s) a very substantial acquisition…”

Reverse takeovers (2)

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Application of RTO Rule

• What is a RTO? (LC Annual Report 2007)

• What is the 24 month restriction?

• How do we look at “change in control”?

Reverse takeovers (3)

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• We will look at the reason(s) for triggering the general offer obligation when determining whether the “change in control” test is met.

Company X

Vendor Holding Co

Target Listco A

Company X

Vendor

Listco A

Holding Co

Target

>50% >50% >50%

>50%

20%

100%100%100% 100%

Before After Example

Example – Change in control(Listing Decision 75-2)

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• To address circumvention of the RTO rules

• An issuer may not dispose of its existing business for a 24 month period after a change in control, unless

– assets acquired after the change in control meet the new listing requirement

Otherwise, deemed as a new listing applicant

Disposal of existing business after change in control (1)

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Listing Committee Annual Report 2008

• The Listing Committee endorsed a waiver: Disposal will be restricted if :

– assets injection by new controlling shareholder at the time of and/or after the change in control; and– such asset injection would have resulted in a VSA, taking into account the disposal(s)

• We will consider whether the issuer structures its transactions to circumvent the RTO Rules.

Disposal of business after change in control (2)

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• A proposal that “effects the separate listing on the Exchange or elsewhere of assets or businesses wholly or partly within its existing group”

• General principle

one business should not support 2 listing status

• Clarifications: Spin-off can be conducted via acquisition of a listed shell Holding of interest in Newco after spin-off is not a pre-requisite Spin-off proposals are subject to the Exchange’s approval Shareholder approval is only required for major or above transactions

Spin-off

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Example – Spin- off via acquisition of a shell company

Listco A

Disposed Group

100%

Listco A

Disposed Group

80%

Company B

100%

Before Disposal After Disposal

Facts:

• Company B does not have material assets or operation.

• The disposal aims to consolidate majority of Listco A Singapore assets under one listed subsidiary (Company B).

(Listed on Main Board) (Listed on Main Board)

(Listed in Singapore)

Does the disposal constitute a spin-off?

Note: See also Listing Decision 3-2

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• Distributions in specie to shareholders are normally not notifiable transactions.

• We may impose requirements if the distributions are in substance: – circumvention of the Listing Rules– disposal of assets by the issuer– against the general principles of investor protection

Distribution in specie

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Example - Distribution in specie(Listing Decision 75-4)

Before After

Parent Company

Listco A

Subsidiary X(unlisted)

Minority shareholders

Distribution of all Subsidiary X’s shares to Listco A’s shareholders ( Distribution)

Parent Company will make a cash offer to acquire all Subsidiary X’s shares * (Subsidiary Offer)

Parent Company

Listco ASubsidiary X

(unlisted)

* Parent Shareholder proposes the Distribution to facilitate the disposal of its controlling

interest in the Listco A.

Minority shareholders

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Cash companies

• Where for any reason the assets of an issuer consist wholly or substantially of cash or short-dated securities, it will not be regarded as suitable for listing and trading in its securities will be suspended. Short-dated securities: securities such as bonds, bills or notes which

have less than 1 year to maturity.

• We will treat the issuer’s application for lifting of the suspension as if it were a new listing applicant.

• Exclude: “investment companies” as defined in MB Chapter 21; or an issuer which is solely or mainly engaged in the securities brokerage

business

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• For continued listing of its securities, an issuer must demonstrate to the Exchange that:

it carries out, directly or indirectly, a sufficient level of operations it has tangible assets of sufficient value and/or it has intangible assets of sufficient potential value

Sufficiency of operation

86

Compliance reminders

87

I. Reminders

88

• Trading suspension

• Black out period

• Shareholder meeting notice

• Continuing connected transactions

• Access to books and records of disposed companies

• Board meeting notification

• Book closure notification

• Disclosures in monthly returns and next day disclosure returns

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Trading suspension

1. Authorised representatives and company secretary should be contactable to deal with suspension related matters:

− respond to our press/ price and trading movement / post-vetting enquiries

− inform us of the proposed suspension well in advance − submit written suspension request well in advance

