Second Reading of Government Bills： COMPANIES (AMENDMENT) (NO. 2) BILL 2024
President, I rise to speak in support of the passage of the Companies (Amendment) Bill 2024 (“the Bill”). The Bill mainly concerns two areas, namely the new requirements on treasury shares of listed companies and the adoption of paperless corporate communication.
As we all know, some listed companies in Hong Kong, of which HSBC is the most prominent example that Hong Kong people are familiar with―first of all, I would like to declare that I do not own any of its shares―may buy back some of their issued shares from the open market each year if they believe that their shares are undervalued and they want to enhance shareholder returns and thereby produce a positive impact on their share prices.
In fact, if the timing and price of the buyback are right, listed companies can often send positive signals to the market, indicating that the company believes the stock is significantly undervalued and is optimistic about the future, or that the company’s management cares about the interests of shareholders, which can help sustain a better share price. Of course, if the company has major negative news, poor financial health or an intention to manipulate the share price, the results of the buyback may be worse than expected. There is no guarantee that the share price will perform well after a share buyback by the company.
However, prior to the legislative amendment, the Companies Ordinance required that after a listed company has bought back its shares, the repurchased shares must be automatically cancelled and cannot be retained for future flexible use, such as share grants as a form of employee benefit. The current amendment will at least provide an additional option for shareholders and management of listed companies to better manage share prices, shareholder returns or optimize capital structure, and may even address situations of hostile takeovers.
Given that institutional investors are now very concerned about the rate of return (i.e. the stock price performance of listed companies), this legislative amendment is, to some extent, an important measure to enhance the attractiveness of the Hong Kong capital market.
I believe that many listed companies with Chinese capital background will consider taking advantage of this amendment to conduct share buybacks in the future. However, as I have pointed out in communications with the Financial Services and the Treasury Bureau and the Hong Kong Exchanges and Clearing Limited (“HKEX”), China-capital enterprises generally repurchase their shares in the open market and such shares will no longer have voting and dividend rights, which in effect means that the shareholding of major Mainland shareholders will increase. Under Mainland regulatory requirements, any change in shareholding must be approved by the Mainland regulatory authorities. As there is no requirement to cancel treasury shares, it is uncertain whether the buybacks will be deemed to fall within the scope of the requirement to notify the Mainland regulatory authorities. I hope that the authorities and HKEX can assist in clarifying this as soon as possible and communicate this situation to the relevant listed China-capital companies.
As for the amendment allowing listed companies to go paperless in corporate communication, this is indeed in line with social development. Firstly, investors, including the general public, are now accustomed to receiving various types of information from listed companies by electronic means, so it is wasteful and unnecessary to send printed copies of annual reports, notices of general meetings of shareholders, voting notices, etc. by post. Secondly, from an environmental perspective, such paper-based communication consumes a lot of resources and is really unnecessary. As part of building a smart city and contributing to environmental protection, it is worth accelerating the work on streamlining communication.
Deputy President, I so submit and reiterate my support for the Bill.