Southgobi Announces Inside Information and Announcement Pursuant to Rule 13.09 of the Listing Rules IN Relation to Listing Application IN Canada, Overseas Delisting, Migration and Primary Listing ON the Main Board of the Hong
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April 3, 2023
SOUTHGOBI ANNOUNCES INSIDE INFORMATION AND
ANNOUNCEMENT PURSUANT TO RULE 13.09 OF THE
LISTING RULES IN RELATION TO LISTING APPLICATION
IN CANADA, OVERSEAS DELISTING, MIGRATION AND
PRIMARY LISTING ON THE MAIN BOARD OF THE HONG
KONG STOCK EXCHANGE
VANCOUVER – SouthGobi Resources Ltd. (TSX: SGQ, HK: 1878) (“SouthGobi” or the
“Company”) The announcement is made by the Company pursuant to Rules 13.09 and
13.51(1) of the Listing Rules on the Hong Kong Stock Exchange, paragraph s 3.21 and 3.43
of the Guidance Letter and the inside information provisions under Part XIVA of the SFO.
Reference is made to the announcements of the Company dated April 21, 2022, July 29, 2022
(“July 29 Announcement”), September 15, 2022, November 23, 2022, December 30, 2022,
January 31, 2023, February 28, 2023, March 6, 2023 and April 2, 2023 (Hong Kong time)
(collectively, “Announcements”). Unless otherwise specified, capitalized terms used in the
Announcements shall have the same meanings when used herein.
1. OVERSEAS DELISTING, MIGRATION ON HKEX AND LISTING ON TSX-V
1.1 Introduction
The Company announced on April 2, 2023 (Hong Kong time), the Company’s common shares
will be delisted from the TSX on April 14, 2023 (Canadian time at the close of trading ), and
the Company’s common shares will commence trading on the TSX-V on April 17, 2023
(Canadian time as of the opening of trade). The change of the Company’s secondary listing
status to primary listing on the Hong Kong Stock Exchange will occur on April 17, 2023 (Hong
Kong time) (the “Effective Date”), upon which the stock marker “S” will be removed from its
stock short name on the Hong Kong Stock Exchange. The Company’s common shares will be
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listed for trading on the TSX-V under its existing ticker symbol “SGQ”. For the avoidance of
doubt, the Migration Grace Period will end on the Effective Date.
1.2 Obligations of the Company to Comply with All Applicable Listing Rules
Upon the Effective Date, the Company has to comply with all the relevant Listing Rules
applicable to a primary listed issuer, including those provisions subject to the Existing Waivers,
unless otherwise being exempted or waived by the Hong Kong Stock Exchange pursuant to
the Waivers as further elaborated below. The Existing Waivers will be withdrawn or will be no
longer applicable upon the Effective Date. The Existing Waivers include the following specific
waivers and exemptions granted by the Hong Kong Stock Exchange and the exemption and
ruling granted by the SFC, on an individual basis:
Rules Subject matter
Rule 13.09(2) of the Listing Rules General obligation of disclosure
Rules 13.11 to 13.22 of the Listing
Rules
Advances to entities and financing arrangements
etc.
Rule 13.28(7) of the Listing Rules Disclosure of identities of placees
Rule 13.38 of the Listing Rules Notice of a meeting of holders of listed securities and
proxy forms
Rule 13.39(4) to (5) of the Listing
Rules
Voting by poll and poll results announcement
Rule 13.44 of the Listing Rules Voting by directors with material interests on board
resolutions
Rules 13.46(2) and 13.4 8 of the
Listing Rules
Distribution of annual and interim reports
Chapter 14 and Chapter 14A of the
Listing Rules
Notifiable and connected transactions
Chapter 17 of the Listing Rules Share option schemes
Appendix 3 to the Listing Rules
(the requirements under Appendix 3
to the Listing Rules were replaced by
Core Shareholder Protection
Standards effective on January 1,
2022)
Articles requirements
Part XV of the SFO Disclosure of interests under Part XV of the SFO
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Details of the aforementioned Existing Waivers are set out in the prospectus of the Company
dated January 15, 2010.
