Shareholders urged not increase general mandate
Hong Kong Exchanges and Clearing faces an uphill battle to convince shareholders to approve an increased general mandate for issuing new shares in possible preparation for a possible acquisition.
The bourse is expected to ask for a general mandate to issue up to 10 per cent of its existing share capital in new shares at a discount of up to 10 per cent of the share price, at its annual meeting on April 23. This is double last year's general mandate.
A general mandate allows a company to make share placements to raise funds at any time within the next year with no need to seek shareholder approval.
Brokers believe the higher general mandate could pave the way for HKEx to tap the market for the first time since its listing in 2000 to raise funds to bid for the London Metal Exchange.
Two sources said earlier that HKEx would be among the bidders for the world's largest metal futures exchange - believed to be valued at GBP1 billion (HK$12.43 billion) - as part of its plan to expand into commodities trading.
The New York Stock Exchange, CME and Intercontinental Exchange are also said to be interested. Bidding closes in May.
HKEx chief executive Charles Li Xiaojia said the increased general mandate 'will allow more flexibility to arrange funding needs.' He declined to comment on a possible bid for the metal exchange.
Shareholder activist David Webb, writing on his Webb-site.com, urged HKEx shareholders to vote against the expanded general mandate. 'It would be far better to do this by way of a rights issue than to place shares at a discount with friendly parties or governments,' he said.
A rights issue allows existing shareholders to subscribe to new shares in proportion to their current holding so that their interests will not be diluted. But in an issue of new shares, existing shareholders' interests are diluted.
Louis Tse Ming-kwong, director of VC Brokerage, also supported a rights issue. 'If the HKEx considers buying the London Metal Exchange a good deal, then it should allow the existing shareholders to have the priority in buying shares in a rights issue. In a placement, existing shareholders may not be allowed to buy the new shares and that is unfair,' Tse said.
Li said the exchange would consider a rights issue but added that a general mandate would allow the management more diverse ways to raise funds when needed.