Convertible Instruments In the “Guidance on Pre-IPO Investments in Convertible Instruments” (HKEx-GL44-12) HKEx provided further guidance on its current practice in dealing with convertible instruments issued to pre-IPO investors. Such convertible instruments include, among others, convertible or exchangeable bonds, notes or loans and convertible preference shares. The conversion price for the convertible instruments should be at a fixed dollar amount or at the IPO price, but not be based on a guaranteed discount to the IPO price or market capitalization of the applicant (which would create two different prices for the same class of securities). Any conversion price reset mechanism should be removed prior to listing. Where partial conversion is to take place, if there is any special right attached to such convertible instruments which are not allowed post-listing (as discussed above), such special right is to be terminated. Certain convertible instrument may allow its holders to redeem early the outstanding instruments at a price whish would enable the holders to receive a fixed internal rate of return on the principal amount of the instruments being redeemed. Such internal rate of return is considered as compensation for the investment and risk undertaken by the instrument holders and is allowed. The convertible instruments and related information should be disclosed in the prospectus, setting out the impact of such convertible instruments on the applicants, including if the applicant was called upon to redeem the instruments before the maturity date. Further, additional information should be disclosed in the applicant’s interim and annual report to enable investors to be aware of the dilution impact on the applicant’s shares in the event that all outstanding convertible instruments were converted as at the relevant year end or period end.
Posted on: Sat, 10 Jan 2015 04:20:55 +0000
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