In an effort to increase market liquidity and ease issuer share repurchases, Hong Kong Exchanges and Clearing (HKEX) has proposed amendments to its Listing Rules concerning Treasury Shares. The proposed changes, outlined in a recent consultation paper, aim to abolish the automatic share cancellation rule and establish a framework for the resale of treasury shares.
Currently, 92% of HKEX-listed issuers from jurisdictions allowing treasury shares are unable to hold such shares due to automatic cancellation rules. The new amendments would permit these issuers, under their local company laws and constitutional documents, to hold repurchased shares "in treasury" for later resale. This could potentially lower their cost of capital.
However, the proposed changes exclude Hong Kong incorporated issuers due to the stipulations of the Hong Kong Companies Ordinance. The consultation paper also introduces a 30-day moratorium on reselling treasury shares post any share repurchase and proposes restrictions on reselling treasury shares on the Exchange under certain conditions.
To address market manipulation concerns and insider dealing risks, the proposed framework mandates compliance with rules for new issuances (Rule 13.36), imposes a 30-day moratorium on resales post repurchases and vice versa, and applies dealing restrictions (Rule 10.06(2)(e)) for the resale of treasury shares on HKEX.
New listing applicants would not be required to cancel any treasury shares before listing under the proposals. They would need to disclose details of any treasury shares in their prospectus. Rule 10.08, which restricts new share issues by newly listed companies for six months post listing, would extend to treasury share resales.
The proposed rule amendments also cover voting abstention, limit calculation, and disclosure obligations concerning treasury shares. To prepare for these potential changes, issuers are advised to review their constitutional documents for any restrictions on holding or reselling treasury shares.
Stakeholders have been invited to comment on the paper until 27 December 2023, allowing for a broad discussion on the proposed changes and their potential impact on the market.
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