Member Article

On 17 February 2006, The Stock Exchange of Hong Kong Limited (the "Exchange") announced various minor and housekeeping amendments to the Main Board and GEM Listing Rules. The amendments came into effect on 1 March 2006. They relate to the following matters: Disclosures of "advances to entities" and "financial assistance and guarantees to affiliated companies" Rules 13.13 to 13.16 of the Main Board Listing Rules and rules 17.15 to 17.18 of the GEM Listing Rules require the disclosures of "advances to entities" and "financial assistance and guarantees to affiliated companies" where certain thresholds are exceeded. Previously, five tests were required to be applied. The only applicable test now is the total assets test. New rule 13.15A of the Main Board Listing Rules and new rule 17.17A of the GEM Listing Rules exclude a trade receivable from advances to entities in the calculation of the assets ratio where the trade receivable (other than as a result of the provision of financial assistance) arose in the ordinary and usual course of business of the issuer and the transaction from which the trade receivable arose was on normal commercial terms have been introduced. Notifiable transactions - exemption for IPO financing and securities margin financing by 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 exempt listed securities houses from the disclosure and shareholder approval provisions in respect of IPO financing and securities margin financing provided by listed securities houses in the ordinary and usual course of business and upon normal commercial terms. Securities houses are defined in the Main Board Listing Rules and the GEM Listing Rules as 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. Disclosure of pre-acquisition financial information New rule 4.05A of the Main Board Listing Rules and new rule 7.04A of the GEM Listing Rules have been introduced to require the disclosure by new listing applicant of pre-acquisition financial information on material businesses or companies acquired during the track record period in an accountants' report for a listing document in order to provide full and useful information to investors. This requirement applies to any acquisition that if made by a listed issuer would have been classified at the date of application as a major transaction or a very substantial acquisition in accordance with the Main Board and GEM Listing Rules, as the case may be. For the purpose of determining whether an acquisition is material and falls within the classification of a major transaction or a very substantial acquisition, reference shall be made to total assets, profits or revenue (as the case may be) of the acquired business or subsidiary and this shall be compared to the total assets, profits or revenue (as the case may be) of the new applicant as shown in the most recent financial year of the trading record period. Disclosure by and removal of directors Paragraph 4(3) of Appendix 3 and paragraph 5(1) of Appendix 13B of the Main Board Listing Rules and paragraph 4(3) of Appendix 3 and paragraph 5(1) of Section 1 of Appendix 11B of the GEM Listing Rules have been amended to provide that a director may be removed by an ordinary resolution in a general meeting instead of a special resolution. This amendment reflects the requirement of the Companies Ordinance. The other rule amendments also require a director of an issuer to: • disclose in a prospectus his directorships held in other listed companies (see paragraph 41(1) of Appendix 1A and paragraph 34 of Appendix 1B of the Main Board Listing Rules and paragraph 41 of Appendix 1A and paragraph 34 of Appendix 1B of the GEM Listing Rules); • include in the disclosure of his biographical details on appointment other relevant details that mirror the disclosure made in director's declaration and undertaking to the Exchange (see rule 13.51 (2)(h) to (x) of the Main Board Listing Rules and rule 17.50(2)(h) to (x) of the GEM Listing Rules); and • disclose in an announcement upon appointment full particulars of his emoluments irrespective of whether a service contract has been entered into between issuer and him (see rule 13.51(2)(g) of the Main Board Listing Rules and rule 17.50 (g) of the GEM Listing Rules). Notifiable transactions and connected transactions Rule 14.64(4) of the Main Board Listing Rules and rule 19.64(5) of the GEM Listing Rules now clarify that a circular required for discloseable transaction also includes a transaction that does not involve any acquisition or disposal of assets, such as in the case of a financial assistance transaction. Rule 14A.14 of the Main Board Listing Rules and rule 20.14 of the GEM Listing Rules codify the Exchange's existing interpretation that continuing connected transactions include financial assistance. Accounting matters and the Pro Forma Rules Amendments have been made to: • clarify that for a new listing applicant without any published audited consolidated financial statements, any comparison for classifying acquisitions required under the relevant Listing Rule should be made instead to the new applicant's latest audited consolidated financial statements in the accountants' report (see the notes to rule 4.28 of the Main Board Listing Rules and the note to rule 7.30 of the GEM Listing Rules); • clarify that a combination of balance sheets of affiliated companies is not "pro forma" financial information as required under rule 4.29 of the Main Board Listing Rules and rule 7.31 of the GEM Listing Rules (see rule 13.22 of the Main Board Listing Rules and rule 17.24 of the GEM Listing Rules); and • clarify that that two separate management discussion and analysis statements, one on the existing group and one on the business or company acquired or to be acquired, are required in a circular for a very substantial transaction (see rule 14.69(7) of the Main Board Listing Rules and rule 19.69(8) of the GEM Listing Rules). Other minor and housekeeping amendments • change in timing for the release of results announcement from 4:00 pm to 4:15 pm (see note 1 to rule 13.45 of the Main Board Listing Rules); • change in the definition of "subsidiary" to reflect amendments made to the definition of "subsidiary" in the Companies Ordinance (see rule 1.01 of the Main Board Listing Rules and rule 1.01 of the GEM Listing Rules); • requirement that the Exchange be informed and an announcement be published whenever there is change in Share Registrar (see rule 13.51(5) of the Main Board Listing Rules and rule 17.50(3) of the GEM Listing Rules); • the final proof of the listing document must be lodged with the Exchange, in the case of new applicant, at least four (instead of three) clear business days before the date of hearing of the formal application for listing (see rule 11.02 of the Main Board Listing Rules); • an issuer should set out its stock code in a prominent position on the cover page, the first page of all announcements, circulars and other documents published by it pursuant to the listing rules (see rule 13.51A of the Main Board Listing Rules and rule 17.52A of the GEM Listing Rules); and • Forms C1 and G in Appendix 5 of the Main Board Listing Rules have been amended. The revised Listing Rules are available for viewing on HKEx’s website at http://www.hkex.com.hk/rule/mbrule/HKEX-MB(Markup)(e).pdf (for the Main Board Listing Rules) and http://www.hkgem.com/listingrules/e_default.htm (for the GEM Listing Rules).