Proposed Amendments to Listing Requirements
30 September 2019
Kok Chee Kheong summarises the proposed amendments under Consultation Paper No. 3/2019.
On 30 August 2019, Bursa Malaysia Berhad (“the Exchange”) issued Consultation Paper No. 3/2019 (“CP3/19”) proposing amendments to the Main Market Listing Requirements (“MMLR”) and ACE Market Listing Requirements (“ACE LR”) (collectively “LR”). This article provides a summary of the proposed amendments.
New Issue of Securities: Announcements and Circulars
To enhance the presentation of announcements and circulars relating to new issues of securities, Appendices 6A and 6B of the LR will be rearranged and categorised according to key areas. The Exchange proposes to cluster the prescribed information in Appendices 6A and 6B into 13 key areas, namely: (a) cover page; (b) introduction; (c) details of the proposals; (d) rationale and justification for the proposal; (e) utilisation of proceeds; (f) effects of the proposal; (g) approvals required; (h) conditionality of the proposal; (i) interest of directors, major shareholders, chief executive and persons connected; (j) recommendation and basis of recommendation; (k) timeframe for completion/implementation; (l) further/additional information; and (m) appendices.
According to the Exchange, the clustering of information will improve the readability of announcements and circulars for new issues of securities and enable the shareholders and investors to have better insights on the proposals and to make better informed investment decisions. This approach follows the amendments made to the LR with regard to the contents of announcements and circulars relating to transactions that came into force on 3 June 2019.
Enhancing Disclosure for New Issue of Securities
The Exchange will enhance the disclosures in the circular for new issue of securities as follows:
- A listed issuer will be required to disclose details of previous fund-raising exercises undertaken in the 12 months preceding the announcement of the new issue of securities; these details include a description of the fund-raising exercise, the total proceeds raised, and the details and status of the utilisation of those proceeds - this practice is benchmarked with the requirements in Singapore and Hong Kong;
- Where new securities are issued to corporate placees, a listed issuer will be required to disclose the names of the directors and substantial shareholders, and their direct and indirect shareholdings in the corporate placees – this requirement codifies the existing practice adopted by the Exchange; and
- Disclosure relating to the utilisation of proceeds raised will be enhanced in two respects: (i) where the proceeds are to be used for investments that have yet to be identified, a listed issuer will also be required to disclose how the proceeds will be utilised pending identification of the investments; and (ii) where the proceeds raised are for working capital purposes, a listed issuer will be required to provide the details and breakdown of such usage.
The requirement in sub-paragraph (a) above will also be incorporated into announcements for new issue of securities.
According to the Exchange, the enhancements in sub-paragraphs (a) to (c) above codify their existing practice.
Dividend Reinvestment Scheme: Issue Price of Securities
The time frame for making an announcement on the issue price of securities to be issued under a Dividend Reinvestment Scheme will be reduced from 30 market days to 20 market days to reduce market volatility of the shares and to better reflect the market price of the securities.
Extension of 50% Limit on New Shares
To safeguard against the dilution of shareholding, the Exchange has proposed that the current requirement which imposes a limit of 50% on the number of new shares that can be issued in respect of warrants be extended to other convertible equity securities, such as irredeemable and redeemable preference shares.
Controlling Shareholders: Material Loan Covenants
In relation to loans or borrowings which are deemed material by a listed issuer, the listed issuer is required to disclose conditions, covenants or restrictions which are tied to the interest of the controlling shareholders. Such information would include:
- Details of such conditions, covenants or restrictions including restrictions on change in control of the listed issuer; and
- The aggregate level of the facilities that may be affected by a breach of such conditions, covenants or restrictions.
Judicial Management and Corporate Voluntary Arrangement
Arising from the coming into force of new corporate rescue mechanisms under the Companies Act 2016, namely judicial management and corporate voluntary arrangements on 1 March 2018, the Exchange proposes to enhance the LR by requiring a listed issuer to make an immediate announcement on the following events:
- Any application filed with a court to place any subsidiary or major associated company (i.e. an associated company which contributes 70% or more of the pre-tax profit or total assets employed of the listed issuer on a consolidated basis) of the listed issuer under judicial management;
- Any proposal for a corporate voluntary arrangement filed in a court by any subsidiary or major associated company of the listed issuer;
- Any material development arising from the aforesaid application or proposal; and
- Any appointment of, or change in, a judicial manager (including an interim judicial manager).
The appointment of judicial managers will be included as an additional criterion for triggering the requirements set out in Practice Note 17 of the MMLR and Guidance Note 3 of the ACE LR.
Independent Directors: Cooling-off Period
After considering the relevant cooling-off periods in Singapore, Australia and United Kingdom, which range from one to five years, the Exchange has sought feedback as to whether the two-year cooling-off period set out in the LR before an existing or former officer, adviser or person engaged in transactions with a listed issuer can be appointed as an independent director of a listed issuer should be extended, and if affirmative, what the extended period should be. In this regard, the Exchange did not specify any particular period of the extension.
Non-Independent Non-Executive Directors: Cooling-off Period
The existing definition of an “independent director” in the LR does not subject a non-executive director to the two-year cooling-off period even if such director is a non-independent director. To achieve the “spirit and intent” of independence in the LR, the Exchange proposes to subject non-independent non-executive directors to the two-year cooling-off period before they can be appointed as independent directors. According to the Exchange, this proposal will align the LR with the requirements in Hong Kong.
Convertible Securities: Alteration of Terms
The Exchange proposes to clarify Paragraph 6.54 of the MMLR and Rule 6.56 of the ACE LR, which permit a listed issuer to alter the terms of convertible securities, by excluding the application of those provisions to the following alterations:
- Extension or shortening of the tenure of the convertible securities; and
- Changes to (i) the number of shares received from the exercise or conversion of the convertible security; or (ii) the pricing mechanism for the exercise or conversion price of the convertible security, except where the changes are adjustments arising from capitalisation issues, rights issues, bonus issues, consolidation or subdivision of shares or capital reduction exercises.
Calculation of Percentage Ratio for REIT
The Exchange proposes to clarify Paragraph 10.02(g)(ix) of the MMLR by providing that the percentage ratio applicable to a real estate investment trust (“REIT”) under that provision is to be calculated by comparing the value of the transaction (instead of the total assets which are the subject matter of the transaction) with the total asset value of the REIT. According to the Exchange, this amendment will provide greater accuracy in the computation of the percentage ratio for transactions entered into by a REIT.
The consultation period will end on 31 October 2019.
The proposed amendments under CP3/19 are to be welcomed as they will promote greater transparency and investor protection.
You may view the full issue of Skrine’s Legal Insights Issue 3/2019 here