Suruhanjaya Sekuriti
Securities Commission
23 May 2002
CIRCULAR – Clarification of Certain Aspects of the Policies and Guidelines on Issue/Offer of Securities (“Issues Guidelines”)
1. Liberalisation of Requirements for Two-Call Rights Issues
1.1. Previously, in allowing two-call rights issues by listed companies, the SC had imposed the following conditions:-
(a) A two-call rights issue shall be undertaken only if the share price of the listed company is traded at around or below its par value, and that the company is in urgent need of funds to meet its immediate financial obligations;
(b) The listed company may capitalise up to the maximum of the share premium account based on its last audited accounts, for the purpose of paying up the second call. Companies wishing to capitalise from retained profits or distributable reserves for the second call should be those which are able to meet the SC’s requirements on bonus issue capitalisation; and
(c) The listed company is expected to apply a fair and reasonable discount visa-a-vis the current market price while fixing the cash price for the first call.
1.2 The SC will now allow two-call rights issues to be undertaken by all public listed companies (PLCs), regardless of their share prices or their financial standing.
1.3 In adition, PLCs are now allowed to –
(a) Use the entire balance of their retained profits or share premium account for the second call capitalisation; and
(b) Capitalise their revaluation reserves for purposes of the second call, with the same restrictions as for bonus issues arising from capitalisation of revaluation reserves (i.e. subject to the PLC retaining 20% of the new valuation amount if the revaluation surplus arose from the revaluation of land and buildings).
1.4 There is currently no restriction on pricing for normal rights issues. However, if the rights issue price is fixed at a larger than 30% discount from the theoretical ex-rights price based on the 5-day weighted average market price at the price-fixing date (subsequent to SC’s approval), the promoters and directors of the listed company are required to give an undertaking to the SC that they would not dispose of their shares from the “ex-date” of the shares until 10 market days after the listing of the rights shares. For tow-call rights issues, the same requirements should apply, with the cash price taken as the parameter for comparison with the theoretical ex-rights price to determine the quantum of discount applicable.
2. Implementation of Bonus Issues in Stages
2.1 PLCs are now allowed to implement bonus issues in stages, i.e, where bonus shares are alloted to shareholders in multiple stages over a period of time.
2.2 The following must be complied with by PLCs intending to implement bonus issues in stages:-
(a) The submission to the SC for approval should state the extended implementation period up-front.
(b) Full disclosure up-front of all relevant details in the first announcement for the bonus issue and in the circular for shareholders’ approval, including the following:-
(i) Total size of the bonus issue and capitalisation details;
(ii) Basis for allotment;
(iii) Tentative dates of allotment;
(iv) Effects of the bonus issue on share capital, net tangible assets, reserves, earnings and dividends;
(v) A statement that the PLC has adequate reserves to cover the entire bonus issues;
(vi) A statement drawing shareholders’ attention to the staggered implementation of the bonus issue and the potential price effects ogf the staggered implementation; and
(vii) Rationale-justification for the implementation of the bonus issue on a staggered basis.
; and
(c) Specific announcements before each date of allotment notifying shareholders of the upcoming bonus issue of shares. The announcement should also contain a statement that the PLC has adequate reserves to implement the bonus issue.
3. Clarification of the Computation of Percentage Ratios under Chapter 18 of the Issues Guidelines for Listed Companies with Negative Net Tangible Assets
3.1 The SC wishes to clarify that listed companies with negative net tangible assets (NTA) are not exempted from calculating ratios (1), (3) and (6) in paragraph 18.04, Chapter 18 (Special Requirements for Reverse Take-Overs and Back-Door Listings) of the Issues Guidelines. For listed companies with negative NTA, any further acquisitions would normally be considered material and thus requires the approval of the SC. However, if the corporate adviser is of the opinion that the acquisition/disposal is not significant and does not indicate a change in business direction, a waiver can be sought formally in writing to the SC.
3.2 With respect to the computation of any ratios for the disposal of assets, the denominators for ratios (1), (2), (3) and (6) in paragraphs 18.04, Chapter 18 of the Issues Guidelines, should exclude the NTA/after-tax profit of the subject transaction (whichever is applicable). This is because, by definition, ratios (1) and (2) will never breach the 100% threshold if the denominator includes the NTA/after–tax profit of the asset to be disposed of (assuming that the asset to be disposed of has positive NTA/after-tax profit). For purposes of parity, the same treatment should apply to the denominators of ratios (3) and (6).
4. Moratorium Requirements for Shipping and Transportation Companies Seeking Listing on KLSE
4.1 Pursuant to paragraph 10.12, Chapter 10 of the Issues Guidelines, the SC wishes to clarify that the moratorium requirements for Main Board applicant companies involved in property development, construction, services or specialised activities will not apply to shipping and transportation companies seeking listing on Kuala Lumpur Stock Exchange (KLSE). (Shipping and transportation companies are only allowed to seek listing on the Main Board).
5. Retention of Reserves for Initial Public Offerings (IPOs)
5.1 Pursuant to the SC’s announcement of further flexibilities for listing, fund-raising and restructuring on 3 September 2001, the SC wishes to clarify certain aspects of the removal of the retention of reserves requirement in regard to IPOs [previously under paragraph 10.10(1)(j), Chapter 10 of the Issues Guidelines].
5.2 A holding company (listing vehicle) of acquiree companies seeking listing on KLSE is no longer required to retain a certain level of reserves (defined as share premium and retained profits). However, listing vehicles which acquire companies based on their adjusted NTAs after revaluation of land and buildings are still required to retain at least 20% of the new valuation amount. This is consistent with the approach taken in the Guidelines for Bonus Issues (issued by the SC on 10 May 2001).
5.3 The retention of reserves could be effected through a share premium account by way of an upward revision of the price of the rights issue shares or consideration shares to be issued for acquisitions (if any).
6. Transfer to the Main Board – profit Forecast Requiremtns
6.1 As per the Amendments to the Requirements on Initial Public Offerings of Securities on Kuala Lumpur Stock Exchange issued by the SC on 3 September 2001, a company seeking transfer from the Second Board to the Main Board of KLSE will need to meet its profit forecast as disclosed in the prospectus, if the company has been listed for less than 2 years.
6.2 The SC wishes to clarify that such companies will be allowed a deviation/buffer zone of not more than 10% from the after-tax profit figure quoted in the profit forecast, in order to meet the requirements for transfer to the Main Board.
6.3 The historial profit track requirements for Second Board companies seeking a transfer to the Main Board will be based on the latest available annual audited financial resulted at the point submission and not at the tentative date of transfer.
6.4 In addition, Second Board companies applying for a lifting of the moratorium imposed (on the disposal of promoter shareholdings) as part of the transfer exercise will need to have fully undergone all profit forecast and projection years (as per the listing application on the Second Board), before the application for upliftment can be considered. As such, the flexibility accorded for lifting of the moratorium only applies to Second Board companies where the moratorium period exceeds the forecast/projection time period.
7. Time Frame for Placements of Securities
7.1 Paragraph 2(c) of the Guidelines on Private Placements (issued by the SC on 3 September 2001) states that securities must be placed out to placees within a period of 5 market days from the price-fixing date of the placement.
7.2 The SC wishes to clarify that the term “placed out” as used in the paragraph above refers to the actual payment in cash terms by the placees to the issuer of the securities. In other words, the issuer must receive payment for the securities placed out within 5 market days from the price-fixing date.
8. Clarification on Employee Share Option Schemes (ESOS)
Paragraph 2(b) of the ESOS Guidelines
8.1 The SC wishes to clarify the following with regards to the application of paragraph 2(b) of the ESOS Guidelines issued on 10 May 2001, pertaining to adjustments pursuant to rights issues, capitalisation issues, consolidation of shares or capital-reduction exercises carried out during the tenure of the ESOS:-
(a) The requirement to carry out adjustments to the subscription or option price or the numbers of shares in favour of all the participants in an ESOS pursuant to rights issues, capitalisation issues, consolidation of shares of capital-reduction exercise is at the discretion of the Board of Directors, who should accordingly assess the practically of complying with the requirements;
(b) Where it is decided that no adjustment will be made, such decision must be made known to all the participants. This can be effected by either including a provision in the by-laws at the outset or giving a timely notice to all participants that no adjustments will be made;
(c) Where it is decided that an adjustment will be made, it is important that all participants are given the same proportion of the capital as that to which they were previously entitled to, by ensuring that the capital outlay to be inccured by option holders in exercising their options remains unaffected; and
(d) Where it is decided that an adjustment will be made but it is not practicable to ensure that all participants are given the same proportion of the capital, the issuer must, in such circumstances, seek a waiver from the SC, together with justification.
Termination of ESOS
8.2 A company whose employee share option scheme was launched before the issue of the ESOS Guidelines can terminate the scheme in mid-stream, provided that –
(a) the by-laws of the scheme contains a provision that empowers the company to terminate the scheme; and
(b) the company observes the following conditions, in the manner set out under paragraph 9 of the ESOS Guidelines:-
(i) To obtain the approval of the SC for the termination of the scheme;
(ii) To obtain the consent of its shareholders at a general meeting, wherein at least a majority of the shareholders present should vote in favour of the termination; and
(iii) To obtain the written consent of all option-holders who have yet to exercise their options, either in part or in whole.
Modifications/Changes to By-Laws
8.3 Any subsequent modifications/changes to the by-laws do not need the prior approval of the SC. However, the company is required to submit to the SC, each time a modification/change is made, a confirmation letter that the modification/change does not contravene any of the provision of the ESOS Guidelines.
8.4 The modification/change clause of the by-laws should reflect the above.
Non-Applicability of Paragraph 7 of the ESOS Guidelines
8.5 As a result of the liberalisation in terms of capital structure for companies seeking listing on KLSE (as issued by the SC on 3 September 2001), the SC wishes to clarify that paragraph 7 of the ESOS Guidelines (issued on 10 May 2001) is no longer applicable.
9. Exclusion of Convertibles/Options for Purposes of the Public Shareholding Spread Computation
9.1 With regards to the public shareholding spread requirement (both at the point of listing and as a continuing listing requirement of KLSE), the SC wishes to clarify that only holdings of ordinary shares with voting rights should be computed and, thus, holdings of securities, such as convertibles and options, should not be included in determining whether a shareholder is deemed as “public” or otherwise.
9.2 As an example, consider a shareholder who owns 2% of the issued and paid-up capital of a PLC, together with convertibles and options amounting to 4% of the issued and paid-up capital of the PLC. Such a shareholder is not excluded from the definition of a “public shareholders” and as such, the shareholder’s 2% interest in the PLC’s issued and paid-up capital can be deemed as “public” for purposes of computing the shareholding spread of the PLC.
9.3 In addition, the PLC should ensure that the shareholding spread requirement (i.e. at least 25% of the company’s issued and paid-up capital are in the hands of public shareholders) is continually met as and when any options or convertibles that are outstanding are exercised/converted.
10. Submission of the Follow-Up Questionnaire
The SC wishes to clarify the following with regards to the submission of the follow-up questionnaire:-
10.1 Utilisation of proceeds Raised
There is no requirement to submit a follow-up questionnaire to the SC in relation to the utilisation of proceeds arising from the issuance of securities or other corporate proposals, as long as –
· the proceeds are utilised for the core business of the PLC; and
· the proposals were approved by the SC under the revised requirements announced on 31 December 1999.
10.2 Profit Forecasts
(a) Proposals yet to be implemented
There is no requirements to submit a follow-up questionnaire to the SC to report the on achievability of the profit estimate and/or forecast, for proposals that have been approved by the SC but are pending implementation.
(b) Proposals which have been implemented
PLCs will still need to submit a follow-up questionnaire to report on the achievability of the profit forecast and/or estimates, if the forecast/estimate appears in-
· the submission to the SC; and/or