The Company has made the necessary arrangements to comply with the relevant provisions
of the Listing Rules and the SFO applicable to a primary listed issuer upon the Effective Date.
In the event that the Company failed to comply with the Listing Rules applicable to a primary
listed issuer in time (where no waiver has been granted by the Hong Kong Stock Exchange)
upon the Effective Date, the Company would be in potential breach of the Listing Rules, and
would potentially be subject to, depending on the nature and seriousness of the possible
breach and the circumstances and the manner in which the conduct is giving rise to such
possible breach, disciplinary a ction by the Hong Kong Stock Exchange. The Company may
also be directed to carry out possible remedial and enhancement actions such as internal
control review and directors’ training on regulatory and legal topics including compliance with
the Listing Rules.
1.3 Application for Waivers from Strict Compliance with the Listing Rules in connection
with the Delisting
In connection with the Delisting, the Company has sought, and the Hong Kong Stock
Exchange has granted, the following Waivers from strict compliance with the following
provisions of the Listing Rules:
Rules Subject matter
Rule 13.38 of the Listing Rules “Two-way” voting
Rules 14A.36 and 14A.53 of the
Listing Rules
Certain continuing connected transaction
requirements under Chapter 14A of the Listing Rules
In the event of withdrawal of any of the aforementioned Waivers, the Company would have to
fully comply with such Listing Rules.
1.3.1 Waiver from Listing Rules on “Two-way” Voting
Requirements under the Listing Rules
Rule 13.38 of the Listing Rules requires that the Company sends, with the notice convening a
meeting of holders of listed securities to all persons entitled to vote at the meeting, proxy forms
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with provision for “two-way” voting, i.e., the Shareholders are provided with options to vote “for”
or “against” the resolutions, on all resolutions intended to be proposed at a meeting.
Reasons for applying the waiver
Pursuant to applicable British Columbia corporate laws, the election of Dire ctors or the
appointment of the Auditors are conducted through “plurality voting” method, i.e.,
Shareholders are only able either to vote for the resolution or to withhold from voting.
Shareholders are not provided the opportunity to vote against the resolution, and the “withheld”
votes are not counted in the tally of votes, meaning that, for example, a resolution can be
passed if only one vote is cast “for” such resolution, even where the majority of Shareholders
have withheld from voting. As such, the proxy forms will state that the Shareholder is only able
either to vote for the resolution or withhold from voting. The Company is prohibited under the
applicable law to amend the Articles and override the relevant statutory provisions, and this
precludes the use of “two -way” voting for the election of Directors and the appointment of
Auditors. Therefore, the Company would conflict with applicable British Columbia corporate
laws to strictly comply with Rule 13.38 of the Listing Rules.
Given the preclusion of the use of “two-way” voting for the election of directors under the British
Columbia corporate laws and as a requirement for TSX -listed company, the Company has
adopted the Majority Voting Policy in respect of uncontested meetings (i.e., the number of
nominees for election is equal to the number of Directors to be elected as set out in the
Company’s management information circular for the particular meeting) for the election of the
Directors. Pursuant to the Majority Voting Policy, each Director must be el ected individually
(rather than as a slate) by a majority (50% plus one vote) of the votes cast (i.e., more votes
‘‘for’’ than votes ‘‘withheld’’) with respect to his or her election. They are required to deliver a
pre-executed resignation to the Company, which would be used immediately if a Director
nominee is not elected by at least a majority of the votes cast with respect to his or her election,
effectively tendering his or her resignation to the Board. The Majority Voting Policy is intended
to provide shareholders of TSX-listed companies with an ability to vote "against" a Director
nominee.
