Reference no: EM132308606

Kingston Holdings Limited (‘Kingston) is a company listed on the Stock Exchange of Hong Kong. The chairman informed the board that Kingston had entered into two transactions with Dowell Limited and SWN Limited respectively and that the company secretary had been instructed to draft the relevant announcements of the transactions, where appropriate, and notify the Stock Exchange. The company secretary was given details of the following two transactions for preparation and uploading of the relevant announcements on Kingston’s and the Stock Exchange’s websites:

1 On 20 September 2018, Kingston executed an agreement with Dowell Limited (‘Dowell’), an independent party, to acquire from Dowell a 15% equity interest in Regent Limited (‘Regent’) at a cash consideration of HK$100,000,000. Before this transaction, Kingston had acquired 30% equity interest in Regent.

2 On 5 October 2018, Kingston executed an agreement with SWN Limited (‘SWN’) to acquire from SWN a 30% equity interest in Speedy Growth Limited (‘Speedy Growth’) at a cash consideration of HK$400,000,000 and 120,000,000 consideration shares of HK$2.80 per share. Before this transaction, Kingston had acquired 30% equity interest in Speedy Growth. TWA Limited has 10% and 55% equity interest in Kingston and SWN respectively.

Kingston’s audited financial statements for the year ended 31 March 2018 include, among other things, the group’s total assets of HK$6,000,000,000; group turnover of HK$850,000,000; group profit after taxation of HK$546,000,000; group taxation of HK$104,000,000; non-controlling interest of HK$90,000,000; and a proposed dividend of HK$300,000,000. Kingston’s issued share capital is HK$3,150,000,000 with 1,000,000,000 fully-paid ordinary shares. The average closing price of the Kingston’s shares before (i) 20 September 2018 was HK$2.50 per share and (ii) 5 October 2018 was HK$2.80 respectively.

The audited accounts of Regent Limited for the year ended 31 December 2017 included total assets of HK$500,000,000; turnover of HK$250,000,000; profit after taxation of HK159,600,000; taxation of HK$30,400,000; and a proposed dividend of HK$5,000,000.

The audited accounts of Speedy Growth Limited for the year ended 31 March 2018 included total assets of HK$700,000,000; turnover of HK$520,000,000; profit after taxation of HK$378,000,000; taxation of HK72,000,000; and a proposed dividend of HK$20,000,000.

Required

a. Discuss whether each of the two transactions is a notifiable transaction and/or connected transaction that requires notification to Kingston’s shareholders and the Stock Exchange. If so, state the category each transaction falls into, giving reasons for your classification.

b. Comment on whether there is protection given to Kingston’s shareholders in respect of each of the above two transactions.

c. Discuss whether the current thresholds in classifying the notifiable transactions have improved the transparency of listed companies in Hong Kong.

d. If a transaction is only classified as a connected transaction, discuss whether such a connected transaction can protect the shareholders of a listed company.