Publication of a prospectus which:

• states, inter alia, the basis of subscription, the reason for the issue, the use of proceeds
• contain contents as set out in Part B of Appendix 1 of the Hong Kong Listing Rules (but excluding paragraphs 8, 24, 26(1), (3)-(5) and 43(4))
• shall include a statement from each substantial shareholder as to whether that substantial shareholder has undertaken to take up its entitlement in full or in part and on what conditions, if any, and relevant particulars.
• will be registered with the Companies Registry in accordance with the Companies Ordinance

Same as rights issue (see Main Board Rules 11.09(2)).

Underwriting

Normally fully underwritten unless the prior consent of the HKEx to do otherwise has been obtained

• HKEx may permit rights issue which is not underwritten in certain circumstances (e.g. where additional costs of underwriting are not justified in particular circumstances; or where an underwriting commitment was terminated by a force majeure event after offer opened; or to facilitate fund-raising by very substantial companies) subject to compliance with additional disclosure requirements
• the fact that the rights issue is not fully underwritten;
• the minimum amount, if any, that must be raised before the issue will proceed;
• the intended application of net proceeds of issue according to the level of subscriptions
• additional disclosures (including risk disclosures) must be included in listing document if underwriting could be terminated on occurrence of force majeure events after dealings of rights in nil-paid form have commenced
• if a rights issue is not fully underwritten, a substantial shareholder who applies to take up its full entitlement may unwittingly incur an obligation to make a general offer under the Takeovers Code unless a waiver from the Executive is obtained. If this is likely to occur, the issuer may permit the substantial shareholder to scale-down its commitment in the case that the issue is not fully taken up to avoid a general offer obligation
• if not fully underwritten by a person or persons whose ordinary course of business includes underwriting, the listing document must contain full disclosure of that fact

Same as rights issue except that there is no additional disclosure requirement in case underwriting could be terminated on occurrence of force majeure events after dealings of rights in nil-paid form has commenced (see Main Board Rules 7.24(1), 7.24(2), 7.24(3) & 7.24(4)).

Where the issued share capital or market capitalisation will increase by more than 50% (taking into account rights issues & open offers announced (i) in the previous 12 months or (ii) earlier where dealing in shares issued commenced in the previous 12 months)

There are additional applicable Hong Kong Listing Rules requirements which include:

• independent shareholders’ approval: the approval of independent shareholders in general meeting would need to be obtained where controlling shareholders and their associates (or where there is no controlling shareholder, the directors (other than INEDs) and the chief executives) must abstain from voting in favour of the resolution approving the rights issue (Main Board Rule 7.19(6))
• independent board committee must be established to advise shareholders as to terms of rights issue and whether they are fair and reasonable and how they should vote – a statement of the committee must be included in the circular
• independent financial adviser must be appointed to make recommendations to the independent board committee – a statement of the adviser must be included in the circular
• additional disclosures: the circular to shareholders must include descriptions of the purpose of proposed rights issue, the total funds expected to be raised, detailed breakdown and description of proposed use of proceeds of the current issue and in respect of any equity issues in the preceding 12 months

Same as rights issue (see Main Board Rules 7.24(5), 7.24(8))

Provisional letters of allotment

Renounceable provisional letters of allotment, letter of rights or other negotiable instrument for all shareholders:

• provisional allotment letters inform shareholders of the number of shares provisionally allotted to them
• letter of rights informs shareholders that they have the right to buy a specific number of new shares at a specific price
• any such letters must state the time, being not less than 10 business days, during which the offer may be accepted

By reason of the nature of open offers, this requirement is not applicable.

Shares in excess

An issuer can make arrangements to dispose of rights shares not taken up by present shareholders – this can be done either by:

• issuing excess application forms to shareholders along with provisional allotment letters to enable shareholders to subscribe for additional shares in the company (excess shares must be available for subscription by all shareholders and allocated on a fair basis); or
• selling the excess shares in the market, if possible, for the benefit of the persons to whom the rights shares were offered. (Main Board Rule 7.21(1))
• Offers of excess shares and the basis of allocation must be disclosed in rights issue announcement, listing document and circular.
• If no arrangements or arrangements other than those described above have been made for disposal of rights shares not taken up, and the rights issue is wholly or partly underwritten or sub-underwritten by a director, chief executive or substantial shareholder or their associates, then the absence of such arrangements or the making of other arrangements must be approved by the issuer’s independent shareholders.

