On 17 February 2006 the Hong Kong Stock Exchange introduced several changes to the Main Board and Growth Enterprise Market (GEM) Board Listing Rules. These amendments will take effect from 1 March 2006. While the amendments largely deal with minor and housekeeping matters, some amendments have clarified issues raised by listed companies and market practitioners since the last major amendments to the Main Board and GEM Listing Rules in March 2004.

Main amendments to the Main Board Listing Rules and the GEM Board Listing Rules

"Advance to entities" under rules 13.13 to 13.16 of the Main Board Listing Rules and rules 17.15 to 17.18 of the GEM Listing Rules

Under the existing Listing Rules, all five ratio tests in rule 14.07 of the Main Board Listing Rules and rule 19.07 of the GEM Listing Rules would apply when calculating advance to entities and financial assistance and guarantees to affiliated companies of listed issuers. From 1 March 2006, only the “total assets ratio” will apply.

There will also be a new rule (rule 13.15A of the Main Board Listing Rules and rule 17.17A of the GEM Listing Rules) excluding any trade receivable (other than as a result of providing financial assistance) which arises in the ordinary and usual course of business. For the exclusion to apply, the transaction from which the trade receivable arose has to have been on normal commercial terms from the calculations of “advances to entities”. This effectively overrules the old Listing Decision published in February 2001 (Listing Decision 22-2) where the Stock Exchange held that such trade receivable would be calculated as “advances”.

Exclusion of IPO financing and securities margin financing as a notifiable transaction for listed securities houses

Rules 14.04 and 14A.10 of the Main Board Listing Rules and rules 19.04 and 20.10 of the GEM Listing Rules have been amended to assist listed securities houses. The rules now exclude standard securities margin financing and IPO financing conducted in the ordinary and usual course of business and upon normal commercial terms as “notifiable transactions” for listed securities houses. Listed securities houses are those which are licensed or registered under the Securities and Futures Ordinance for Type 1 (dealing in securities) or Type 8 (securities margin financing) regulated activities).

Following the major amendments to the Listing Rules in March 2004 many listed securities houses expressed concerns about the compliance requirements for these transactions. See question 39 and the reply in the Frequently Asked Questions table published by the Stock Exchange on 31 March 2004 where this issue was raised and rejected by the Stock Exchange.

Disclosure of pre-acquisition financial information in listing document

New rule 4.05A of the Main Board Listing Rules and new rule 7.04A of the GEM Listing Rules require a new listing applicant to disclose pre-acquisition financial information on any major subsidiary or business that it acquires during the track record period. “Pre-acquisition” covers from the start of the trading record period to the date of the acquisition.

The requirement applies to any acquisition that if made by a listed company would have been classified as a major transaction or a very substantial acquisition. For calculations of the relevant percentage ratios, the total assets, profits or revenue (as the case may be) of the acquired business or subsidiary will be compared to those of the new applicant’s total assets, profits or revenue (as the case may be) in the most recent financial year of the trading record period.

Disclosure by and removal of directors and information on directors

The Listing Rules will be amended so that a director may be removed by an ordinary resolution in a general meeting. This amendment mirrors the amendment to the Companies Ordinance (Cap 32) in 2004 (see section 157B of the Companies Ordinance).

The announcements regarding new directorships/ supervisorships will include:

information set out in the standard declarations and undertakings executed by new directors/ supervisors
the amount of the director’s or supervisor’s emoluments irrespective of whether the director or supervisor has a service contract and how much of these emoluments are covered by a service contract.
Timing of release of results announcement

The time for releasing results announcements by Main Board listed companies after the close of trading will be postponed until after 4.15 pm.

Change of share registrars

An announcement will be required where there is a change in share registrar.

There are also amendments on accounting matters and the pro forma rules which are outside the scope of this Alert. More information is available from the Stock Exchange’s press release.

View the amendments to the:

Main Board Listing Rules

Growth Enterprise Market Listing Rules

This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.