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HKSI PrepStudyingPaper 1
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Tsuen Wan Industrial Ltd, listed on the Main Board for five years, proposes a 1-for-1 rights issue. Which are CORRECT? I. It needs minority shareholders' approval. II. It must be fully underwritten. III. It must stay open for at least 10 business days. IV. Untaken shares need excess application or a compensatory placing.
A 1-for-1 issue doubles the issued shares, an increase of more than 50%, so LR 7.19A(1) makes it conditional on minority shareholders' approval: I is correct. LR 7.19(1) states that rights issues need not be underwritten, so II is wrong. LR 7.20 requires renounceable provisional letters of allotment stating an acceptance period of not less than 10 business days: III is correct. LR 7.21(1) requires the issuer to dispose of untaken shares either through excess application forms open to all shareholders or by placing them with independent placees for the benefit of those offered them: IV is correct. Source: HKEX Main Board Listing Rules r.7.19(1), 7.19A(1), 7.20, 7.21(1) (as at October 2026).
Assuming every rights issue must be underwritten. Underwriting is optional; the big protections are minority approval above 50% and the excess or compensatory arrangements.
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