On the other hand, the Majority Voting Policy adopted by the Company for election of the
Directors does not apply to appointment of Auditors. The reason is that if the Majority Voting
Policy applies to the appointment of Auditors, a newly elected auditor whose appointment is
not approved by a majority vote (i.e., the ‘‘for’’ votes are less than the ‘‘withheld’’ votes) will be
forced to resign and a vacancy will thus be created. Furthermore, under the applicable British
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Columbia corporate laws, the Majority Voting Policy cannot bind outside parties like the
Auditors and the Auditors are under no obligations to abide to the Majority Voting Policy
implemented by the Company.
Waiver application
The Company has applied for, and the Hong Kong Stock Exchange has granted, a waiver
from strict compliance with Rule 13.38 of the Listing Rules, subject to the Delisting becoming
effective and to the Hong Kong Stock Exchange’s approval on the following bases:
(i) the Company has already established the Audit Committee (all members of which are
independent non-executive Directors) and the Nominating and Corporate Governance
Committee (all members of which are independent non-executive Directors) which will
determine and make recommendations on, with delegated responsibilities and in
compliance with the requirements of the Listing Rules and on an annual basis, the
appointment of Auditors and the nomination of Directors. Each of the independent non-
executive Directors is also subject to re -election by the Shareholders in each annual
meeting of the Shareholders;
(ii) under the British Columbia corporate laws, it is not possible to amend the Articles to
achieve the same effect of the Majority Voting Policy. The Company undertakes that,
upon the Delisting, it will continue to voluntarily adopt the Majority Voting Policy in
uncontested elections of Directors, which is consistent with the standard practice for
TSX-listed companies in Canada. The Company will also extend the applicability of
the Majority Voting Policy to contested elections of Directors, which is permitted under
Canadian corporate law;
(iii) where the number of the ‘‘withheld’’ votes exceeds that of the ‘‘for’’ votes of the elected
Auditors which gives rise to concerns of the Directors regarding the appropriateness
of such Auditors’ appointment, the Directors will, upon consulting the Audit Committee,
call a special meeting of the Shareholders and propose ordinary resolutions to the
Shareholders to consider removing the elected Auditors and appointing replacement
Auditors in its stead for the remainder of its term. The Company considers that this
arrangement will allow the Shareholders to express their objection to the appointment
of the Auditors, and at the same time ensure that the Company will not be bereft of
Auditors; and
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(iv) Shareholders who hold in aggregate not less than 1/20 (5%) of the issued voting
shares of the Company may requisition a general meeting of Shareholders. Upon
receiving a valid requisition, the Board must call a general meeting within four months
after the date of requisition to transact the business stated in the requisition. Directors
and Auditors can be removed by ordinary resolutions at a meeting of Shareholders in
favour of such removal, where Shareholders will have the option to vote ''for'' or
''against'' such a resolution to remove a director or an auditor at such meeting. If the
Directors do not, within 21 days after the date on which the requisition is recei ved by
the Company, send notice of a general meeting, the requisitioning Shareholders, or
any one or more of them holding, in the aggregate, more than 1/40 of the issued Shares
that carry the right to vote at general meetings, may send notice of a general meeting
to be held to transact the business stated in the requisition.
1.3.2 Waiver from certain continuing connected transaction requirements under
Chapter 14A of the Listing Rules
Background of the continuing connected transactions
The Convertible Debenture and the Cooperation Agreement
Prior to the secondary listing of the Company on the Hong Kong Stock Exchange, the
Company, upon the approval by the Shareholders, issued the Convertible Debenture to Land
Breeze, a wholly-owned subsidiary of CIC (the then single largest Shareholder immediately
before Completion, holding approximately 23.62% of the total share capital of the Company
immediately before Completion), on November 19, 2009 to provide necessary financing to
support the Company’s expansion plans in Mongolia, repayment of debt due, and other
general corporate purposes. As negotiated and entered into in conjunction with, and as a
condition to the CIC’s subscription of the Convertible Debenture, the Company and CIC
(through Fullbloom, its wholly -owned subsidiary) also executed the Cooperation Agreement
on the same date, pursuant to which both parties agreed to use their best endeavours to
improve cross-border commerce in order to facilitate improved access to the China market for
Mongolian commerce, and vice versa.
