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.