[ As at 27 January 2015 ]

 

BURSA MALAYSIA SECURITIES BERHAD

PRACTICE NOTE 12
RECURRENT RELATED PARTY TRANSACTIONS

 

DetailsCross References
Effective date:1 July 2001 Paragraphs 10.08 and 10.09
Revision date:3 August 2009, 22 September 2011, 3 January 2012, 27 January 2015

 

​​1.0Introduction
​​1.1Paragraph 10.08 of the Listing Requirements stipulates the obligations that a listed issuer must comply with in relation to a related party transaction.
1.2 Paragraph 10.08 must be read together with paragraph 10.09 of the Listing Requirements which is in relation to a Recurrent Related Party Transaction.
1.3This Practice Note sets out the following:
(a)clarification of the disclosure obligations in relation to Recurrent Related Party Transactions;
​(b)clarification of the application of paragraphs 10.08 and 10.09 to Recurrent Related Party Transactions ( "Requirements"); and
​​​(c)the information required for the circular and announcement referred to under paragraphs 10.09(2)(c) and (e).
​1.4This Practice Note must be read in conjunction with the Listing Requirements.
​1.5​For the purpose of this Practice Note, a "listed issuer" includes the listed issuer's subsidiaries.
2.0Application of paragraphs 10.08 and 10.09 to Recurrent Related Party Transactions
2.1 ​​In addition to the obligation to immediately announce a related party transaction, paragraph 10.08(2) states that where any one of the percentage ratios of a related party transaction is 5% or more, a listed issuer must issue a circular to its shareholders, obtain specific shareholder approval of the transaction and appoint an independent adviser. 
​2.2Further, paragraph 10.08(4) states that where any one of the percentage ratios is 25% or more, in addition to the foregoing, a listed issuer must also appoint a main adviser.
​2.3However, pursuant to paragraph 10.09, a listed issuer is allowed to obtain a mandate from its shareholders in respect of Recurrent Related Party Transactions ("Mandate").
2.4​​Where a listed issuer has obtained a Mandate in respect of any Recurrent Related Party Transactions, the requirements of paragraph 10.08 will not apply to the Recurrent Related Party Transaction which are comprised in the Mandate. This means, during the period of validity of the Mandate, the disclosure obligation as set out in paragraph 10.09(1) of the Listing Requirements, as well as the obligation to procure shareholder approval as set out under paragraph 10.08 will not apply to the Recurrent Related Party Transactions which are comprised in the Mandate.
​2.5However, pursuant to paragraph 10.09(2)(e) of the Listing Requirements, a listed issuer is required to immediately announce to the Exchange when the actual value of a Recurrent Related Party Transactions entered into by the listed issuer, exceeds the estimated value of the Recurrent Related Party Transaction disclosed in the circular by 10% or more.
3.0 Clarification on the Requirements
3.1​​A listed issuer that wishes to obtain a Mandate must comply with all the requirements set out in paragraph 10.09 of the Listing Requirements. This paragraph sets out the clarification in relation to the following requirements stipulated under paragraph 10.09(2):
3.1.1Recurrent Related Party Transactions
In this respect, the frequency or regularity of the transaction has to be considered. A transaction which has been made or will be made by the listed issuer at least once in 3 years in the course of its business will be considered recurrent.
3.1.2​Revenue nature necessary for day-to-day operations
​In this respect, a related party transaction of a revenue nature which is necessary for day-to-day operations must either contribute directly or indirectly to the generation of revenue for the listed issuer. As an example, in the case of a plantations company, the following transactions, which are by no means exhaustive, are considered to be of a revenue nature: 
(a)the purchase and sale of seeds, fertilizers and machines in relation to its plantation business;
​​(b)the appointment of sub-contractors to clear its land;
​​(c)the appointment of third parties to sell its products;
​​(d)the purchase of insurance policies for its properties, assets and employees;
​​(e)the purchase of office supplies; and
​(f)the provision of transportation, storage and other infrastructure facilities.
3.1.3In the ordinary course of business
A related party transaction is in the ordinary course of business, if it is a transaction which would reasonably be expected to be carried out by the listed issuer given the type of business the listed issuer is involved in. The fact that the transaction is envisaged in the memorandum of association of the listed issuer will not be a conclusive factor of determination. As an example, in respect of a listed issuer involved in manufacturing activities, the following transactions, which are by no means exhaustive, are considered to be in the ordinary course of business of the listed issuer:
(a)​the purchase of raw materials and supplies for its business;
​​(b)​the sale of finished products either directly or through appointed distributors;
​​(c)the construction of plant and/or other infrastructure facilities for its business;
​​(d)​the purchase and/or lease of machines, equipment, vehicles and spares for the operations of its factories;
​​(e)​the purchase of general insurance for its factories and employees;
​(f)​the waste treatment and disposal of waste; and
​(g)​the requisition of management and support services for its manufacturing business.
3.1.4Annual renewal
