ipo hongkong

7/27/2019 IPO HongKong

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The Hong Kong Stock Exchange IPO Overview

The Hong Kong Stock Exchange (the Exchange) ranks among the worlds largest stockexchanges and ranked first in terms of IPO funds raised in 2009, having raised over HK$248

billion from 69 new listings. The Hong Kong IPO market has remained strong in 2010 with51 new listings in the first nine months, including the worlds second largest IPO ever, that ofAgricultural Bank of China which raised US$22.1 billion in a dual listing on the Hong Kongand Shanghai stock exchanges. However, while the Exchange is more than capable ofhandling the so-called mega IPOs, it also provides a listing venue for smaller andmedium-size enterprises: as of January 2010 some 45% of Hong Kong listed issuers had amarket capitalisation of less than US$130 million.1

Recent trends include the listing of more overseas companies, attracted by Hong Kongs deepcapital pool. The Exchange has also actively sought to attract more overseas companies and

in 2010, overhauled its listing regime for mining and petroleum companies in a bid toconsolidate its position as a listing venue for international natural resource companies.

The Exchange operates two listing boards, the Main Board and the Growth Enterprise Market(GEM). The Main Board is designed for larger, established companies which are able tomeet its profit or other financial requirements. GEM, with lower entry criteria, targetsemerging growth companies and provides a stepping-stone to Main Board listing.

1. Regulatory Background

1.1 Overview of Regulatory Background

The Exchange is operated by the Stock Exchange of Hong Kong Limited(SEHK), a wholly-owned subsidiary of the Hong Kong Exchanges andClearing Limited (HKEx). The SEHK receives initial public offerapplications and administers the listing process. It is the primary regulatorof Hong Kong listed companies.

The Rules Governing the Listing of Securities on the Stock Exchange ofHong Kong Limited (the Main Board Rules) and the Rules Governingthe Listing of Securities on the Growth Enterprise Market of the StockExchange of Hong Kong Limited (the GEM Rules, together with theMain Board Rules, the Listing Rules) prescribe the requirements forlisting securities on the SEHK and set out continuing obligations whichmust be met by listed issuers and their directors. The Listing Rules arenon-statutory in nature and, in the event of their breach, SEHK may imposesanctions.

While the SEHK is the front-line regulator of Hong Kong listed companies,the Securities and Futures Commission (SFC) is the principal regulatorresponsible for administering the laws governing the securities and futuresmarkets in Hong Kong, including the Securities and Futures Ordinance (the

1 Source: Listing in Hong Kong - the Stock Exchange of Hong Kong Limited in March 010.


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SFO). Under the so called dual-filing regime established by theSecurities and Futures (Stock Market) Listing Rules, copies of all listingdocuments and all on-going disclosure documents filed with the SEHK mustalso be filed with the SFC. The SFC reviews draft listing documents and

may object to a company listing on the Exchange if it considers thedisclosure in the listing document to be inadequate. The inclusion of false ormisleading information in listing documents, or in any documents filedunder the on-going disclosure requirements, is potentially a criminal offenceunder the SFO2 and the SFC may investigate and bring prosecutorialactions in appropriate cases.

1.2 Regulatory Entities

HKEx

The HKEx is a recognised exchange controller under the SFO which ownsand operates the SEHK and related clearing houses.

SEHK

The SEHK is a recognised exchange under the SFO. It is the primaryregulator of stock market participants in respect of trading matters andcompanies listed on the Main Board and the GEM.

Securities and Futures Commission

The SFCs regulatory objectives are set out in the SFO. Its CorporateFinance Division is responsible for, inter alia, (i) administering listingfilings; (ii) overseeing the Exchanges listing-related functions andresponsibilities; and (iii) administering securities and company legislationrelated to listed companies.

Clearing Houses

The Hong Kong Securities Clearing Company Limited (HKSCC), HKFEClearing Corporation Limited and The SEHK Options Clearing HouseLimited are wholly-owned subsidiaries of the HKEx and recognisedclearing houses under the SFO.

1.3 Required Approvals

Applications to list on the Exchanges Main Board require the approval ofthe Listing Committee of the SEHK while applications to list on GEM areapproved by the Listing Division of SEHK, subject to a right of appeal tothe Listing Committee. If securities are to be offered to the public, as isthe case in an IPO, the Companies Ordinance requires a prospectus to be

2 Section 384 Securities and Futures Ordinance.


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issued which must be registered with the Hong Kong Registrar ofCompanies.

