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Hong Kong Listing Rules Changes to Adopt the Treasury Shares Concept

posted 1 month ago

The Hong Kong Stock Exchange (HKEX) has decided to allow resale of treasury shares by listed issuers under certain safeguard measures. The Main Board and GEM Listing Rules will be amended accordingly with effect from 11 June 2024.

Under the existing Listing Rules, all shares repurchased by listed issuers must be cancelled. After consulting the public on the proposed removal of such cancellation requirement in the last quarter of 2023, the HKEX issued the consultation consultations in April 2024.

The key highlights are:

  • Listed issuers will no longer be required to cancel repurchased shares and may hold the repurchased shares as “treasury shares” if the laws of their incorporation jurisdictions and their constitutional documents so allow.
  • Listed issuers should provide appropriate instructions to the relevant parties (e.g. share registrars, brokers) to ensure that treasury shares are appropriately identified and segregated.
  • A resale by the listed issuer of its treasury shares will be subject to pre-emption similar to an issuance of new shares, i.e. the treasury shares shall be offered to all shareholders on a pro-rata basis. If they are not to be re-sold on such basis, the resale must have been approved in advance by its shareholders in a general or a specific mandate.
  • An on-market resale of treasury shares under a general mandate shall not be at a discount of 20% or more of the higher of (i) the closing price on the trading day immediately prior to the resale and (ii) the average closing price in the five trading days immediately prior to the resale. An off-market resale of treasury shares under a general mandate for cash consideration shall be subject to the same price discount limit applicable to an issuance of new shares.
  • A share scheme using treasury shares to satisfy share grants shall be subject to the same requirements as a share scheme funded by new shares under Chapter 17 of the Main Board Listing Rules or Chapter 23 of the GEM Listing Rules.
  • Certain existing Listing Rules requirements applicable to an issuance of new shares will be extended to a resale of treasury shares, including the relevant connected transaction, disclosure and documentary requirements.
  • Currently, a listed issuer shall not issue new shares for a period of 30 days after any repurchase of shares. Such 30-day moratorium period will be extended to any resale of treasury shares (whether on or off-market) with the carve-outs of (i) capitalisation issues e.g. bonus issues and scrip dividends, (ii) grants of share awards or options under a share scheme and (iii) issue of shares or a transfer of treasury shares upon vesting or exercise of share awards or options under the share scheme.
  • A listed issuer whose primary listing is on the HKEX shall not repurchase its shares on the market for 30 days after any on-market resale of treasury shares.
  • A listed issuer shall not repurchase its shares on the market during the period of one month prior to its board approving the annual or interim results. Such dealing restriction will also apply to on-market resales of treasury shares but the restricted period will be adjusted to from one month to 30 days.
  • A new listing applicant must disclose details of its treasury shares held in its prospectus. It shall not re-sell any of its treasury shares within six months after listing.
  • A holder of treasury shares is required to abstain from voting on matters that require shareholders’ approval under the Listing Rules.
  • Treasury shares are excluded in the calculation of issued shares amount under Listing Rules, e.g. public float and size test calculation.
  • A listed issuer must disclose in the explanatory statement for share repurchase mandate its intention as to whether the repurchased shares will be cancelled or kept as treasury shares.
  • A resale of treasury shares is subject to ad valorem stamp duty under the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong).

The resale of treasury shares may serve as a channel for listed issuers to raise funds and buyers may obtain listed shares more promptly than in the case of new share issuance. The amendments to the Listing Rules also provide measures to mitigate risks of market manipulation and insider dealing, and are therefore generally welcomed by the public.

This material has been prepared for general informational purposes only and is not intended to be relied upon as professional advice. Please contact us for specific advice.

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