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Hong Kong Consults On Extending Takeover Code To REITS,
by Mary Swire, LawAndTax-News.com, Hong Kong
Tuesday, January 12, 2010
Hong Kong’s Securities and Futures Commission (SFC) has launched a
consultation to solicit public comments on extending the existing corporate
codes on takeovers and mergers, and share repurchases, to real estate investment
trusts (REITs).
The existing codes currently apply to Hong Kong public companies and companies
with a primary listing of their equity securities in Hong Kong. The codes do
not apply to REITs, which are legally constituted in the form of trusts.
The current rules of the REIT code provides that where a REIT undertakes any
form of merger, takeover, amalgamation and restructuring, the REIT’s trustee
and/or management company shall as soon as practicable consult with the SFC
on the manner in which such activities could be carried out so that it is fair
and equitable to all unit-holders. The REIT code does not otherwise contain
any detailed regulatory framework for conducting such activities.
At the time the REIT code was issued in 2003, experience from overseas REIT
markets indicated that there would not be active takeover and merger activities.
However, since the launch of the first REIT in 2005, the SFC has seen increased
corporate activities amongst REITs, including asset acquisitions and on-market
unit repurchases conducted by their management companies on their behalf.
The SFC has therefore said that it now believes, given the development of REIT
markets in Hong Kong and other parts of Asia, and rising occurrences of mergers
and acquisitions of REITs, it is an appropriate time to review the regulatory
regime governing takeovers and mergers of REITs, with a view to providing better
protection for minority unit-holders.
It believes that takeovers and mergers of REITs should be governed by the regime
under the codes as that would be the most appropriate framework to govern takeovers
and mergers of REITs. REITs are organized as unit trusts, but the typical structure
of a REIT, unlike traditional collective investment schemes (CIS), is more akin
to listed companies.
All SFC-authorized REITs are listed and traded on the Stock Exchange of Hong
Kong, and, from an investor’s perspective, a REIT and a listed property
company are in substance very similar to each other economically and in terms
of the basic rights and interests attached to units in a REIT and shares in
a listed company, despite their different legal form and structure.
The SFC believes that, once the takeovers and mergers codes are applicable
to REITs, the protection and safeguards under the codes, such as transparency
and sufficiency in information furnished and prompt and full disclosure of information
to market, will be available to ensure that minority unit-holders would be treated
even-handedly in a takeover situation.
"We believe the proposals represent a step forward in defining a regulatory
infrastructure that better protects the interest of investors and assists the
further development of Hong Kong's REIT market," the SFC's Chief Executive
Officer, Martin Wheatley, said.
At the same time, views are also being sought on applying certain provisions
in the Securities and Futures Ordinance to listed CIS so as to clarify and enhance
the regulation of market conduct regarding dealings in them, by applying to
them the parts of the Ordinance that deal with market misconduct and disclosure
of interest requirements for listed companies.
Comments from interested parties should reach SFC by March 8. After the consultation
period, SFC has said that it will analyze the comments received and aim to adopt
a balanced and pragmatic approach for the purposes of enhancing investor protection
and assisting the further development and growth of the Hong Kong REIT market.
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