13 October, 2012

 

Legal News & Analysis – Asia Pacific – Hong Kong – Capital Markets

 

Facts
 
Company A proposed to dispose of most of its existing businesses and assets. The Exchange noted that the proposed transactions were in effect privatizations of the company’s existing business but structured with the intention of allowing the company to maintain its listing status. Company A would be left with minimal operations, and this raised 
issues about market quality. 
 
The Exchange’s conclusion and analysis
 
The Exchange determined that Company A, upon completion of the proposed transactions, would not have a sufficient level of operations or assets of sufficient value to warrant its continued listing on the Exchange under Rule 13.24. Should Company A proceed with the 
proposed transactions, it would fail to comply with Rule 13.24 and would be suspended and might be delisted upon completion of the transactions. In reaching its conclusion, the Exchange took into account the following:
 
  • The remaining business, representing 6% of Company A’s total assets and revenue, was immaterial compared to Company A’s business operations and asset value. 
  • The absolute size of the remaining business was also small, with an asset value and annual turnover of HK$20 million or less in recent financial years. It also recorded net losses and negative operating cash flow.   
  • Company A’s business plan lacked concrete details to show any substantial growth or improvement in the remaining business’ scale of operations or financial position in the near future. The financial forecasts indicated that the remaining business would continue to record a net loss and a negative operating cash flow in the next year. 

 

For a copy of the listing decision LD35-2012, please follow the link:
 

 

For further information, please contact:
 
Tony Grundy, Partner, Morrison Foerster
tgrundy@mofo.com
 
John Moore, Partner,  Morrison Foerster
johnmoore@mofo.com

 

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