Hong Kong Studies Listing Of Business Trusts
Tuesday, June 14, 2011
In answer to a question in the Legislative Council, Hong Kong’s Secretary
for Financial Services and the Treasury, Professor K C Chan, disclosed that
the Securities and Futures Commission (SFC) and Hong Kong’s Stock Exchange
(HKEx) are looking into the potential listing of active business trusts.
Given that Hutchison Whampoa had announced in March this year that it will
spin off its port business to a separate business trust listed in Singapore,
while a real estate investment trust is the only kind of trust allowed to be
listed in Hong Kong at present, the question was posed whether HKEx was discussing
the introduction of business trust listing in Hong Kong.
Professor Chan confirmed that the SFC and HKEx have been in discussions with market
practitioners and a number of entities seeking to list active businesses by
way of a trust over the potential listing of business trusts in Hong Kong and the
factors that should be taken into account in the relevant regulatory framework.
Firstly, given that business trusts effectively operate as business enterprises,
HKEx is proposing to consider their listing applications and regulate them by
applying the same principles in the listing rules as those applicable to any
company seeking a listing. To achieve this, HKEx would have to modify the current
regulatory framework for listed companies to apply them to business trusts in
a manner that fully preserves all the current rule requirements on investor
protection, disclosure and corporate governance.
Secondly, it was said that a key part of the regulatory regime for listed companies
is provided in the Securities and Futures Ordinance (SFO). At present, some
provisions in the SFO applicable to a listed corporation do not apply to a business
trust, notably insider dealing and disclosure of interests in shares. The SFC
considers it essential for investor protection that listed business trusts are
subject to the relevant SFO provisions.
The SFC and HKEx are therefore exploring with entities seeking to list an active
business by way of a trust whether a structure that meets their commercial requirements
can at the same time ensure that the relevant SFO provisions apply.
Chan pointed out that the primary business reasons advanced for listing by
way of a trust are the tax benefits in some jurisdictions; an ability to make
distributions if spare cash is available, in that trusts are not limited to
only paying dividends out of realized profits; and that the trust can specify
that surplus funds are paid out to investors, thus providing certainty to investors.