Equity Fundraising in Hong Kong: Rights Issues, Placements, and Open Offers for Listed Companies

Introduction

For companies listed on the Hong Kong Stock Exchange (HKEX), raising additional equity capital is a common and important activity — whether to fund acquisitions, support organic growth, strengthen the balance sheet, or refinance existing debt. Hong Kong listed companies have a range of equity fundraising mechanisms available to them under the HKEX Main Board Listing Rules (Listing Rules), each with its own procedural requirements, pricing constraints, and shareholder approval thresholds.

This guide provides an overview of the principal equity fundraising mechanisms available to Hong Kong-listed companies, the key requirements under the Listing Rules, and the practical considerations for boards and shareholders.

The Mandate Framework

Many equity fundraising transactions by listed companies in Hong Kong are conducted pursuant to a mandate from shareholders. The two principal types of mandate are:

General Mandate

A general mandate is a standing authority granted by shareholders at the company's annual general meeting (AGM) allowing the directors to issue new shares (or grant options over new shares) up to a specified percentage of the company's issued share capital without seeking further shareholder approval. Under the Listing Rules, the maximum size of a general mandate is 20% of the company's issued share capital as at the date of the relevant AGM resolution (or as at the date of the issue, whichever is lower).

A general mandate lapses at the conclusion of the company's next AGM (or the date notified in the relevant resolution, if earlier). It is therefore renewed annually at each AGM.

Placings of shares at a discount to market price of more than 20% cannot be done under a general mandate — they require specific shareholder approval.

Specific Mandate

A specific mandate is a shareholder authorisation for a particular issue of shares, granted by way of an extraordinary general meeting (EGM) or written resolution. A specific mandate is required where the proposed issue falls outside the scope of the general mandate (for example, where the volume exceeds the 20% general mandate cap, or where the structure of the transaction requires specific shareholder approval under the Listing Rules).

Placing and Top-Up Placing

A placing is a direct offering of new shares by the company to a limited number of institutional or sophisticated investors, without offering shares to existing shareholders. Placings are typically the fastest method of raising equity capital for a listed company, as they avoid the time-consuming documentation and underwriting process associated with a rights issue or open offer.

A top-up placing is a specific structure in which an existing substantial shareholder agrees to sell a portion of their shares to institutional investors (the placing), and then subscribes for new shares from the company at the same price as the placing (the top-up subscription). This structure allows the company to raise capital quickly while the substantial shareholder maintains their percentage shareholding. The top-up subscription (the issuance of new shares to the existing shareholder) must be authorised under a mandate or approved by shareholders.

Key requirements for placings under the Listing Rules include:

• The placing price must not represent a discount of more than 20% to the benchmarked price (calculated as the higher of (i) the closing price on the date of the placing agreement and (ii) the average closing price over the five preceding trading days), unless the discount is approved by independent shareholders
• The placee cannot be an existing substantial shareholder or a person acting in concert with such a shareholder, unless the placing is approved by independent shareholders
• The company must make an announcement immediately upon execution of the placing agreement

Rights Issues

A rights issue is an offer of new shares to all existing shareholders on a pro rata basis (i.e., in proportion to their existing shareholding), at a price that is typically at a discount to the prevailing market price. Rights issues preserve the proportionate ownership of existing shareholders who subscribe for their rights entitlement.

Rights issues are a more complex and time-consuming fundraising structure than placings, but they are often preferred for larger capital raises as they avoid the dilutive effect on existing shareholders who choose to participate.

Key features of a rights issue include:

• All qualifying shareholders must be offered their pro rata entitlement
• Shareholders who do not wish to subscribe for their rights may, in some cases, sell their rights to other investors in the market (nil-paid rights trading)
• The issue must be underwritten or the company must have alternative backstop arrangements to ensure the fundraising objective is achieved
• A prospectus (or listing document) must be prepared in accordance with the Listing Rules and applicable law
• The minimum subscription price must comply with Listing Rule requirements (including in relation to the par value of the shares)
• Rights issues diluting existing shareholders by more than 50% within any 12-month period require prior approval by independent shareholders

Open Offers

An open offer is similar in structure to a rights issue in that it is offered to all existing shareholders on a pro rata basis. However, unlike a rights issue, the open offer entitlement is not renounceable — shareholders cannot sell their entitlement to third parties. This makes open offers simpler and less costly to execute than rights issues.

Open offers have the same shareholder approval requirements as rights issues where the dilution threshold is exceeded.

Bonus Issues (Scrip Dividends)

A company may also choose to issue bonus shares (also known as capitalisation issues or scrip dividends) to shareholders as an alternative to paying a cash dividend. Bonus issues do not raise new cash for the company but can be used to conserve cash while rewarding shareholders.

Key Shareholder Approval Requirements

The Listing Rules impose a number of shareholder approval requirements in connection with equity fundraisings, including:

• Specific mandate requirement: Where the fundraising falls outside the general mandate (e.g., because the volume exceeds 20% of issued share capital, or the discount exceeds 20%)
• Major or very substantial transactions: Where the fundraising is linked to a major or very substantial acquisition, the acquisition may require shareholder approval as a notifiable transaction
• Connected transactions: Where shares are issued to a connected person (such as a substantial shareholder, director, or their associates), the issuance is a connected transaction and requires independent shareholder approval
• Whitewash waiver: Where a fundraising would trigger the mandatory general offer obligation under the Codes on Takeovers and Mergers and Share Buy-backs, a whitewash waiver from the Securities and Futures Commission (SFC) may be required, together with independent shareholder approval

Pricing Considerations

The pricing of a fundraising is one of the most commercially sensitive aspects of the process. Key considerations include:

• The discount to market price that the market will accept without interpreting it as a signal of distress
• The need to ensure that the issue price does not fall below the par value of the shares
• The Listing Rule restrictions on discounts of more than 20% to the benchmarked price without independent shareholder approval
• The potential for market impact from the announcement of a large fundraising

How Alan Wong LLP Can Help

Alan Wong LLP advises listed companies, investment banks, and investors on equity fundraising transactions in Hong Kong. Our services include:

• Advising on the appropriate fundraising structure and mandate requirements
• Reviewing and advising on placing agreements, underwriting agreements, and subscription agreements
• Advising on Listing Rule compliance, including notification, disclosure, and shareholder approval requirements
• Advising on connected transaction and notifiable transaction implications
• Advising on whitewash waiver applications where applicable
• Preparing or reviewing listing documents, circulars, and other required documentation

Conclusion

Equity fundraising by Hong Kong-listed companies is governed by a detailed and prescriptive framework under the HKEX Listing Rules. The choice of fundraising mechanism — placing, top-up placing, rights issue, or open offer — depends on factors including the amount to be raised, the desired speed of execution, the importance of preserving shareholder proportionality, and the regulatory constraints applicable to the transaction. Specialist legal advice is essential to ensure that the fundraising is structured and executed in full compliance with the Listing Rules and any other applicable requirements.

This article is for general information purposes only and does not constitute legal advice. For advice on equity fundraising or listed company matters, please contact Alan Wong LLP.