HONG KONG: SFC revises Practice Note 1 on partial offers

Tuesday January 3 2017

The Securities and Futures Commission of Hong Kong (SFC) has revised Practice Note 1 (PN1) on partial offers to provide that offers which are subject to the Takeovers Code should be made by the common pool method, as opposed to the share register method.

Under the share register method, an offer is made for a specific proportion of each shareholder’s shares that are registered in his name on the record date. An accepting shareholder is thereby assured that a minimum number of the shares held by him on the record date will be accepted by the offeror if the offer becomes unconditional. However, if an accepting shareholder holds his shares through a nominee (commonly a stockbroker who is also a Central Clearing and Settlement System participant), he may benefit from his shares being aggregated with a non-accepting shareholder who also holds shares through the same nominee.

For example, in a successful 40% partial offer:

A holds 100 shares registered in his own name and wishes to accept the partial offer in full. A has an assured entitlement of 40 shares. B and C each hold 100 shares registered in the name of a nominee. B informs the nominee that it wishes to accept the partial offer in full, while C does not wish to participate. The nominee accepts the offer as the registered shareholder and would have an assured entitlement of 80 shares, ie, 40% of the aggregate of the 200 shares registered under its name. B would therefore have 80 of its shares accepted by the offeror.

The same concern does not arise with the common pool method where the number of shares taken up by the offeror from each shareholder is determined by the total number of shares tendered for acceptance (the pool). As such, the proportion of shares taken up from each accepting shareholder will be the same irrespective of whether such shares are being held directly or via a nominee.

For a marked up version of the revised PN1, please click the link at the top of the page.