Corporate Action Guidelines Presentation for Listing Rules Seminar 2009

1. Corporate Action Guidelines Presentation for Listing Rules Seminar 2009 Iris Leung Listing Operations Hong Kong Exchanges & Clearing Limited

2. Agenda • Background • Guide on Book Closure • Guide on Trading Arrangement

3. Background What are corporate actions? • Corporate actions (CA) are events initiated by a listed company that affects the rights attaching to the company’s issued shares. • Some events are simple, mandatory and no action is required from shareholders (e.g. cash dividend) while others are more complex, optional and a response from shareholders is required (e.g. rights issue, privatisation).

4. Background What are corporate actions? • Purpose of a corporate action can be: • Distribute income (e.g. cash or stock dividend, bonus issue) • Raise capital (e.g. rights issue, open offer) • Restructure issued capital (e.g. share subdivision/consolidation, warrant exercise) • Reorganise the company (e.g. spin-off, takeover and privatisation)

5. Background Why CA disclosure so important? • A corporate action may affect how the securities are traded in the secondary market and may trigger operational tasks to: • the stock exchange (e.g. adjusting previous day closing price on ex-date or setting up temporary trading counter for NPR); • the clearing house / stock depository (e.g. setting calendar for entitlements, adjusting stock master file, collecting and distributing entitlements to account holders) • the brokerage firms / custodian banks / nominee companies (e.g. adjusting internal systems and taking appropriate actions to protect the interest of its customers’ stock portfolio and ensure funds flows in good order) • To protect shareholder interests and to ensure the orderly trading of the company’s shares in the secondary market, it is important for issuers to schedule the corporate actions properly and to disclose timely, accurate and adequate information about their corporate actions.

6. Background Consequences of inappropriate CA disclosure • Incomplete, unclear or delayed information about a corporate action will expose shareholders and the market to risks of market confusions, affecting the fair and orderly trading of the respective securities. • It may expose shareholders and market participants to a risk of financial loss due to their failures to take appropriate actions in the corporate event. • It will also reduce efficiency of market intermediaries (e.g. brokerage firms, custodian banks, institutional investors) in processing corporate actions and managing their investment portfolio.

7. Background Listing Rules and Corporate Actions • Listing Rules have high-level guidance on issuer disclosure and scheduling of corporate actions. • General obligation to inform the Exchange and announce to the market any changes in the rights attaching to any class of listed securities (MB Rule 13.51 (3) and GEM Rule 17.32 ) • A few requirements governing the timing or technical arrangements of corporate actions (e.g. MB Rule 13.66/GEM Rule 17.78 about 14-day notice period for book closure) • Letter to issuers (11 May 2007) on purpose of book closure and other deadlines for shareholder actions

8. Background HKEx’s action • To improve issuer disclosure and scheduling of corporate actions, Listing Division and relevant Departments of HKEx formed a working group last year to review and develop best practices on corporate actions. • The working group released its first two deliverables in November 2008, including:- • Guide on Disclosure of Record Date, Book Closure and Latest Time for Lodging Transfers of Shares (“Guide on Book Closure”) • Guide on Trading Arrangement for Selected Types of Corporate Actions (“Guide on Trading Arrangement”) • In 2009, the working group focuses on the development of another new issuer guide on entitlements.

9. Background The Issuer Guides on CA Disclosure • Do not form part of the Listing Rules • Do not in any way amend or vary an issuer’s obligations under the Listing Rules • Do not remove the need for issuers and their directors to make own judgement on their disclosure • In case of doubt, issuer should contact their Listing Officers

10. Guide on Book Closure Guide On Disclosure Of Record Date, Book Closure And Latest Time For Lodging Transfers Of Shares • Available at HKEx website (http://www.hkex.com.hk/listing/epp/E_bk_close.doc)

11. Guide on Book Closure Highlights • Purpose: • Offer guidance about closure of member register to identify shareholders who are entitled to a corporate action (e.g. attendance and voting at AGM or collection of dividends). • General principles: • Shareholders should be given sufficient time of notification to take part in the corporate action • There should be timely disclosure of all relevant information relating to the book closure to enable shareholders to easily interpret the implications of the corporate action on their holdings

12. Guide on Book Closure Highlights (continued) • What information the issuer should disclose? • Purposes, record date/book closure period/latest time for lodging transfers of securities • What if the book closure timing information is not ready for disclosure in the initial announcement? • Provide best estimates on the time such information will be available e.g. “The proposed distribution is subject to the consideration and approval at the Company’s 2008 Annual General Meeting. The period of closure of register of members for H shares would be set out in the separately published notice of AGM by the Company.” • Make supplementary disclosure when such information is ready and make reference to the initial announcement

13. Guide on Book Closure Highlights (continued) • What if the book closure timing information is altered after the initial announcement? • Inform the market as soon as possible and at least 6 calendar days before the closure by a distinct announcement (MB Rule 13.66 / GEM Rule 17.78) • Clearly state the old and new book closure timing • Refer to the initial announcement and the publication date • Ensure the new book closure timing still offer sufficient notification time to shareholders

