Offers of Securities and Corporate Regulation
This domain tests the two gateways for offering investments to the Hong Kong public, the exemptions that let an offer proceed without a prospectus, and the corporate regulation that follows listing: the Takeovers Codes and listed-company disclosure.
The two gateways
- Section 103 of the SFO prohibits issuing advertisements, invitations or documents relating to investments unless authorised by the SFC or covered by an exemption. This applies independently of the prospectus rules.
- A prospectus for shares or debentures is governed by Part II of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32). It must be authorised by the SFC and registered with the Registrar of Companies before issue.
Prospectus exemptions
Common exemptions include offers to professional investors, offers to not more than 50 persons, offers with a minimum subscription of HK$500,000 per person, and offers with total consideration not exceeding HK$5 million. An exempt offer still needs a s.103 exemption for the accompanying advertisement.
Takeovers Codes
- A mandatory general offer is triggered at 30% of voting rights, and between 30% and 50% an offeror may not acquire more than 2% in 12 months without triggering an offer.
- The offer price must be at least the highest price paid by the offeror or concert parties in the offer period and the preceding 6 months.
- Shareholders receive independent financial advice; the Takeovers Executive may grant a whitewash waiver on independent shareholder approval.
Listed-company regulation
Dual filing, connected transactions and notifiable transactions under the Listing Rules, Part XIVA disclosure of inside information, and the Codes on Share Buy-backs, which cap on-market buy-back prices.
Worked example
A company proposes to offer shares to 60 of its employees, raising HK$3 million in total. The 50-person exemption is exceeded, so that route is unavailable. The HK$5 million total-consideration exemption may still apply on these figures, but the offer document and any advertisement must also fall within a s.103 exemption, or be authorised and registered.
Traps
- Treating SFC authorisation as approval of the investment's merits; it is not.
- Counting concert parties separately when measuring the 30% trigger.
- Assuming a Cap. 32 exemption automatically satisfies s.103.
- Forgetting that the 6-month look-back sets the minimum offer price.