Securities Law & Instruments

Headnote

Subsection 74(1) – Application for exemption from prospectus requirement in connection with first trade of shares of issuer through exchange or market outside of Canada or to person or company outside of Canada – issuer not a reporting issuer in any jurisdiction in Canada – conditions of the exemption in section 2.14 of National Instrument 45-102 Resale of Securities not satisfied as residents of Canada own more than 10% of the total number of shares – relief granted subject to conditions.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am.

IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED (THE “ACT”)

AND

IN THE MATTER OF
ONTARIO TEACHERS PENSION PLAN BOARD AND LOUIS XIII HOLDINGS LIMITED

ORDER

Background

The Ontario Securities Commission has received an application from the Ontario Teachers’ Pension Plan Board (the “Applicant”) for an order pursuant to section 74(1) of the Act for an exemption from the prospectus requirement contained in section 53 of the Act in connection with the first trades of convertible bonds (the “Convertible Bonds”) of Louis XIII Holdings Limited (“Louis XIII”) acquired by the Applicant pursuant to the First Securities Placement and the Second Securities Placement, as defined below, and ordinary shares (the “Shares”) of Louis XIII that the Applicant would receive upon exchange of such Convertible Bonds (the “Requested Relief”).

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This order is based on the following facts represented by the Applicant:

1.             The Applicant is an independent corporation established on December 31, 1989 by the Teachers’ Pension Act (Ontario) to administer and manage a pension plan established for the benefit of the Province of Ontario’s primary and secondary school teachers and to pay members of the pension plan their respective benefits under the plan. The head office of the Applicant is located at 5650 Yonge Street, Toronto, Ontario, Canada.

2.             Louis XIII is a limited liability corporation incorporated under the laws of Bermuda, with shares listed on the Stock Exchange of Hong Kong (the “SEHK”). The core businesses of Louis XIII include management contracting, property development management and property investment, primarily serving clients based in Hong Kong, China and Macau. The principal place of business of Louis XIII is located at 2901 AIA Central, 1 Connaught Road Central, Hong Kong. Louis XIII has advised the Applicant that, to the best of Louis XIII’s knowledge, it is not in default of any requirements of the SEHK or the applicable securities laws of China, Bermuda or any jurisdiction of Canada.

3.             In a Louis XIII press release dated January 25, 2013, Louis XIII announced that it had successfully raised gross proceeds of HK$3,200 million from the placement of Shares and Convertible Bonds (collectively, the “First Securities Placement”).

4.             Pursuant to the First Securities Placement, OTPP subscribed for HK$1,007.50 million principal amount of Convertible Bonds convertible for 1,481,617,647 Shares at a conversion price of HK$0.68. The Convertible Bonds were sold to OTPP on a private placement basis in reliance on the “accredited investor” prospectus exemption contained in Section 2.3 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106). The Convertible Bonds may be converted to Shares at the applicable prescribed price at any time commencing on the date of issue and up to seven days prior to their maturity date, subject to certain early redemption rights.

5.             As disclosed in a Louis XIII press release dated April 24, 2013, effective April 3, 2013, the corporate name of Louis XIII was changed to “Louis XIII Holdings Limited” from “Paul Y. Engineering Group Limited”.

6.             As part of a special general meeting of Louis XIII held on May 24, 2013, the shareholders of Louis XIII approved a resolution of the board of directors of Louis XIII to consolidate the Shares (the “Share Consolidation”). Pursuant to the Share Consolidation, every ten (10) issued and unissued Shares of HK$0.20 each in the share capital of Louis XIII was consolidated into one (1) Share of HK$2.00 each. After giving effect to the Share Consolidation, OTPP held HK$1,007.50 million principal amount of Convertible Bonds convertible for 148,161,764.7 Shares at a new conversion price of HK$6.80 per Share.

7.             In a Louis XIII press release dated December 16, 2013, Louis XIII announced that it had successfully raised gross proceeds of HK$441.27 million from the placement of Shares and Convertible Bonds (collectively, the “Second Securities Placement”).

8.             Pursuant to the Second Securities Placement, OTPP subscribed for HK$299.94 million principal amount of Convertible Bonds convertible for 36,445,000 Shares at a conversion price of HK$8.23 per Share. The Convertible Bonds were sold to OTPP on a private placement basis in reliance on the “accredited investor” prospectus exemption contained in Section 2.3 of National Instrument 45-106. The Convertible Bonds may be converted to Shares at the applicable prescribed price at any time commencing on the date of issue and up to seven days prior to their maturity date, subject to certain early redemption rights.

9.             As of the effective date of the Second Securities Placement, the conversion price of the outstanding Convertible Bonds issued pursuant to the First Securities Placement was adjusted to $6.55 per Share. As a result, the HK$1007.50 principal amount of Convertible Bonds held by OTPP pursuant to the First Securities Placement were convertible for 153,816,793 Shares.

