New HKEx Guidance on Cash Company Rules Targets Backdoor Listings

Julia CharltonPartner, Charltons

HKEx Targets Backdoor Listings in Application of Cash Company Rules to Large Scale Fundraisings

Background

The Stock Exchange of Hong Kong Limited (the Exchange) has published Guidance Letter 84-15 on the application of the Listing Rules’ cash company provisions to large scale fundraisings.

The move follows an upsurge in the number of large scale fundraisings proposed by listed companies in the wake of a stricter reverse takeover regime under the Listing Rules. In many cases, the proposed fundraisings involved the injection of substantial amounts of cash into listed companies by investors who would acquire control of the companies. The cash raised in the fundraisings would then be invested into new businesses and the companies’ original businesses would be marginalised. The Exchange’s concern is that, in some cases, these activities constitute attempted backdoor listings of new businesses which do not meet the requirements for a new listing, for example because they lack the requisite track record. The investor’s equity subscription is essentially a means to acquire a listed company. The Listing Rules’ reverse takeover provisions do not apply because there is no asset acquisition by the listed company.  Read more


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