Reminders (1)

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Black out period

2. The new black out period will commence:– 60 days before publication of results or– if shorter, the period from the financial year end up to the date of

publication

notify the Exchange about the commencement of “black out” period

Reminders (2)

31/12/2009(year end

date)

20/3/2010(Date of publication of annual results)

30/4/2010(Deadline for publication of

annual results – MB issuers)

• Commencement of black out period: 19 January 2010• Notification must be sent to the Exchange before 19 January 2010

91

Shareholder meeting notice

3. Code Provision: Notice of shareholder meeting should be sent– at least 20 clear business days before AGM– at least 10 clear business days before other general meeting

(Introduced on 1 January 2009)

Reminders (3)

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Revised publication deadlines for results announcements (Main Board)

4. Annual results: 3 months after year end- for financial year ending on or after 31 December 2010

5. Interim results: 2 months after period end- for 6 months ending on or after 30 June 2010

Reminders (4)

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Continuing connected transactions (CCTs)

6. Is there sufficient time for renewing an expiring CCT agreement? Plan for:

− renewal of the agreement − publication of announcement, shareholder meeting, appointment of

IFA and establishment of IBC

7. Will the CCTs exceed the annual cap(s)? Plan for publication of announcement, shareholder meeting, appointment

of IFA and establishment of IBC

8. Will there be adequate time for auditors and INEDs to review the CCT? Submit auditors’ confirmation within 10 business days before bulk-

printing of the annual reports

Reminders (5)

94

Access to books and records of disposed companies

9. Ensure that the issuer itself and its auditors can have access to the disposed companies’ books and records for the year end audit

Reminders (6)

95

Board meeting notification

10. Announce at least 7 clear business days before the meeting date

Reminders (7)

96

Book closure notification

11. Announce the book closure date at least 14 days before the closure

12. Disclose the purpose of the book closure (e.g. for dividend entitlements, attendance at the AGM, etc)

Reminders (8)

97

Type of Issue No. of new shares of issuer issued during the month pursuant thereto

No. of new shares of issuer which may be issued pursuant thereto as at close of the month

6.Repurchase of shares

Class of share repurchased

Cancellation date : (dd/mm/yyyy)

EGM approval date: (dd/mm/yyyy)

Ordinary

(15/11/2009)

(30/11/2009)

(26/06/2009)

(100,000)

(200,000)

N/A

N/A

N/A

(200,000)

13. Other Movements in Issued Share Capital:- 6. Repurchase of shares

No. of shares repurchased (but yet

to be cancelled) as at the end of the

month

Disclosures in Monthly Return – Share repurchase and cancellation of

repurchased shares

No. of shares cancelled

during the month

Date of general meeting (e.g. AGM date)

approving the share repurchases

Reminders (9)

98

Issues of shares(Notes 6 and 7)

No. of shares

Issued shares as a % of existing issued share capital before relevant share

issue(Notes 4, 6 and 7)

Issue price per share

(Notes 1 and 7)

Closing market price per share of the

immediately preceding business

day (Note 5)

% discount/premium of issue

price to market price

(Note 7)

Opening balance as at (Note 2)31 October 2009

1,000,000,000

(Note 3) Placing of new shares- 20 November 2009

Exercise of options - 3 November 2009- 5 November 2009…

50,000,000

10,000

40,000

5%

0.001%

0.004%

$0.70

$0.50

$0.50

$0.85 (9 Nov 2009)

$0.65 (2 Nov 2009)

$0.75 (4 Nov 2009)

17.65% discount

23.01% discount

33.33% discount

The closing market price per share on the

business day immediately before the

occurrence of the reported item, e.g. issue

of shares on exercise of options

Where shares are allotted or redeemed on multiple dates,

details must be disclosed separately.