2. Listing Criteria

There are several possible routes to listing on the Exchange and the requirements ofthe Listing Rules differ according to the route adopted. This chapter sets out therequirements for an offer to the public by a new listing applicant (i.e. an IPO). It ishowever also possible for a new applicant to list on both the Main Board and GEMby means of a placing or an introduction.

The basic qualifications for listing on the Main Board and GEM are detailed inChapter 8 and Chapter 11 of the Main Board and GEM Rules, respectively. Theprincipal requirements are set out below.

2.1 Suitability of Listing Applicant

The applicant and its business must, in the opinion of the SEHK, be suitablefor listing. The SEHK has an absolute discretion to accept or reject listingapplications and the fact that a company meets all the qualifications forlisting will not necessarily guarantee the applicants suitability. The ListingRules prescribe certain types of applicant which will not be consideredsuitable for listing. These include applicants (other than investmentcompanies) whose assets consist solely or substantially of cash orshort-dated securities.

Public companies

The listing applicant must not be a private company within the meaning ofsection 29 of the Companies Ordinance that is, a company whose articlesrestrict the number of shareholders to 50 and restrict the right to transfer itsshares.

Competing interests

Where an applicant has a controlling shareholder (i.e. any person(s) who

controls the exercise of 30% or more of the voting power at generalmeetings of the applicant orany person(s) who can control the composition of a majority of theapplicants board of directors) or a director with an interest in a business thatcompetes with that of the applicant, SEHK generally treats this as adisclosure issue. The Listing Rules require the listing document to make fulldisclosure of the competing interests including, inter alia, a statementexplaining how the applicant is capable of carrying on its businessindependently of, and at arms length from, the relevant competing business.In extreme cases, where SEHK considers that there are inadequatearrangements to manage conflicts of interest and achieve delineation ofbusiness between the applicant and businesses under common control, this


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may give rise to a concern as to the applicants suitability for listing.

Management presence

The applicant should have sufficient management presence in Hong Kongand this usually means having at least two executive directors who areordinarily resident in Hong Kong.

2.2 Track Record Requirement

A Main Board listing applicant must satisfy each of the following: (a) have atrading record of not less than three financial years; (b) have managementcontinuity (i.e. it has normally been managed by substantially the samepersons) for at least the three preceding financial years; and (c) have

ownership continuity and control for at least the most recent auditedfinancial year. This trade record period is intended to enable the SEHK andinvestors to make an informed assessment of the managements ability tomanage the applicants business and the likely performance of that businessin the future. To be satisfied that the trading record is acceptable, SEHK willreview the underlying (consolidated) audited accounts of the applicant forthe trading record period.3

GEM listing applicants are required to have a trading record of at least twofinancial years with management continuity throughout that period andownership continuity and control for the preceding full financial year.

Listing decisions / guidelines

In a July 2002 Consultation, the SEHK stated that it interpretedmanagement continuity to mean that applicants must establish that there hasbeen no change in the majority of the applicants board of directors andsenior management of its principal operating subsidiaries during the trackrecord period.

In listing decision 45-1, management continuity was stated to be a questionof fact and SEHK explained that it would focus on whether the group ofindividuals responsible for the track record results of a listing applicantremained in positions of responsibility with the enterprise throughout thetrack record period and whether they would form the core management ofthe listing applicant at the time of listing and post-listing.

The Exchange considers ownership continuity and control to be thecontinuous ownership and control of the voting rights attaching to the sharesby a controlling shareholder, or where there is no controlling shareholder,the single largest shareholder.4 For the purpose of establishing ownership

3 8.05 & PN34 FAQ of the Exchange


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continuity and control, the shareholding interests and control of a group ofindividual shareholders may be aggregated and regarded as a controllinggroup.

Exemptions from the track record requirement

In the case of Main Board listing applicants, SEHK will accept a shortertrading record period under substantially the same management, if theapplicant qualifies for listing under the market capitalisation/revenue test(see below) and it is able to demonstrate that its directors and managementhave sufficient and satisfactory experience of at least three years in the lineof business and industry of the applicant and there is management continuityfor the most recent audited financial year.5

SEHK may also accept a shorter trading record period for a Main Boardlisting applicant if: (a) the applicant is a mineral company and its directorsand senior management have sufficient and satisfactory experience of atleast five years in relevant mining and/or exploration activities; (b) theapplicant is a newly formed project company engaged in infrastructureprojects with long term concession or mandates awarded by the governmentand its directors and management have sufficient and satisfactoryexperience of at least three years in the line of business and industry; or (c)the applicant has a trading record of at least two financial years and SEHKis satisfied that the listing of the applicant is desirable in the interests of theissuer and investors and the investors have the necessary information to

enable to arrive at an informed assessment concerning the applicant and thesecurities for which listing is sought.6

A shorter trading record period may be acceptable for a GEM listingapplicant if: (a) the applicant is a mineral company whose directors andsenior management have at least five years relevant experience; (b) theapplicant is a newly formed project company; or (c) the circumstances areexceptional and SEHK considers it desirable to accept a shorter period.However, where SEHK accepts a trading record of less than two financialyears, it will still require the cash flow requirement of HK$20 million to bemet for that shorter period.