The key terms of the Convertible Debenture and the relevant accounting treatment and
policies were set out in the prospectus of the Company dated January 15, 2010.
Amended and Restated Cooperation Agreement
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On April 23, 2019, the Company and CIC (through Land Breeze) entered into the 2019
Deferral Agreement pursuant to which Land Breeze agreed to the Deferral. On the same day,
the Company amended and restated the Cooperation Agreement (i.e., the Amended and
Restated Cooperation Agreement) with CIC (through Fullbloom) to clarify the original intent of
the parties for calculating service fee payable by the Company under the Cooperation
Agreement, pursuant to which a service fee would be calculated based on Net R evenues
(rather than the net revenues realised by the Company and its Mongolian subsidiaries). Such
amendment to the Cooperation Agreement was minimal and did not trigger Shareholders’
approval requirement at the time.
The 2019 Deferral Agreement and the Amended and Restated Cooperation Agreement were
disclosed in the Disclosure Documents, and the 2019 Deferral Agreement and the Deferral
were approved at the general meeting of Shareholders on May 30, 2019.
Sale Transaction
On May 27, 2022, the Company announced that CIC has entered into the Sale Transaction to
sell the Sale Shares to the Fund. In connection with the Sale Transaction, the Fund would be
assigned with all of CIC’s rights in and obligations under, among the others: (i) the Convertible
Debenture; (ii) the Amended and Restated Cooperation Agreement; and (iii) the deferral
agreements (including the 2019 Deferral Agreement) between CIC, the Company and certain
of its subsidiaries in connection with the deferral of interest payments and other outst anding
fees under the Convertible Debenture and the Amended and Restated Cooperation
Agreement. Assignment of rights and obligations under the Amended and Restated
Cooperation Agreement by CIC to the Fund required consent from the Company (which
consent shall not be unreasonably withheld), and the Company provided such consent.
The Completion took place on August 30, 2022.
Listing Rules implications
Prior to Completion and at the date of the July 29 Announcement, CIC held the Sale Shares,
representing approximately 23.62% of the total share capital of the Company. Accordingly,
the Fund (and its associates) became connected persons of the Company following
Completion and upon Delisting. As such, pursuant to Chapter 14A of the Listing Rules, the
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continuing transactions under the Amended and Restated Cooperation Agreement shall
constitute continuing connected transactions of the Company upon Delisting.
Pursuant to paragraph 1.2 under Appendix to the Guidance Letter HKEX -GL-112-22, since
the Company had alr eady entered into continuing transactions under the Amended and
Restated Cooperation Agreement which remained subsisting as at the date of the Notification,
and such transactions are expected to continue after the Delisting becomes effective, the
Company is required to fully comply with the applicable Listing Rules on such transactions.
The highest applicable percentage ratios (other than the profits ratio) under the Listing Rules
in respect of the service fee payable under the Amended and Restated Cooper ation
Agreement may exceed 5% during the remainder of the Term. As such, the Amended and
Restated Cooperation Agreement, unless otherwise exempted, will be subject to the reporting,
annual review, announcement, circular, independent financial advice, and S hareholders’
approval requirements under Chapter 14A of the Listing Rules.
Waiver application
The Company has applied for, and the Hong Kong Stock Exchange has granted, a waiver
from strict compliance with (i) the independent Shareholders’ approval requirement under Rule
14A.36 of the Listing Rules in respect of the transactions under the Amended and Restated
Cooperation Agreement; and (ii) the requirement under Rule 14A.53 of the Listing Rules to
set an annual cap expressed in monetary terms for the fees payable by the Company under
the Amended and Restated Cooperation Agreement. The Directors consider that it would be
unduly burdensome and impracticable if the continuing connected transactions under the
Amended and Restated Cooperation Agreement are subject these requirements for the
following reasons:
(A) The Amended and Restated Cooperation Agreement is an agreement for a fixed period
with fixed terms
The key terms of the Amended and Restated Cooperation Agreement are as follows:
(i) CIC would provide, among others, the Services;