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Legal Update

25 Percent Public Float is Required to Resume Trading

30 January 2012
Mayer Brown JSM Legal Update

Quick Read

Hong Kong Exchanges and Clearing Limited ("HKEx") published its listing decision "HKEx-LD23-2011" on 30 December 2011 in which it decided that the listed issuer ("Listco") was required to restore its public float to at least 25 percent before it could resume trading of its shares.

Relevant Listing Rules

Rule 8.08(1) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Listing Rules") requires that there must be an open market in the securities for which listing is sought and it normally means that at least 25 percent of the issuer's total issued share capital must at all times be held by the public.

Rule 13.32 of the Listing Rules states that if the percentage falls below the minimum, HKEx reserves the right to require suspension of trading in an issuer’s securities until appropriate steps have been taken to restore the minimum percentage of securities in public hands. HKEx will normally require suspension of trading in an issuer’s securities where the percentage of its public float falls below 15 percent.

Background

Company A was a controlling shareholder of Listco. It made a general offer for the shares of Listco under the Code on Takeovers and Mergers. When the offer was closed, only 13 percent of Listco’s shares were held by the public. Accordingly, there was a lack of open market for the shares and trading of Listco's shares was suspended.

Listco noted from the Listing Rules that HKEx would normally require suspension of trading in an issuer’s securities when its public float falls below 15 percent. It made an enquiry to ask whether trading in its shares could resume when it had restored the public float to 15 percent.

Decision

The Listing Rules provide guidance that HKEx will normally consider a public float of less than 15 percent is too small to maintain an orderly market and will require a suspension of trading in this case. This does not mean that it will accept a public float of 15 percent for resumption of trading.

HKEx decided that Listco was required to restore its public float to at least 25 percent before it could resume trading.

You can download copies of the listing decision via the link below:

http://www.hkex.com.hk/eng/rulesreg/listrules/listdec/Documents/ld23-2011.pdf

For inquiries related to this Legal Update, please contact Jeckle Chiu, , or your usual contacts with our firm.

Learn more about our Hong Kong office and Corporate & Securities practice.

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