Major Changes to Hong Kong Companies Ordinance And Listing Rules Affecting All Types Of Investors

Background

The main parts of the Companies (Amendment) Ordinance 2003 will come into effect on 13 February 2004 followed by certain important amendments to the Listing Rules of the Stock Exchange of Hong Kong Limited (the "Listing Rules") on 31 March 2003. Many of these changes relate to corporate governance issues and are the result of extensive consultation carried out with a view to increasing transparency amongst listed companies. Further changes are anticipated in the near future.

In this email alert, we will focus on the main amendments to the Listing Rules as well as some of the key aspects of the Companies (Amendment) Ordinance 2003.

Amendments to the Listing Rules affecting currently listed companies

While the Hong Kong Stock Exchange continues to monitor recent developments in other parts of the world with regard to quarterly reporting and disclosure of all senior executives' remuneration by name and is expected to include these in non-compulsory codes of best practice for next year, the following significant changes will be implemented on 31 March 2004 :-

all directors' remuneration to be disclosed on a "named" basis in the annual report;

number of independent non-executive directors to be increased from 2 to 3 (subject to 6 months transition period);

a new definition of "transactions" for the purpose of "notifiable transactions";

refined classification of "notifiable transactions" to make the various size tests more reliable;

tightened disclosure rules for "connected transactions" and expanded definition of "connected person";

reverse takeovers and acquisitions involving a change of control to be treated as new listings, effectively abolishing "back-door" listings;

placings at more than a 20% discount to the last closing price to be forbidden;

failure to publish financial results in time to result in automatic suspension (subject to 9 month transition period).

Amendments to the :-(listing Rules affecting future listing candidates)

The following rules have been amended regarding new listing applicants: -

3-year profit requirement to be waived for firms with a market capitalization of more than H:-|$4 billion and revenue of more than H:-|$500 million over the last 12 months (or H:-|$2 billion market capitalization and positive cash flow of at least H:-|$100 million in aggregate over the 3 preceding financial years);

the expected minimum market capitalization on listing to be increased from H:-|$100 million to H:-|$200 million;

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