HKSI Paper 11 flashcards

34 cards. Read the term and the definition here. The deck at the top of this page is optional.

SFC statutory regulator

The Securities and Futures Commission is the statutory body regulating Hong Kong's securities and futures markets, enforcing the SFO and Takeovers Code.

Type 6 regulated activity

Advising on corporate finance, including advising on Listing Rules compliance, takeovers, and corporate restructuring; requires an SFC licence.

Sponsor due diligence

Under Practice Note 21, sponsors must conduct reasonable due diligence on listing applicants, including verification of material information and site visits.

Inside information disclosure

Under SFO Part XIVA, listed corporations must disclose inside information as soon as reasonably practicable; breach can lead to SFC enforcement action.

Main Board profit test

Applicant must have aggregate profit of HK$35 million, with HK$4.5 million in the most recent year and HK$8 million in each of the two preceding years.

Public float requirement

At least 25% of a listed issuer's total issued shares must be held by the public, unless market cap exceeds HK$10 billion, then 15-25% with HK$1 billion minimum.

Connected person definition

Includes directors, chief executive, substantial shareholders (10% or more voting power), and their associates; transactions with them are connected transactions.

GEM listing requirements

GEM requires two financial years trading record, minimum market cap HK$150 million, and higher profit/revenue tests than Main Board.

IPO clawback mechanism

Retail tranche increases from 10% to 30% if oversubscribed 15-50x, to 40% if 50-100x, and to 50% if 100x or more.

General mandate placing

Issuance of up to 20% of issued share capital under a general mandate without shareholder approval, subject to maximum 20% discount to benchmarked price.

Rights issue

Pro-rata offer to existing shareholders to subscribe for new shares, usually at a discount; requires shareholder approval unless within general mandate.

Open offer

Offer to existing shareholders but not pro-rata, often to raise capital from all shareholders; requires shareholder approval and may involve connected persons.

Major transaction threshold

Any percentage ratio of 25% or more but less than 100% triggers major transaction classification, requiring shareholder approval and circular.

Connected transaction de minimis

Transaction with connected person exempt if consideration is less than 0.1% of market cap or HK$1 million, whichever is higher.

Very substantial acquisition

Transaction with any percentage ratio of 100% or more; requires shareholder approval, circular, accountants' report, and sponsor due diligence.

Continuing connected transaction

Ongoing transaction with connected person requiring annual caps, independent shareholders' approval, and annual review by independent non-executive directors.

Mandatory general offer trigger

Acquisition of 30% or more voting rights, or increase of more than 2% in 12 months by a 30-50% holder, triggers mandatory offer for all shares.

Rule 26.1 offer price

Mandatory offer must be at least the highest price paid by offeror or concert parties in the 6 months before the offer period.

Whitewash waiver

SFC may waive mandatory offer obligation for a transaction that would trigger it, subject to independent shareholders' approval.

Share buy-back limit

On-market buy-back limited to 10% of issued shares under general mandate; off-market buy-back requires shareholder approval and Takeovers Code compliance.

DCF terminal value

Terminal value using Gordon growth: TV = FCF_{n+1} / (r - g), where r is discount rate and g is perpetual growth rate.

WACC formula

WACC = (E/V) × Re + (D/V) × Rd × (1 - tax rate), where Re is cost of equity and Rd is cost of debt.

Comparable company analysis

Valuation using multiples like EV/EBITDA and P/E from similar listed companies, adjusted for growth, risk, and capital structure differences.

Precedent transactions analysis

Valuation based on multiples paid in comparable M&A transactions; typically includes a control premium of 20-40%.

Convertible bond conversion ratio

Conversion ratio = face value / conversion price; determines number of shares received upon conversion.

Bond price-yield relationship

Bond prices and yields move inversely; price = Σ (C / (1+y)^t) + F / (1+y)^n, where C is coupon and F is face value.

Investment grade rating

Credit rating of BBB-/Baa3/BBB- or above from S&P, Moody's, or Fitch; below is high yield (junk).

Perpetual bond characteristics

No maturity date but may have call dates and coupon step-ups; treated as equity if no obligation to repay principal.

Scheme of arrangement approval

Requires court approval and approval by majority in number representing 75% in value of creditors or members present and voting.

Delisting after suspension

HKEX may delist after 18 months of continuous trading suspension (Main Board) if no resumption; voluntary delisting requires shareholder approval.

Privatisation by scheme

Offeror and concert parties cannot vote; requires 75% of disinterested shares and no more than 10% dissenting votes.

Cash company rule

Under Rule 14.82, a listed issuer with assets substantially in cash may be delisted unless it meets listing criteria; reverse takeover rules apply.

Conflict of interest management

Under SFC Code of Conduct paragraph 17, licensed persons must avoid conflicts, disclose them, and use Chinese walls to manage information flow.

Insider dealing penalty

Under SFO Part XIII, insider dealing can lead to fines up to HK$10 million and imprisonment up to 10 years.