Notifiable transactions, connected transactions and major transactions
Notifiable transactions, connected transactions and major transactions
This domain tests the classification machinery in Chapters 14 and 14A: how a transaction is sized, when shareholder approval is needed, and what additional requirements apply when the counterparty is connected to the issuer.
The percentage ratios
Five ratios are calculated: assets (target's total assets ÷ issuer's total assets), profits (target's profits ÷ issuer's profits), revenue, consideration (consideration ÷ issuer's market capitalisation) and equity capital (shares issued as consideration ÷ issued shares). The highest result governs.
- Discloseable transaction: any ratio ≥5% but <25% - announcement and notification only.
- Major transaction: any ratio ≥25% but <100% - announcement, circular and shareholders' approval.
- Very substantial acquisition or disposal: any ratio ≥100% - the major-transaction package plus closer Exchange scrutiny.
- A share transaction is a discloseable acquisition of shares.
- Transactions with the same party are aggregated over 12 months; deliberate splitting to avoid a threshold is treated as a single transaction.
Connected transactions (Chapter 14A)
A connected person includes a director, chief executive or substantial shareholder (10%+) of the issuer or any subsidiary, and their associates. Thresholds:
- Each ratio below 0.1%: exempt (de minimis).
- 0.1% to below 5%: announcement and annual reporting.
- 5% or more: circular, IFA opinion, independent board committee and independent shareholders' approval. Continuing connected transactions require a framework agreement, annual caps and annual review by the auditors and independent non-executive directors.
Worked example
A listed issuer buys a warehouse for HK$90 million from a company owned by the spouse of an executive director. The issuer's market capitalisation is HK$1.5 billion, so the consideration ratio is 6%. The counterparty is a connected person (associate of a director) and 6% exceeds 5%: the deal needs an announcement, a circular with an IFA opinion, an independent board committee and independent shareholders' approval.
Traps
- Using total assets alone instead of the highest of the five ratios.
- Missing that a 6% acquisition is discloseable-only for a third party but approval-requiring for a connected person.
- Overlooking associates and connected subsidiaries within the definition.
- Treating each instalment of a continuing transaction as a one-off rather than applying the annual cap.
- Forgetting the independent board committee, which is separate from the IFA.