An issuer can make arrangements to dispose of shares not applied for by allowing applications for excess shares (these must be available for subscription by all shareholders and allocated on a fair basis).

(see Main Board Rule 7.26(A)).

Offers of excess shares and the basis of allocation must be disclosed in the open offer announcement, listing document and any circular.

Hong Kong Listing Rules do not provide for issuers to sell the excess shares in the market for the benefit of the persons to whom the open offer was made.

Independent shareholders’ approval is required if no arrangements or arrangements other than those described above are made for disposal of shares not taken up if the open offer is underwritten or sub/underwritten by a director, chief executive or substantial shareholder (or their associates).

General rule under Main Board Rule 13.36 is that a pro rata rights issue does not require shareholders’ approval.

Main Board Rule 13.36(2)(a) allows issuers to exclude shareholders resident outside Hong Kong from the rights issue where:

• the issuer has made enquiries regarding the legal restrictions under the laws of the relevant place and requirements of relevant regulatory body or stock exchange; and
• based on those enquiries, the issuer’s directors consider it necessary or expedient not to offer the rights shares to overseas shareholders.

Usually, a legal opinion from overseas counsel in relevant jurisdictions is required for the directors to form such a view and pass resolutions accordingly approving the exclusion of certain overseas shareholders.

If overseas shareholders are excluded under MB Rule 13.36(2)(a), an explanation for the exclusion must be included in the relevant circular or document containing the offer. Issuers should also deliver the circular or offer document to excluded shareholders for information, subject to compliance with local laws and regulations.

If an issuer has shareholders in a large number of overseas jurisdictions, it may not be practical to obtain legal opinions from all relevant jurisdictions. Shareholders’ approval will be required if the issuer will exclude overseas shareholders without obtaining legal opinions for all relevant jurisdictions.

The offer period during which the rights shares may be accepted must be at least 10 business days.

Where an issuer proposes an offer period of more than 15 business days, e.g. where there are a large number of overseas shareholders, the Exchange must be consulted.

(Main Board Rule 7.20)

An issuer must announce any closure of its transfer books or register of members in respect of securities listed in Hong Kong at least 6 business days before the closure of books.

(Main Board Rule 13.66(1))

Last day for trading in the securities with entitlements

An issuer must ensure that the last day for trading in the securities with entitlements falls at least 1 business day after the general meeting, if the entitlements require the approval of shareholders in the general meeting or are contingent on a transaction that is subject to the approval of shareholders in the general meeting.

In addition, for a rights issue, the issuer must provide at least 2 trading days for trading in the securities with entitlements (i.e. before the ex-date) after publication of the book closure.

General rule under Main Board Rule 13.36 is that a pro rata rights issue does not require shareholders’ approval.

As stated above, shareholders’ approval will be required if:

1. the rights issue will increase the issued share capital or market capitalisation by more than 50% (either alone or when aggregated with rights issues or open offers announced in the previous 12 months or earlier where dealing in the new shares started in the previous 12 months);

Same as rights issue.

However, where an open offer is made to existing shareholders not in proportion to their existing shareholdings, shareholders’ approval in general meeting will be required unless the issuer will issue the offer shares under a general mandate in accordance with Main Board rule 13.36(2).

2. no arrangements or arrangements other than those in MB Rule 7.21(1) are made for the disposal of rights shares not taken up and the rights issue is wholly or partly underwritten or sub-underwritten by a director, chief executive or substantial shareholder of the issuer; or
3. where overseas shareholders are to be excluded (unless the conditions specified in MB Rule 13.36(2)(a) are met)

The general mandate cannot exceed 20% of the issued share capital of the issuer at the date of the general mandate.

The shareholders can also separately authorise the issuer to issue shares equivalent to the number of shares repurchased since the date of the general mandate (up to a maximum number equivalent to 10% of the existing issued share capital)

• Three working days after last day for dealing NPR (to allow for settlement on T+2)
• The offer period should not be less than 10 business days.