Core Concept - Placing is a common and important capital operation method for Hong Kong listed companies, involving the issuance of new shares to specific professional investors to raise funds [2][4]. Basic Concept - Definition: Placing refers to the act of a listed company arranging for an underwriter (usually an investment bank or broker) to issue new shares to selected professional investors [4]. - Key Features: - Non-public: Unlike rights issues, placing targets a selected group of investors [4]. - Institutional Investors: Typically involves funds, asset management companies, private equity funds, and high-net-worth professional investors [4]. - Quick and Efficient: The process is faster compared to public offerings, allowing for rapid fundraising [4]. Regulatory Rules - General Mandate: Companies must obtain shareholder approval at the annual general meeting (AGM) to issue new shares up to 20% of the existing share capital [4]. - Pricing Restrictions: The placing price cannot be lower than 80% of the average closing price over the five trading days prior to the signing of the placing agreement [4]. - Shareholder Approval: If the placing exceeds the general mandate, a shareholder meeting must be convened for independent approval [4]. - Disclosure Obligations: Companies must disclose insider information promptly after signing the agreement, including reasons for the placing, number of shares, pricing basis, and intended use of funds [4]. Typical Placing Process - Decision and Preparation: The board of directors decides to proceed with the placing and appoints an underwriter [5]. - Investor Outreach and Bookbuilding: The underwriter conducts roadshows to gauge investor interest and determine the final issue price [5]. - Agreement Signing: The company signs the placing and subscription agreement with investors [5]. - Announcement: An insider information announcement is made immediately to disclose the details of the placing [5]. Pricing and Discount - Market Practice: Placing prices typically include a discount to attract investors, usually ranging from 5% to 10%, but not exceeding the regulatory cap of 20% [6]. - Pricing Mechanism: The final price is determined dynamically based on feedback from institutional investors during the bookbuilding process [6]. Advantages and Disadvantages - Advantages: - Rapid Fundraising: Placing is one of the fastest ways to raise capital, especially in urgent situations [6]. - Enhanced Shareholder Base: Attracting reputable institutional investors can improve shareholder structure and boost market confidence [6]. - Lower Costs: Compared to public offerings, the process is simpler and typically incurs lower intermediary fees [6]. - High Flexibility: Companies can choose their investors [6]. - Disadvantages: - EPS Dilution: Increased share count may dilute existing shareholders' earnings per share if the funds do not generate immediate profits [6]. - Short-term Price Pressure: Discounts and increased share supply may exert downward pressure on stock prices [6]. - Speculation: The market may speculate on the company's financial health or overvaluation due to the need for discounted financing [6]. Impact on Investors - Existing Shareholders: Their ownership percentage may decrease, and they will be concerned about the intended use of the raised funds [6]. - New Investors: They gain entry at a discounted price but typically face a lock-up period of 90 to 180 days during which they cannot sell their shares [6].