Disclosure in Next Day Disclosure Return

14. Closing market price and allotment/repurchase on multiple dates

Reminders (10)

99

II. Year end disclosures

100

Publication of management accounts

• Issuers failing to announce their preliminary results before the publication deadline must issue an announcement containing:

– a full explanation for its inability to publish a preliminary results

– the expected date of announcement of the financial results

– financial results (if available)

– any disagreement with the audit committee on accounting treatment adopted

Year end disclosures (1)

101

Common pitfalls of disclosures in annual results announcements

Omission of information required under MB App 16/ GEM Chapter 18• Ageing analysis and credit policy description

• Compliance statement on Corporate Governance (CG) Code

• A statement that the results had been reviewed by audit committee

• Details of the qualification or modification of the auditor’s report

• The explanatory notes to proposed dividend

Inadequate disclosure of information required under MB App 16/ GEM Chapter 18• Significant balances / fluctuation

• Management discussion on the issuer's results

Year end disclosures (2)

102

Common pitfalls of disclosures in annual reports

Omission of information • Disclosures in Corporate Governance Report

− e.g. terms of NED appointment, information on remuneration committee • Details of connected transactions• A narrative statement on whether the auditors had reviewed and confirmed compliance

with CCT annual review Rules• Continuing disclosures of advance to entities, financial assistance to affiliated

companies, pledge of shares by controlling shareholders, etc • Annual confirmation of INED independence

Inadequate disclosure• Description of credit policy and ageing analysis• Analytical and in-depth discussion in MD&A section• Details of share option scheme• Explanation for inconsistency of disclosure relating to auditors’ remuneration in

financial statements and CG Report• Disclosure on financial instruments (their nature, valuation and risk exposure)

Year end disclosures (3)

103

Year end disclosures (4)

Dividend information

• Provide sufficient information on dividend proposals including the dividend payment date

• Notify shareholders of any withholding tax implication

104

Reference materials published on the HKEx website (1)

• Frequently asked questions on notifiable transactions, connected transactions and issue of securities: (http://www.hkex.com.hk/listing/suppmat/faq200811.doc)

• Listing Decisions: (http://www.hkex.com.hk/listing/listdec/listdec2009.htm)

• Consultation Conclusions on self-constructed asset:(http://www.hkex.com.hk/consul/conclusion/cc200907.pdf)

• Consultation paper on proposed changes to requirements for circulars and listing documents of listed issuer:(http://www.hkex.com.hk/consul/paper/cp200909cr_e.pdf)

• Consultation paper on New Listing Rules for Mineral and Exploration Companies:(http://www.hkex.com.hk/consul/paper/cp200909m_e.pdf)

• Checklists and forms in relation to disclosure, documentary and other specific compliance requirements under the Listing Rules and related administrative procedures:

Main Board - http://www.hkex.com.hk/listing/epp/cft_mb.htm GEM - http://www.hkex.com.hk/listing/epp/cft_gem.htm

105

Reference materials published on the HKEx website (2)

• Proposed changes to filing and checklist requirements for listing of equity securities:

– Consultation conclusion http://www.hkex.com.hk/consul/conclusion/cp200906cc_e.pdf

– Revised Rules: http://www.hkex.com.hk/rule/mbrule/mb_rupdate15_cover.htm (MB) and http://www.hkex.com.hk/rule/gemrule/gem_rupdate15_cover.htm (GEM)

• Financial statements Review Programme Report 2009 published by HKEx (http://www.hkex.com.hk/listing/staffint/FRM2-09.pdf)

106

Other reference materials

• Auditing guideline - Statement 3.340 – Prospectuses and the Reporting Accountant, issued by HKICPA (http://app1.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/3_340.pdf)

• Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars”, issued by HKICPA http://www.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeII/ag7.pdf

• Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro forma Financial Information in Investment Circulars” , issued by HKICPA http://www.hkicpa.org.hk/ebook/HKSA_Members_Handbook_Master/volumeIII/hksir300.pdf

• Review report by the Professional Standards Monitoring Committee of the HKICPA (http://www.hkicpa.org.hk/correspondence/2009-06-25/activities_report.pdf)

107

Thank you