COSCO’s non-public issuance involves complex issues

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COSCO Shipping Development announced its proposed non-public issuance of A shares, which involved several complex legal issues under Hong Kong’s Takeovers Code, said the legal counsel involved.

Story_2_picThe A shares would be offered to no more than 10 specific target subscribers including China Shipping (Group) Company, the controlling shareholder of COSCO Shipping. China Shipping seeks to raise RMB12 billion (US$1.74 billion) through this non-public issuance.

Bonnie Kong, of counsel at Paul Hastings’ Hong Kong office, told China Business Law Journal that China Shipping, together with parties acting in concert with it, controls or is entitled to control the exercise of voting rights in respect of approximately 39.02% of the entire share capital of COSCO Shipping.

“Upon completion of the proposed subscription by China Shipping, the shareholding of China Shipping and parties acting in concert with it in COSCO Shipping will increase to approximately 39.60% to 43.25%, which will trigger the obligation to make a mandatory general offer under rule 26.1 of the Takeovers Code,” said Kong.

Bonnie Kong
Bonnie Kong

The transaction involves additional complexity since it constitutes a special deal under rule 25 of the Takeovers Code. According to the applicable laws, regulations and regulatory requirements, foreign investors cannot subscribe in a non-public issue of A shares of listed companies by way of cash unless they are approved qualified foreign institutional investors or foreign strategic investors.

“In order to ensure the independence of the H shareholders, the scope of targeted subscribers [other than China Shipping] under the proposed non-public issuance of A shares will exclude all the H shareholders,” says Kong.

“As the proposed non-public issuance of A shares is not capable of being extended to all shareholders, it constitutes a special deal under rule 25 of the Takeovers Code and requires the consent of the SFC [Securities and Futures Commission of Hong Kong].” A whitewash waiver and consent to the special deal have been obtained from the SFC.

Legal counsel: Paul Hastings advised COSCO Shipping, with its team led by Raymond Li, partner and chair of Greater China, and of counsel Bonnie Kong.