Reverse takeovers in Hong Kong
Charltons has deep experience of Hong Kong reverse takeovers under the Hong Kong Listing Rules. We can advise and assist clients on structuring transactions and consult the Hong Kong Stock Exchange where appropriate for guidance as to whether a particular transaction will be treated as a reverse takeover or subject to any enhanced disclosure standard or other conditions.
A Hong Kong reverse takeovers transaction invariably gives rise to complicated legal and regulatory issues, often involving a new listing application, a very substantial acquisition and connected transactions under the Hong Kong Listing Rules, as well as whitewash waiver applications to the SFC under the Takeovers Code. Our multidisciplinary lawyers have wide experience across M&A, IPOs, capital markets, corporate finance and compliance, as well as in dealing with the SFC, the Hong Kong Stock Exchange and other regulatory and governmental bodies in Hong Kong. Julia Charlton, our senior partner, is a member of the Listing Committee of the Hong Kong Stock Exchange and serves on the SFC’s Takeovers Panel and Takeovers Appeals Panel. This experience gives us crucial insights into the complexities of reverse takeovers under the Hong Kong Listing Rules, as well as an understanding of how regulators in Hong Kong operate. We provide an insightful and highly personalised service to clients, delivering legal advice on complex issues in plain language.
Where the Hong Kong Stock Exchange treats a listed issuer proposing a reverse takeover as if it were a new listing applicant, Charltons can also draw on its long experience of bringing companies to the Hong Kong market and guiding applicants the complex qualifications for listing on the Main Board and GEM, in order to provide high impact advice to clients.
What is a reverse takeover?
Hong Kong reverse takeovers are broadly defined as an acquisition (or series of acquisitions) of assets by a listed issuer which in the opinion of The Stock Exchange of Hong Kong Limited (“HKSE”), attempts to achieve a listing of the acquired assets while circumventing the requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Hong Kong Listing Rules”) for a new listing applicant. Often Hong Kong reverse takeovers involve a change of control of the listed issuer (and therefore the application of provisions of the Hong Kong Code on Takeovers and Mergers) but this is not a prerequisite. If a proposed transaction is considered by the Exchange to constitute a reverse takeover, then the HKSE would treat the listed issuer proposing the transaction as a new listing applicant and require, inter alia, that:
- the enlarged group of the listed issuer (including the assets to be acquired) be able to meet the financial criteria for a new listing as well as other basic listing conditions;
- the transaction be treated as a very substantial transaction and subject to the requirements of Chapter 14 of the Hong Kong Listing Rules including, inter alia, the issuance of a listing document and shareholders’ approval at general meeting; and
- an initial listing fee to be paid
The HKSE will consider a number of factors in determining whether a proposed transaction constitutes a reverse takeover, including, inter alia:
- the size of the acquisition relative to the size of the issuer
- the quality of the acquired business – i.e. whether it can meet the trading record requirements for a new listing
- the size and type of business that the issuer was engaged in prior to the acquisition – e.g. whether it was merely a listed shell
- any fundamental alteration to the issuer’s principal business