Investor Presentaiton
Pre-IPO investment in convertible instruments (cont'd)
Current Practice in Dealing With Convertible Instruments (cont'd)
b) Conversion price reset
Any conversion price reset mechanism should be removed as they are contrary to the
principles of the Listing Rules.
Example: where the conversion price reset mechanism is based on the lower of a fixed.
price and a floating price, the price reset mechanism allows conversion at a discount to
the fixed price. As the share price declines, the formula would lead to more shares being
issued, leading to greater dilution and greater potential for share price reduction which
can work in a spiral.
c) Mandatory or Partial Conversions
Partial conversion is only allowed if all atypical special rights are terminated after listing -
this prevents the situation where a pre-IPO investor enjoys special rights as a bondholder,
from converting a significant portion of their convertible instruments into shares while
remaining entitled to the special rights by retaining a portion of the convertible
instruments.
CHARLTONS
易周律师行
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