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HKEx: Application Of The GEM Listing Rules In The Categorisation Of Notifiable Transactions - limited

Date 13/06/2002

Growth Enterprise Market Listing Rules (the GEM Listing Rules)

In order to provide shareholders an opportunity to be informed of, or to participate in, major corporate decisions, the GEM Listing Rules require disclosure by way of announcement and/or shareholders' approval of transactions proposed by GEM issuers, depending on the size of these transactions. These size tests are found in Chapter 19 of the GEM Listing Rules, and involve calculations with reference to the net tangible assets position of the GEM issuers. If a GEM issuer has negative net tangible assets value, these tests would make it difficult for a GEM issuer to continue its day-to-day operations. For example, all acquisitions of a GEM issuer would constitute a very substantial acquisition.

Chapter 19 also provides relief in circumstances where the size tests may not reflect the true position of the GEM issuer. In particular, where the GEM issuer has substantial intangible assets, The Stock Exchange of Hong Kong (the Exchange) may allow a GEM issuer to take into account its intangible assets for the purposes of the size tests pursuant to Rule 19.18.

The Exchange recognises that there are limitations to the size tests, and has proposed alternative methods to these tests in its Consultation Paper on Proposed Amendments to the Listing Rules relating to Corporate Governance Issues published in January 2002. The Exchange is currently collating the results of the market consultation which ended on 24 May 2002. limited

The company is currently in a negative net tangible asset position. The company applied to the Exchange on 12 April 2002 pursuant to the relief under Rule 19.18 to add back its intangible assets value in calculating the size of its proposed transactions. The application has been allowed after due consideration by the Exchange. Additional conditions have also been imposed by the Exchange on the thresholds applicable in categorising the transactions. [Please refer to the company's announcement dated 13 June 2002 for details.]

In allowing the application, the Exchange recognises that the current GEM Listing Rules already contain provisions to address these types of situations faced by GEM issuers. The application of Rule 19.18 is intended to strike a balance between allowing the company flexibility to carry on its business activities and investor protection. The Exchange has imposed additional conditions on the company to ensure that the market is provided with sufficient information to appraise the company's position, and in certain circumstances, that its public shareholders may participate in the decision through shareholders' approval. In allowing this application, the Exchange has also taken into consideration the nature of the company's business, and that a comparison of its proposed transactions based on net tangible asset value may not give an appropriate assessment of the value of the businesses acquired or disposed, or represent an accurate reflection of the importance of these transactions to the company. This application has been allowed after consultation with the Securities and Futures Commission (SFC). While future similar applications by other issuers will be considered on a case-by-case basis and based on the merits of each case, the Exchange will ensure Rule 19.18 will be applied fairly and appropriately to other applicants.

The application of Rule 19.18 for the company will expire upon the earlier of i) amendments to the GEM Listing Rules in this area; or ii) until the publication of its next annual report. The Exchange recognises that this is strictly an interim measure, pending our review of the GEM Listing Rules in this area following the market consultation.


GEM issuers are governed by the GEM Listing Rules, which provide for the Exchange to exercise discretion in certain areas, taking into consideration the specific circumstances of the GEM issuer. This information has been released in the interest of transparency to the market in the interpretation of the GEM Listing Rules.

The Exchange has approved an application by limited to add its intangible assets to its total assets when calculating the size of transactions the company may enter.

Currently, the company is in a negative net tangible asset position and would find it difficult to continue its day-to-day operations without shareholder approval as in the circumstances, any transaction would be a substantial one.

The application of limited was made in accordance with the GEM Listing Rules and the Exchange has allowed this after consultation with the SFC.