Acquiring Shares After the Restriction Period

Introduction

On 26 May 2016, the Securities and Futures Commission publicly criticised China New Way Investment Limited (the “Offeror”), its four ultimate beneficial owners and its sole director for breaching Rule 31.3 of the Codes on Takeovers and Mergers and Share Repurchases (the “Takeovers Code”) by acquiring shares in a listed company within 6 months after the close of an offer at a price higher than the offer price.

Rule 31.3 of the Takeovers Code

Rule 31.3 of the Takeovers Code provides as follows:

“…if a person, together with any person acting in concert with him, holds more than 50% of the voting rights of a company, neither that person nor any person acting in concert with him may, within 6 months after the end of the offer period of any previous offer made by him to the shareholders of that company which became or was declared unconditional, make a second offer to, or acquire any shares from, any shareholder in that company at a higher price than that made available under the previous offer…”

The 6-month period after the close of an offer is hereinafter referred to as the “Restriction Period”.

The purpose of Rule 31.3 of the Takeovers Code is to prohibit an offeror to acquire the shares of a company at a price higher than the offer price during the Restriction Period, so as to ensure that all shareholders of the offeree company will be treated even-handedly in accordance with General Principle 1 of the Takeovers Code.

Facts

China City Construction Group Holdings Limited (stock code: 711) (the “Company”), formerly known as Chun Wo Development Holdings Limited, is a company listed on the Main Board of the Stock Exchange of Hong Kong Limited.

On 2 January 2015, the Offeror made an unconditional mandatory general offer in cash for the Company’s shares at HKD1.099 per share (the “Offer”). The Offer closed on 23 January 2015 and the Restriction Period lasted from 23 January 2015 until 23 July 2015. 2

On 6 and 7 July 2015, less than three weeks before the end of the Restriction Period, the Offeror made a series of on-market acquisitions of 2,930,000 shares of the Company at prices in the range of HKD1.19 to HKD1.50 per share (the “Acquisitions”). The Acquisitions, which were made during the Restriction Period, were in breach of Rule 31.3 of the Takeovers Code.

On 27 July 2015, the Offeror reported the Acquisitions to the Takeovers Executive and submitted that (1) the breaches of Rule 31.3 of the Takeovers Code were unintentional; and (2) with the fall in the Company’s share price in early July 2015, the four ultimate beneficial owners of the Offeror made the Acquisitions to demonstrate their confidence in the Company.

The Offeror, its four ultimate beneficial owners and sole director admitted their breach of Rule 31.3 of the Takeovers Code and agreed to the disciplinary action taken against them under section 12.3 of the Introduction to the Takeovers Code. The Offeror further undertook to strengthen its internal controls and comply with all rules and regulations in the future.

Conclusion