Privatization topic 1: what are the ways to privatize Hong Kong stocks?

Preface

The Hong Kong IPO market continues to be exciting in 2019. According to Hong Kong Exchanges and Clearing, 84 companies went public in the first half of 2019, raising HK $69.8 billion, ranking first in Asia.

However, "some people rush to the academic field at night, and some people resign and return to their hometown." At the moment when Science and Technology Innovation Board is in full swing, due to the significant valuation difference between Hong Kong shares and A shares, there are also a number of companies in the market planning to privatize and delist and return to A shares. As of September 17, 2019, six Hong Kong companies have been delisted due to privatization, while five other companies have announced their privatization plans.

Privatization mode

So how can listed companies in Hong Kong be privatized?

There are two main ways:Agreement arrangement和Tender offerIts meaning and main comparison are as follows.

Successful case analysis

1. Agreement arrangement

It took about 4 months for Huaxi Biological (formerly 0963.hk) │ to privatize │ in the Cayman Islands.

Huaxi Biotechnology Co., Ltd. ("Huaxi Biology") listed in Hong Kong in 2008, mainly engaged in research and development, production and sales of hyaluronic acid and other products. Its share price soared all the way to HK $26 in 2012 with its "run Baiyan" hyaluronic acid product, but then the weakness began to decline and fluctuate until it almost halved to about 15 yuan in 2017.

Huaxi Bio, which has been dissatisfied with the low valuation and low share price of Hong Kong shares, announced privatization by agreement on June 19, 2017, and voted at the court meeting and the special shareholders' meeting on October 16 of the same year, respectively, meeting the following three conditions:

At least 75% of the approved votes of the independent shareholders present at the meeting of ①

The number of votes voted against by ② shall not exceed 10% of the voting rights of all independent shareholders

Approval of at least 50% of the number of ③ attendees.

Huaxi completed its privatization and delisting on November 1, 2017. it took a total of 135 days and successfully approved Science and Technology Innovation Board's listing application on August 28, 2019. The valuation differences between the two places are as follows.

two。 Tender offer

It took about 3 months for Luo Xin Pharmaceutical (formerly 8058.HK) │ to privatize │ in mainland China.

In 2005, Luoxin Pharmaceutical, which had been established for nearly four years, was listed on the gem of Hong Kong stocks. Unlike the gem of A shares, the attention, trading volume and valuation of the gem of Hong Kong stocks are relatively low, so Luoxin Pharmaceutical began the journey of "turning board" shortly after it was listed. However, after two turnaround failures, Luo Xin Pharmaceutical chose to privatize and delist.

The delisting of H-share companies requires the holding of (a) special shareholders' meeting, (b) H-share class shareholders' meeting and (c) domestic capital stock class shareholders' meeting, which are approved by the independent shareholders participating in the three meetings respectively. Luo Xin Pharmaceutical Company applied for exemption from the offer of domestic capital shares by issuing a letter of commitment.

Privatization topic 2: the reasons for the failure of privatization of Hong Kong stocks?

Since 2013, a total of eight Hong Kong companies have failed to privatize.Two of these companies attacked again after a failure and eventually delisted successfully by changing the way they were privatized.

This issue will analyze the privatization cases of these two companies and talk about the reasons for the failure of privatization and the key to success.

01

New World China (formerly 0917.hk)

An important minority shareholder

New World China Land Limited ("New World China") is one of the listed companies of New World Development (0017.hk) and belongs to the Hong Kong tycoon Cheng family like Chow Tai Fook Jewellery (1929.hk).

Since 2011, Zheng Yutong, the head of Zheng, has been frequently deployed to succeed the family, including two privatizations in New World China. The main information is shown in the table below.

In the first agreed arrangement of privatizationAs New World China is registered in the Cayman Islands, in addition to complying with the requirements of the Hong Kong Takeovers Code, there is also a need to comply with the "head count" test of the Cayman Company Law, that is, more than half of the number of independent shareholders in favour of privatization.

According to the result of the court meeting vote of the announcement, the proportion of independent shareholders in favor of privatization99.84%By a landslide over the opposition0.16%However, dramatically, because the number of people in favour is223人Be defeated by the number of opponents458人On the contrary, the "disruptive" minority shareholders with a low proportion of shares won the victory, and the privatization of New World China failed.

Since then, reports have speculated that this is likely to be a "counterattack" of the change of rich and powerful families, and Zheng Jiachun, the son of Zheng Yutong, the then chairman of New World Development, also had to accept the result.

After nearly two years of silence, New World China proposed privatization again in 2016, in the form of a comprehensive tender offer.In other words, it is necessary to acquire at least 90% of the shares of independent shareholders and raise the privatisation price by about 15%.

This method avoids the "head count" test. In voting, it only requires an appointment person, New World Development, to hold a special general meeting of shareholders.All the shareholders of New World DevelopmentIt was approved, so there was no doubt that it was passed by 99.75% of the votes.On August 4, 2016, New World China officially delisted from the Hong Kong Stock Exchange, and the privatization war finally came to an end.

In the next case, two ways of privatization have been adopted successively, but the difference is that it is through "Agreement arrangement "In a way that won.

02

Taini International (formerly 1136.hk)

Uncooperative two shareholders

Taiwan mud international group co., Ltd. ("Taiwan mud international") is a Taiwan-funded enterprise, due to the restrictions of cross-strait investment policies, listed on the main board of Hong Kong stocks to invest in the mainland market in 1997.

Due to low valuations and low trading volume, Taiwan Mud International believes that financing needs cannot be met.The first privatization was brought up in 2013In the form of a comprehensive offer At that time, privatization failed because of opposition from Jiaxin cement, a Taiwan-listed company with a 15.84% stake in the company, the company's second largest shareholder.

After nearly three years of evolution, Jiaxin cement has changed from the second largest shareholder to only about 0.16%.

But with a lesson from the past, the second privatization in 2017Taiwan mud international chose a relatively low threshold and a more secure "agreement arrangement", that is, it is in favor of privatizing independent shares of more than 75% and opposing independent shares of no more than 10%.

On November 20, 2017, after about 200 days, TNI successfully delisted from the Hong Kong Stock Exchange with about 99% of the votes in favour of privatization.

Total knot

The reasons for the failure of privatization

Case 1:Minority shareholders object to the failure of the "head count" test

Case 2:If the shares are not purchased more than 90%, the second shareholder will not support it.

In the form of agreement arrangementThe independent shareholder vote is very important, and the "insignificant" minority shareholders will also become "important" and thus affect the overall situation.

In a comprehensive tender offerIf you want to reach 90% of the acquisition level, you need to have the full support of the major shareholders.

Setting the price of privatization scientifically and reasonably and fully communicating with shareholders to do a comprehensive preliminary work is the key to the success of privatization.