HKEX proposes doubling major transaction threshold to 50% without shareholder vote

Hong Kong Exchanges and Clearing published a consultation paper on September 21 as part of the second phase of its review of the competitiveness of the listing regime, proposing to raise the threshold for defining a major transaction from 25% to 50%. Transactions with any percentage ratio of 25% or more but below 50% would be reclassified as discloseable transactions, with enhanced announcements replacing the current requirements for circulars and shareholder approval. The 10-week consultation will close on November 30. 21st Century Economic Journal

The proposed new threshold would not apply to transactions involving the provision of financial assistance, securities or other investment activities. The threshold for major transactions in these areas would remain at 25%. HKEX said such transactions were inherently more risky and had more often attracted regulatory attention in the past, including because they could be used to facilitate shell-company activities or inappropriate deployment of capital. HKEX Listing Division head Rebecca Hu said the reforms were intended to give issuers greater flexibility and certainty when conducting corporate transactions, while maintaining investor protection through timely disclosure and board accountability. HK01

The consultation paper said listed issuers announced 2,266 and 2,133 discloseable transactions in 2024 and 2025 respectively. Of these, 419 and 366 were major transactions or transactions of a higher classification, accounting for about 17% to 18% of the total. Almost all of these transactions received shareholder approval. 21st Century Economic Journal

Fewer shareholder votes, more disclosure

Under the proposal, shareholders would have no vote on transactions between 25% and 50%, shifting the focus of protection to the content of announcements and board accountability. Issuers would be required to disclose the key terms and conditions of a transaction, the basis of the consideration and valuation details, key financial information on the assets acquired or disposed of, and the transaction's impact on the issuer. Further disclosure would also be required if the completion date were extended, payment arrangements changed, non-fixed consideration finalised, or the transaction completed. For transactions that still qualified as major transactions, HKEX proposed simplifying some financial information requirements while adding disclosure of risk factors. The categories of "very substantial disposals" and "very substantial acquisitions" would also be removed. 21st Century Economic Journal

In addition, acquisitions or leases of assets made in the ordinary course of business that constitute major transactions could be exempted from the circular and shareholder approval requirements if the assets are, or will be, used in the issuer's existing principal business and the board confirms that the transaction is fair and reasonable. 21st Century Economic Journal

The thresholds are calculated using four percentage ratios covering assets, revenue, consideration and equity capital. A transaction is subject to regulation if any one of the ratios reaches the applicable threshold. For example, based on the assets ratio, a company with total assets of HK$1 billion could currently require shareholder approval for a transaction involving assets worth more than HK$250 million. Under the proposal, that threshold would rise to HK$500 million.

Profit ratio proposed for removal

HKEX proposed removing the profit ratio, which it said was the test most likely to produce anomalous results. It also proposed allowing issuers, when calculating the consideration ratio, to compare the transaction consideration with the higher of the issuer's market capitalisation or net asset value. With the removal of the profit ratio, the number of tests used to measure transaction size would fall from five to four. Tencent News

Connected transactions: shareholding threshold proposed to rise from 10% to 30%

Under the definition of a "connected subsidiary", HKEX proposed raising from 10% to 30% the threshold for voting rights that a connected person may exercise or control. The annual cap for continuing connected transactions could also be set as a percentage of revenue or another financial item, rather than only as a fixed amount. HKEX also proposed removing connected transaction requirements that apply only to issuers incorporated in mainland China. Tencent News

Spin-offs: moratorium proposed to be cut to one year, with eligible cases exempt from prior approval

The moratorium requiring a parent company to wait three years after listing before applying for a spin-off would be shortened to one year. Issuers with a secondary listing and qualifying issuers with a dual primary listing would be exempt.

HKEX also proposed introducing a self-assessment route. Prior approval would not be required if the parent company met the principles and requirements set out in the relevant guidance letter, and, when the spin-off company submitted its new listing application, the parent had a market capitalisation of at least HK$10 billion and principal-business revenue of at least HK$1 billion, while the remaining group's revenue and total assets each accounted for more than 50% of the issuer group. The requirement for all spin-offs to provide "assured entitlements" — arrangements giving the parent company's shareholders priority access to shares in the spin-off company — would also be removed. 21st Century Economic Journal

Next steps

The proposals remain at the consultation stage. After considering market feedback, HKEX will publish its consultation conclusions. If adopted, the amended rules are expected to take effect shortly after the conclusions are released. This is the second phase of the review of the competitiveness of the listing regime. The first phase, which focused mainly on pre-listing requirements, concluded with the publication of its consultation conclusions in July this year. 21st Century Economic Journal