H.K. proposes lowering takeover trigger to 30%

Asian Economic News, April 16, 2001

HONG KONG, April 10 Kyodo

The Securities and Futures Commission of Hong Kong (SFC) proposed Tuesday lowering the trigger of listed company takeover to 30% from the existing 35%.

''The proposed change in the trigger will bring Hong Kong more in line with the mainland (China) and other international markets,'' the territory's stock exchange watchdog said in a statement.

Hong Kong's trigger -- the threshold of control of a company that triggers a mandatory offer for an acquiring shareholder -- has stayed at 35% since 1981.

The SFC said there have been views in the market that consider 30% as a ''more realistic'' level at which effective control of a firm passes.

The commission cited that Britain and China have adopted the 30% trigger since 1974 and 1998 respectively, while Singapore's threshold is 25% and Malaysia's is 33%.

Proposing the change in a consultation paper, the SFC said it aims to have the suggested amendment in force on Jan. 1 next year.

Still, a public consultation on the matter and other proposed revisions to the ''Codes on Takeovers and Mergers and Share Repurchases'' was kicked off Tuesday and will last until May 31.

The SFC suggested that investors who hold between 30% and 34.9% of a company before the implementation of the change should only abide by the existing 35% trigger so long as they stay within this band.

But these shareholders will be required to register their interests with the SFC.

Such grandfathering provision is proposed to be in place indefinitely, subject to continuous review, or alternatively, to apply only for 10 years and after which all shareholders will be subject to the same 30% trigger.

Meanwhile, the SFC also suggested reducing the level that a controlling shareholder may increase shareholding without triggering a mandatory offer to 2% in a one-year period from the present 5%.

Other proposed revisions included relaxing the rules for privatization of a listed company by way of a scheme of arrangement.

The SFC put forward the new requirement of approval to 75% in value of the independent shareholders present and voting, or disapproval of no more than 10% of the total shares.

The present requirement of approval is 90% while disapproval is no more than 2.5%.