10.          As disclosed in a securities disclosure filing dated December 16, 2013, as of the effective date of the Second Securities Placement, the share capital of Louis XIII consisted of 449,596,510 Shares. Upon full conversion of the Convertible Bonds, the issued share capital of Louis XIII would be 663,644,563 Shares.

11.          As of the effective date of the Second Securities Placement, OTPP held approximately HK$1,307.44 million principal amount of Convertible Bonds convertible for (i) 153,816,793 Shares at a conversion price of HK$6.55; and (ii) 36,445,000 Shares at a conversion price of HK$8.23, which together would have represented approximately 28.7% of the Shares, calculated on a fully-diluted basis after giving effect to the Second Securities Placement.

12.          To the best of OTPP’s knowledge, based on a certificate from Louis XIII, as of August 12, 2014:

(a)           there were issued and outstanding 449,596,510 Shares and HK$1,463,242,350 principal amount of Convertible Bonds;

(b)           the number of beneficial holders of Shares was 581 and the number of beneficial holders of Convertible Bonds was 4;

(c)           OTPP held HK$1,307.44 principal amount of Convertible Bonds, representing approximately 89.35% of the total principal amount of outstanding Convertible Bonds;

(d)           the Convertible Bonds held by OTPP were convertible for 190,261,793 Shares, which, on an as-converted basis, would have represented approximately 42.32% of the total number of outstanding Shares;

(e)           OTPP represented 25% of the outstanding number of holders of Convertible Bonds;

(f)            OTPP, on an as-converted basis, represented approximately 0.17% of the outstanding number of holders of Shares;

(g)           residents of Canada, other than OTPP, did not own, directly or indirectly, any Convertible Bonds; and

(h)           residents of Canada, other than OTPP, did not own, directly or indirectly, any Shares.

13.          Based on correspondence with Louis XIII, as of August 12, 2014, other than the Convertible Bonds and Shares, there were no other outstanding securities of Louis XIII other than certain exchange rights entitling holders thereof to purchase Shares. At such time, residents of Canada, including OTPP, did not own, directly or indirectly, any such exchange rights.

14.          Louis XIII is not a reporting issuer or its equivalent in the Province of Ontario or any other province or territory of Canada, nor are any of its securities listed or posted for trading on any exchange, or market, located in Canada.

15.          Louis XIII has advised OTPP that it has no present intention of becoming listed in Canada or of becoming a reporting issuer under the Act or under any other Canadian securities laws, and no market for the Convertible Bonds or Shares exists in Canada and none is expected to develop.

16.          In the absence of the exemption requested hereby, the Applicant takes the view that the first trade of Convertible Bonds or Shares held by the Applicant will be deemed to be a distribution and subject to section 53 of the Act.

17.          The prospectus exemptions in sections 2.5 and 2.6 of National Instrument 45-102 Resale of Securities will not be applicable in this situation because Louis XIII is not a reporting issuer or its equivalent in the Province of Ontario or any other province or territory of Canada.

18.          The prospectus exemption in section 2.14 of National Instrument 45-102 would be applicable in this situation, but will not be available to the Applicant (or any other holder of Convertible Bonds or Shares in Canada) with respect to its first trade of Convertible Bonds or Shares because residents of Canada, including the Applicant, owned more than 10% of the outstanding Convertible Bonds or Shares at the date of the distribution of the Convertible Bonds and Shares, respectively.

Order

The Commission is satisfied that this order meets the test set out in Section 74(1) of the Act.

The order of the Commission under Section 74(1) of the Act is that the Requested Relief is granted provided that:

i)              Louis XIII:

(A) was not a reporting issuer in any jurisdiction of Canada at the distribution date; or

(B) is not a reporting issuer in any jurisdiction of Canada at the date of the trade;

ii)             the trade is executed through the facilities of the SEHK or through any other exchange or market outside Canada or to a person or company outside of Canada; and

iii)            at the distribution date of the Convertible Bonds, after giving effect to the issue of such Convertible Bonds, including Convertible Bonds of the same class or series that were issued at the same time or as part of the same distribution, and including the Shares that would be issued upon conversion of the Convertible Bonds, residents of Canada (excluding the Applicant):

(a)           did not own, directly or indirectly, more than 10 percent of the outstanding Convertible Bonds and would not have owned, directly or indirectly, more than 10 percent of the outstanding Shares; and

(b)           did not represent in number more than 10 percent of the total number of owners, directly or indirectly, of Convertible Bonds and would not have represented in number more than 10 percent of the total number of owners, directly or indirectly, of Shares.

DATED at Toronto on this 2nd day of December, 2014.

“James Turner”

“Judith Robertson”