​The Mandate is subject to annual renewal. In this respect, any authority conferred by a Mandate will only continue to be in force until -
​​(a)the conclusion of the first annual general meeting of the listed issuer following the general meeting at which such Mandate was passed, at which time it will lapse, unless by a resolution passed at the meeting, the authority is renewed;
​​​(b)the expiration of the period within which the next annual general meeting after that date is required to be held pursuant to section 143(1) of the Companies Act, 1965 ("CA") (but must not extend to such extension as may be allowed pursuant to section 143(2) of CA); or
​​​(c)revoked or varied by resolution passed by the shareholders in general meeting,
whichever is the earlier.
3.1.5Annual report
In making the disclosure of the aggregate value of Recurrent Related Party Transactions conducted pursuant to the Mandate in a listed issuer's annual report, a listed issuer must provide a breakdown of the aggregate value of the Recurrent Related Party Transactions made during the financial year, amongst others, based on the following information:
(a)the type of the Recurrent Related Party Transactions made; and
​​​​(b)the names of the related parties involved in each type of the Recurrent Related Party Transactions made and their relationship with the listed issuer.
​3.2 Notwithstanding the clarifications above, the following are not regarded as Recurrent Related Party Transactions and as such the Mandate does not apply:
(a)the acquisition or disposal of land or land-based property except in the circumstances set out in paragraph 3.3(a) below;
(b)the acquisition or disposal of vessels, air crafts and plants;
(c)the entry into a lease of -
​​(i)a property for a period exceeding 3 years; or
​​(ii)such other assets,
​which involve payments of rental or such consideration on a lump sum basis (i.e. other than on an equal pro-rated monthly or annual installments);
(d)the provision of financial assistance pursuant to paragraph 8.23 of the Listing Requirements;
(e)​the acquisition or disposal of securities except in the circumstances set out in paragraph 3.3(b) below;
(f)the entry into joint ventures;
(g)​the grant or exercise of an option in relation to matters set out in subparagraph (a), (b), (c) and (e) above; and
(h)such other transactions as may be determined by the Exchange from time to time.
​3.3​Notwithstanding paragraph 3.2 above -
(a)a​ listed issuer classified under the Exchange's property sector may procure a Mandate for acquisition or disposal of land or land-based property provided that the transaction is a Recurrent Related Party Transaction and any one of the percentage ratios is not more than 10%; and
​​(b)a listed issuer under paragraph 9.20(2)(a), (b) and (c) of the Listing Requirements may procure a Mandate for acquisition or disposal of securities which is a Recurrent Related Party Transaction.
​3.4 Notwithstanding paragraph 3.2(d) above and subject to paragraph 10.09 of the Listing Requirements and the other provisions of this Practice Note, a listed issuer may obtain a Mandate in respect of the following Recurrent Related Party Transactions:
​(a)the pooling of funds within the listed issuer’s group of companies via a centralised treasury management function or such similar arrangements which entails the provision of financial assistance by the listed issuer, its subsidiaries not listed on any stock exchange, or both, on a short or medium term basis provided that -
​(i) the listed issuer in seeking such a mandate in accordance with paragraphs 8.23 and 10.09 of the Listing Requirements, must include in its circular, in addition to such other information as prescribed under the Listing Requirements, the estimated amounts or value of financial assistance ("Estimate"); and 
​(ii)notwithstanding paragraph 10.09(2)(e) of the Listing Requirements, if the actual amount of financial assistance provided or rendered exceeds the Estimate, the listed issuer must immediately announce the same to the Exchange.  If the percentage ratio of the amount of financial assistance provided or rendered in excess of the Estimate is 5% or more, the listed issuer must comply with paragraph 10.08 of the Listing Requirements. FAQ 10.25
For purposes of this paragraph -
(aa)​"short or medium term basis" means for a duration not exceeding 3 years; and
(bb)"group of companies" means the subsidiaries, associated companies of the listed issuer and the listed issuer's immediate holding company which is listed.
​​(b)​provision of guarantee, indemnity or such other collateral to or in favour of another person which is necessary in order to procure a contract or secure work from the other person or to enable the other person to commence and/or complete a contract or work for the listed issuer or its subsidiaries. ​
(c)​provision of financial assistance in respect of the business of -
(i)leasing, factoring or hire purchase carried out by a listed issuer or its subsidiaries not listed on any stock exchange; or
(ii)share financing or share margin financing carried out by a listed issuer or its subsidiaries not listed on any stock exchange which is a Participating Organisation; or
(iii)such other similar business that may be determined by the Exchange.
4.0Information in circular and announcement
4.1 A listed issuer must include such information as set out in Annexure PN12-A and Annexure PN12-B.pdf respectively in the circular and announcement required under paragraph 10.09(2)(c) and (e) of the Listing Requirements.

 

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Annexure PN12-A

Annexure PN12-B.pdf