Whilst capital raising activities by most listed issuers did not give rise to material regulatory issues, the Stock Exchange of Hong Kong Limited (“SEHK”) considers that the structure or current practices of listed issuers in capital raisings, such as deeply discounted fund raisings and share consolidations and subdivisions, have materially diluted the voting rights and value of the public shareholders’ investment.

In the interest of ensuring fair and equal treatment for all shareholders and maintaining an orderly market for securities trading, SEHK proposes to disallow highly dilutive capital raising activities, which include rights issues, open offers and specific mandate placings (individually or when aggregated within a rolling 12-month period) that would result in a cumulative value dilution of 25% or more, unless there are exceptional circumstances, e.g., the issuer is in financial difficulty. A consultation paper on the above was issued by SEHK on 22 September 2017 to seek views.

The SEHK also proposes to:-

a) remove the compulsory underwriting requirement for all rights issue and open offers, but if the issuer decides to engage underwriters, the underwriters should be persons licensed to carry out type 1 regulated activities under the Securities and Futures Ordinance (Cap. 571);

b) restrict the use of general mandate for issue of warrants and placing of convertible securities;

c) require disclosure on the use of proceeds from equity fundraisings in issuers’ interim and annual reports; and

d) require issuers to adopt either excess application arrangements or compensatory arrangements for the disposal of unsubscribed shares in rights issues and open offers.

The above consultation was considered by Council with the assistance of the Company Law Committee of the Law Society. The proposed amendments to the Listing Rules are supported. A copy of the submissions can be found on the Law Society’s website: