Advising on Restructuring and Holding Structures
Charltons regularly advises on group restructuring in preparation for listing on the HKEX including spin-offs, demergers and insolvencies. Pre-IPO reorganization affords applicants the opportunity to restructure the overall group as desired. A mineral company listing applicant may wish to consider the following:
- winding up any redundant companies such as project companies or incorporated joint ventures used to develop assets that will not form part of the listing;
- moving companies around the group to ensure they sit within the correct asset groups and reporting lines;
- splitting up large subsidiaries with multiple divisions and placing the divisions within separate subsidiaries;
- ring-fencing any speculative or high risk, or very early stage exploration projects in separate subsidiaries;
- enhancing tax efficiency; and
- excluding subsidiaries whose operations are not relevant to the group’s principal businesses.
A restructuring mineral company should be aware that it will no longer be defined as a “Mineral Company” under the HKEX Listing Rules if less than 25% of its total assets, revenue or operating expenses are connected to the exploration and/or extraction of natural resources. This is because under the HKEX Listing Rules, mineral companies are defined as:
- new listing applicants whose major activity (i.e. an activity representing 25% or more of the total assets, gross revenue or operating expenses of the applicant and its subsidiaries) (Major Activity) is the exploration for and/or extraction of natural resources (which includes minerals or petroleum); and
- existing listed companies that completes a relevant notifiable transaction (namely a major transaction, very substantial disposal, very substantial acquisition and/or a reverse takeover) or above involving the acquisition of mineral or petroleum assets.
A mineral company should also have regard to potential competition issues where competing businesses are to be excluded from the group, and to potential connected transactions where part of the group’s operations are held by connected persons following the reorganization. For example, Infrastructure agreements, EPCs, off-takes, and non-compete agreements can give rise to connected transactions or continuing connected transactions depending on the relationships between the parties.
Other than People’s Republic of China, Bermuda and Cayman Islands, the HKEX Listing Committee has formally ruled that Australia, Austria, Brazil, British Virgin Islands, Canada (Alberta, British Columbia and Ontario), Cyprus, England and Wales, France, Germany, Guernsey, India, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Korea, Labuan, Luxembourg, Netherlands, Russia, Singapore and the United States of America (California, Delaware and Nevada) are acceptable jurisdictions as an issuer’s place of incorporation.
Mineral companies not incorporated in any of the acceptable jurisdictions will be assessed on a case-by-case basis and have to demonstrate they are subject to appropriate standards of shareholder protection, which are at least equivalent to those required under Hong Kong law.
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