Hong Kong Will Reduce Full Takeover Trigger From 35% To 30%

by Mary Swire, Tax-News.com, Hong Kong

12 April 2001

Hong Kong's Securities and Futures Commission, the stock-market regulator, is proposing to lower the full takeover trigger point from 35% to 30% in order to bring the Hong Kong market into line with other major markets, and to improve investor protection.

The proposal is contained in a consultation paper issued by the SFC this week. The Commission says that this the first thorough review given to the SAR's Takeover Code since 1989-91, although a number of minor changes have been made since then.

Hong Kong and South Africa are the only major markets with a trigger point at 35%, although Malaysia has one at 33%. Singapore has a trigger at 25% but is planning to increase it to 30%. The higher the trigger point, the easier it is for a predator to gain effective control of another company without having to buy all its shares, thus disadvantaging minority investors.

There will be grandfathering provisions for companies that already hold between 30% and 35% of other companies and for companies affected by a proposed reduction in the annual 'creeper' from 5% to 2%. Major shareholders who presently hold between 30 and 34.9 per cent of a company will be protected by the grandfather rule for 10 years - they will be allowed to take their stake up to 35 per cent without having to make a general offer.

However, if their shareholding fell below 30 per cent within the 10 years, they would lose the protection of the grandfather clause.

Among a number of other proposed changes are revisions to the regime for compulsory acquisition of remaining shares once the 90% level of control has been reached. In future, 75 per cent of independent shareholders must vote for and less than 10 per cent of independent shareholders vote against the plan. Presently, approval is required from 90 per cent (in terms of value) of shareholders present while disapproving shareholders cannot exceed 2.5 per cent of total shares.

Consultation will be open until the end of May, and the SFC hopes the new rules will be implemented on 1st January 2002.

Click here to see the full consultation text available in tax-news Resources.

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