How to Convert a Public Company to a Private Company A Detailed Guide for Hong Kong Dummies

Hong Kong’s process of converting public companies into private entities is a complex and multi-step procedure that involves legal, financial, and regulatory considerations. This transformation typically occurs when a controlling shareholder or group of shareholders seeks to take the company private, often due to strategic business decisions or market conditions. The process requires careful planning and execution to ensure compliance with Hong Kong laws and regulations.

One recent example of such a conversion is the privatization of Swire Pacific, one of Hong Kong's largest conglomerates. In 2018, Swire Pacific announced its privatization plan, which was completed in 2024. The process involved Swire Pacific Limited, a publicly listed company, being acquired by its parent company, Swire Resources Limited. This move allowed Swire Pacific to operate without the pressures of quarterly reporting and stock price fluctuations, providing greater flexibility for long-term strategic initiatives.

The first step in converting a public company to private status in Hong Kong is the proposal stage. A controlling shareholder or a consortium of shareholders must propose the privatization to the board of directors. This proposal should include details about how the transaction will be structured, including the offer price for minority shareholders' shares. According to the Companies Ordinance Cap. 622 in Hong Kong, the offer price must be fair and reasonable, reflecting the true value of the company. In the case of Swire Pacific, the offer price was set at HKD 13.50 per share, representing a premium over the prevailing market price.

Once the proposal is approved by the board, it must then be submitted to the company’s shareholders for approval. Under Hong Kong law, a special resolution is required, meaning that at least 75% of the votes cast by shareholders present at the meeting must approve the privatization. This requirement ensures that the majority of shareholders support the decision. If the proposal receives the necessary approval, the company proceeds to the next stage.

The next phase involves obtaining regulatory approvals. In Hong Kong, this includes applications to the Stock Exchange of Hong Kong SEHK and the Securities and Futures Commission SFC. These bodies review the privatization plan to ensure it complies with securities laws and regulations. For Swire Pacific, the SEHK and SFC reviewed the proposal and granted their approval after determining that the terms were fair and transparent.

After regulatory approval, the company must make an announcement to inform the public of the privatization. This announcement typically includes details about the offer price, the terms of the transaction, and the expected timeline. It is crucial for companies to maintain open communication with stakeholders during this period to address any concerns and provide clarity.

Following the announcement, minority shareholders have the right to object to the privatization. They can request independent valuations or seek legal advice to determine if the offer price is fair. In some cases, minority shareholders may file lawsuits challenging the privatization. However, in the case of Swire Pacific, the offer price was widely accepted, and there were no major objections from minority shareholders.

Once all necessary approvals are obtained and objections resolved, the final step is the completion of the privatization. This involves the acquisition of all outstanding shares and the delisting of the company from the stock exchange. Swire Pacific officially ceased trading on the SEHK in January 2024, marking the end of its public listing.

The benefits of converting a public company to private status are numerous. Private companies enjoy greater operational freedom, as they are not subject to the same level of scrutiny and disclosure requirements as public companies. This allows management to focus on long-term goals rather than short-term performance metrics. Additionally, private companies can implement strategic changes more efficiently, as they do not need to consult with a diverse group of shareholders.

However, the process also presents challenges. The cost of privatization can be significant, particularly when acquiring minority shares through buyouts. Furthermore, the loss of public listing status means the company must find alternative ways to raise capital, such as through private equity or debt financing. Despite these challenges, many companies in Hong Kong have successfully completed the transition to private ownership, enabling them to pursue growth opportunities without the constraints of public markets.

In conclusion, converting a public company to private status in Hong Kong is a rigorous process that requires adherence to legal and regulatory frameworks. By understanding the steps involved, from proposal to completion, companies can navigate this transition effectively. Recent examples like Swire Pacific demonstrate that privatization can be a viable strategy for achieving long-term business objectives while maintaining transparency and fairness throughout the process.