14. Guide on Book Closure Highlights (continued) • How to properly schedule book closure arrangement? • Comply with the general principle of sufficient time of notification • Liaise with share registrar to ensure its readiness to cope with the expected volume of share transfers, If necessary • Special attention to scheduling if the issuer has already announced one or more yet-to-be-expired book closures for other purpose(s). • If there are still sufficient time of notification, pick the same book closure period of the previous corporate action • In all cases, the latest time for lodging share transfer of the new corporate action must not be within the book closure period of the previous corporate action • If new book closure period will effectively alter the book closure period of the previous corporate action (e.g. extension), it must issue a distinct announcement of altered book closure, make reference to the previous corporate action and clearly state the latest time for lodging transfers of securities for all these corporate actions

15. Guide on Book Closure Book closure period and stock trading • Under T+2 settlement system, stocks will trade ex-entitlement on the business day immediately before the last registration date. The date is so called “ex-date”. • The ex-date is the date on or after which the stock will be traded without the specific entitlement (e.g. dividend). • Ex-date is an important reference date to investors and all market players. Stock exchange, clearing house, stockbrokers, information vendors and custodian banks all have ex-dates maintained in their market systems. Any error of ex-dates will affect orderly trading of the stock. Book closure period . . . . . Day 1 Day 2 Day 3 Day 4 Ex-date Last registration date

16. Guide on Book Closure Example 1: Change of book closure dates Company A announced alteration of its declared book closure period less than 24 hours before the ex-date, leaving no time for stock exchange, clearing house and market intermediaries to adjust their systems. Consequence: To ensure an orderly market, the securities of Company A was suspended for trading on 13 July 20x1 to allow sufficient time for market operators to adjust their systems to reflect the new ex-date.

17. Guide on Book Closure Example 2: Clarity of book closure dates Company B announced a dividend payment and a bonus issue of shares. However its announcement about book closure dates was as below: “…In order to establish entitlements to the proposed final dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Hong Kong branch share registrar and transfer office… not later than 4:30pm on 25 May 2009.” Consequence: The market is not certain whether the book closure period will also apply to bonus issue of shares declared in the same announcement. The Company and its agent (share registrar) received queries from the Listing Division, HKSCC and others such as custodian banks. All these troubles can be saved if the announcement specified clearly that the book closure period applied to both final dividend and bonus shares.

18. Book closure for AGM and final dividend Guide on Book Closure Example 3: Overlapped book closure dates Company C announced a book closure period to establish entitlements to its final dividend. A few days later, it announced another book closure period to qualify attendance and voting at a EGM. The two book closure period, unfortunately, overlapped partially with each other. 20 April announcement 26 April announcement Book closure for EGM Consequence: Shareholders who are not aware of the EGM book closure may mistakenly set the latest time for lodging share transfers for AGM and final dividend as two days before the book closure period mentioned in 20 April announcement. However, in fact the register of members was closed on that date due to the book closure period for EGM. As a result, investors fail to register their rights for the entitlement to AGM and final dividend.

19. Guide on Book Closure Other issues

20. Guide on Trading Arrangement • Guide On Trading Arrangements For Selected Types Of Corporate Actions • Available at HKEx website (http://www.hkex.com.hk/listing/epp/D_TA.doc )

21. Guide on Trading Arrangement Highlights • Purpose: • Outlines key issues and best practices in relation to schedule setting, provision of information and trading arrangements for five selected type of corporate actions: • Rights issue • Open offer • Share consolidation / subdivision • Change of board lot • Change of company name or addition of Chinese name

22. Guide on Trading Arrangement Highlights (continued) • For each type of corporate action, the Guide outlines • Information to be disclosed • Any requirements to be conformed to in scheduling the corporate action timetable e.g. 14-day offer period, trading period of Nil-paid rights should not be less than 5 business days. • Trading arrangements/logistics in relation to the securities under the corporate action • Detailed arrangements/logistics of the corporate actions the shareholders (either holding shares directly or via nominee) should know in order to exercise their rights

23. Guide on Trading Arrangement • The Guide also provides a sample timetable and a checklist for technical and operational matters for each type of corporate action Reference checklist Sample timetable

24. Guide on Trading Arrangement Issues • “Public holiday” errors in scheduling the timetable • Rights issues/open offers • Not provide the calculation method for rights issue/open offer entitlement. • Not mention whether nominee company (i.e. HKSCC Nominee) will be treated as a single shareholder in the allocation of excess application for rights issues / open offer • Wrong commencement date of dealing of nil paid rights shares • Wrong number of days between last day for splitting and last day for acceptance of and payment for the rights/offer shares • Share consolidations / subdivisions • Wrong board lot size of temporary counter for trading of old shares • Wrong date for the re-opening of the original counter for trading of new shares / start of parallel trading • Longer / shorter period for the parallel trading

25. Thank you !