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The Stock Exchange of Hong Kong Limited (the “Exchange”) recently noted increases in listed companies conducting bonus issues with a large distribution ratio, and significant price and volume fluctuations in the trading of their shares during the time interval between the ex-entitlement date for a bonus issue and the date of allotment of the bonus shares (the “ex-entitlement period”). In view of this, on 27 April 2016, the Exchange published a new guidance letter (HKEX-GL-88-16) providing guidance on its approach in handling bonus issues of shares by listed companies.
According to the guidance letter, the Exchange may not grant listing approval for large-scale bonus issues where there is a reasonable likelihood of disorderly trading during the ex-entitlement period. Generally, the Exchange is likely to raise concerns about the operation of an orderly market when a company proposes a bonus issue of 200% or more of its existing issued shares. It should also be noted that the Exchange may raise the same concern after considering the relevant facts and circumstances of a proposed bonus issue of a smaller scale.
Listed companies should take note of the following key points when planning their bonus issues:
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