Notifiable transactions and percentage ratios

The percentage-ratio framework helps determine how significant a transaction is relative to the listed issuer. It is a classification tool with procedural consequences. The issuer should assess a transaction early and consider whether a series of related transactions must be aggregated.

Know the ratios

Chapter 14 includes tests comparing transaction assets, profits, revenue and consideration with the issuer's corresponding figures. An equity-capital ratio may apply in specified cases. Each ratio has its own numerator, denominator and calculation rules, including special treatment for certain transactions and figures. Use Rules 14.07–14.19 rather than substituting a general materiality estimate.

Classification follows the relevant threshold

Under current Main Board Rule 14.06, a discloseable transaction generally arises where any percentage ratio is at least 5% but below 25%; a major transaction generally begins at 25%, with different upper limits for an acquisition and a disposal. A very substantial acquisition is generally 100% or more, and a very substantial disposal generally 75% or more. Share transactions have a separate classification when all ratios are below 5% and the consideration conditions are met. Confirm the current rule and definitions before relying on a threshold.

Do not ignore aggregation

A series of transactions may be aggregated under Rules 14.22 and 14.23, particularly where they form part of a larger arrangement or involve connected counterparties or assets. Splitting one commercial transaction into steps does not necessarily avoid classification requirements. Determine whether the Exchange's aggregation rules apply before calculating the final category.

Classification drives the next steps

Different categories can require announcement, reporting, a circular, independent advice or shareholder approval. Connected-transaction rules may apply separately as well. The issuer should identify every triggered requirement and its timetable; passing one ratio does not eliminate other obligations.

Exam method

1. Identify the transaction and whether it is an acquisition or disposal.
2. Calculate each applicable percentage ratio using the prescribed figures.
3. Check whether earlier or related transactions must be aggregated.
4. Use the highest applicable result to identify the classification.
5. Then apply the corresponding disclosure and approval requirements, plus any connected-transaction rules.

Five ratios answer different questions

The assets ratio compares the assets involved with the listed issuer group’s assets; the profits ratio compares attributable profits; and the revenue ratio compares attributable revenue. The consideration ratio compares transaction consideration with the issuer’s market capitalization, generally based on the five business days immediately before the transaction date under Rule 14.15. For an acquisition issuing equity consideration, the equity capital ratio measures the nominal value of equity issued against the issuer’s issued equity capital. Apply only ratios relevant to the transaction.

Classify using the highest applicable ratio

The ratios are expressed as percentages, and the transaction category is generally triggered when any applicable ratio reaches its threshold. Broadly, 5% can trigger a discloseable transaction, 25% a major transaction, and higher thresholds distinguish very substantial disposals and acquisitions; the major and very-substantial acquisition thresholds differ from disposals. Check the current Chapter 14 table and rule text because some transaction types and ratios have special treatment. Do not average the ratios or select the smallest.

Calculation and aggregation discipline

Use figures attributable to the assets or business that are the subject of the transaction and the issuer’s corresponding figures, following Rules 14.09 to 14.19. If the parties use different accounting standards, the issuer may need an appropriate and meaningful reconciliation. Consider whether connected or related steps must be aggregated under Rules 14.22 and 14.23; splitting a deal into several contracts does not necessarily avoid classification. Deal date, consideration adjustments, options and equity issuance can affect numerator inputs.

Worked example

Assume an issuer acquires a business. The asset, profit, revenue and consideration ratios are 12%, 7%, 29% and 18%, respectively, and no equity capital ratio applies. The 29% revenue ratio is the highest and reaches the major-transaction range; the issuer should then analyze the corresponding Chapter 14 obligations and any exceptions. This illustration assumes the ratios were correctly calculated and no aggregation or special rule changes the result.

Classification is only the first step

Once classified, determine the announcement, circular, reporting and shareholder-approval requirements that attach to that category, including whether the transaction is an acquisition or disposal. A ratio calculation does not itself authorize the deal or replace the issuer’s disclosure duties. Keep the Main Board and GEM rulebooks in view where relevant, and check current exchange rules rather than relying on an old numerical summary.

Avoid common numerator mistakes

The subject assets and corresponding profits or revenue must be identified consistently, and consideration can include more than the cash paid at completion depending on the rule and transaction structure. For contingent consideration, options, joint ventures or staged acquisitions, consult the detailed provisions rather than using a headline purchase price. Also consider whether the transaction is a deemed disposal or involves an issue of equity. A mathematically correct division is still wrong if it uses the wrong numerator, denominator, reporting period or aggregation perimeter.

Use the applicable issuer accounts

For profits and revenue, use the figures and accounting period specified by the Listing Rules, and confirm that the transaction assets are measured on a comparable basis. A target’s extraordinary gain or an issuer’s loss may invoke special calculation guidance or Exchange discretion. If accounting figures produce an anomalous result, follow the rulebook’s adjustment provisions and document the basis; do not substitute a convenient metric without authority.

Key takeaway

HKEX transaction classification depends on percentage tests, aggregation and transaction type. Calculate each relevant ratio carefully, apply the highest result and then follow the obligations for that category.