Hong Kong's corporate governance has taken a step forward with the proposal by the Securities and Futures Commission (SFC) to lower the corporate takeover trigger from 35 per cent to 30 per cent.
The trigger is the level of ownership at which investors who want to buy a company have to make an offer to all the target's shareholders. Following the change, any proposed buyer who goes above the 30 per cent threshold by law will have to make a general offer at the same price to all other shareholders. That should mean a fairer deal for smaller shareholders who in the past have sometimes been denied the same terms as those offered to controlling shareholders.
The proposal, the consultation for which began yesterday and will continue until the end of May, is aimed at bringing Hong Kong in line with Chinese and other financial markets. The 30 per cent level has applied in the mainland since 1998, while the UK adopted the figure in 1974. Some places have gone even further - Singapore sets its trigger at 25 per cent.
The SFC is also proposing to reduce the creeper level - within which a controlling shareholder may increase his shareholding without triggering a mandatory offer - to two per cent in a 12-month period, from the current five per cent.
Existing shareholders with a holding of between 30 and 34.99 per cent in a company on the implementation date should abide by the existing 35 per cent trigger, the SFC said. However, these shareholders will be asked to register with the commission.
In an increasingly global environment and with stronger competition day by day from other financial capitals such as Shanghai, Hong Kong has to present itself as one of world's most open and transparent places for business. The proposed measures mark an important step along that road, offering greater potential for smaller shareholders to share in the spoils of a company takeover.