OREANDA-NEWS. The Stock Exchange of Hong Kong Limited (the Exchange), a wholly owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), today (Monday) issued a guidance letter on its application of the cash company provisions of its Listing Rules (Rules) to large scale fundraisings.

Recently there has been an increase in listed issuers proposing large scale fundraisings that involve investors injecting substantial amounts of cash into the issuers.  The investors would take control of the issuers and invest the cash into new businesses.  The original businesses of the issuers would be marginalised.  This is a new trend following the tightening of the reverse takeover provisions of the Rules.

"We review our rules and practices from time to time to ensure that they have addressed developments in the market," said David Graham, HKEx's Chief Regulatory Officer and Head of Listing. "The guidance letter reflects the Exchange's approach in applying the cash company part of the Listing Rules to fundraising activities, which has been endorsed by the Listing Committee."

Under the Rules, a cash company - a company whose assets consist wholly or substantially of cash - is not suitable for listing.  There is no prescribed quantitative threshold in the Rules for defining a cash company.  When making the assessment, the Exchange considers not only the issuer's cash level, but also the background facts and circumstances of the issuer's business, operations and financial position.  Once an issuer is considered to be a cash company, its application for resumption of trading would be treated as if it were a new listing application.

"The purpose of the Listing Rules on cash companies is to enable the Exchange to maintain market quality and avoid speculative trading in the securities of cash companies.  They have the effect of preventing listed issuers which become cash companies from starting new businesses that are not suitable for listing, Mr Graham added.