2.3 Financial Tests

Main Board

Main Board listing applicants must also meet one of the following threefinancial tests:7

2.3.1 The profit test

5 8.05A6 8.05B, Ch 187 8.05


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To meet the profit test, the listing applicant or its group must haveprofits generated by activities in the ordinary and usual course ofbusiness, of at least HK$20 million for the most recent financial

year and, for the two preceding financial years, aggregate profits ofat least HK$30 million. An applicant listing under the profit testmust also have an expected market capitalisation at the time oflisting of no less than HK$200 million.

2.3.2 The market capitalisation/revenue/cash flow test

This test requires the applicant to have: (i) market capitalisation ofat least HK$2 billion at the time of listing; (ii) revenue of at leastHK$500 million for the most recent audited financial year; and (iii)

positive cash flow from the operating activities of the listingapplicant or its group of at least HK$100 million in aggregate forthe three preceding financial years.

2.3.3 The market capitalisation/revenue test

This test requires an applicant to have: (i) an expected marketcapitalisation of at least HK$4 billion at the time of listing; (ii)revenue of at least HK$500 million arising from the principalactivity of the applicant for the most recent audited financial year;and (iii) at least 1,000 shareholders at the time of listing (although

SEHK has proposed reducing the required number of shareholdersto 300).

GEM

A new GEM applicant or its group is required to have a positivecash flow from operating activities in the ordinary and usual courseof business of at least HK$20 million in aggregate for the twofinancial years immediately preceding the issue of the listingdocument.

2.4 Minimum Market Capitalisation

The expected market capitalisation of a Main Board listing applicant at thetime of listing must be at least HK$200 million, with at least HK$50 millionheld by the public. new listings. Market capitalisation is calculated on thebasis of all issued share capital including the shares to be listed and anyother shares that are either unlisted or listed on other regulated market(s).The expected market capitalisation of the shares for which listing is soughtmust be at least HK$50 million. In exceptional cases, the SEHK mayaccept a lower initial market capitalisation if it is satisfied as to the

marketability of the listing applicants shares.


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The expected market capitalisation at the time of listing for applicantsseeking to list on GEM is HK$100 million. The market capitalistion of theshares to be listed and the market capitalisation of the publicly held sharesmust each be HK$30 million.

2.5 Sufficiency of Working Capital

A new Main Board or GEM listing applicant is required to include in itsprospectus a statement confirming that the applicant and its subsidiaryundertakings, if any, have sufficient working capital to meet the groupsrequirements for at least twelve months following the publication of theprospectus.8 The working capital requirement for new applicant mineralcompanies is higher: the requirement being for sufficient working capital for125% of the groups requirements for the same period.

The applicants sponsor is additionally required to confirm to the SEHK inwriting that it is satisfied that the statement in the listing document as to thesufficiency of working capital has been made by the applicants directorsafter due and careful enquiry, and that persons or institutions providingfinance have stated in writing that such facilities exists.9

2.6 Eligibility for Electronic Settlement

The listing applicants shares must be eligible for deposit, clearance andsettlement through the Central Clearance and Settlement System (CCASS)

operated by Hong Kong Securities Clearing Company Limited.

3. Overseas Companies

A substantial proportion of the companies listed on the Exchange are incorporatedoutside Hong Kong, particularly in Bermuda, the Cayman Islands and the PeoplesRepublic of China (the PRC), each of which are accepted jurisdictions ofincorporation for listing applicants under the Listing Rules.

Companies incorporated in other jurisdictions will also be acceptable for listing ifthey can establish to the satisfaction of SEHK that the standards of shareholder

protection provided by the laws of the applicants jurisdiction of incorporation aresubstantially equivalent to those provided under Hong Kong law. If they are not,the applicant may still be listed if its articles of incorporation can be amended toprovide standards of shareholder protection equivalent to those available in HongKong.

One of the SEHKs key objectives in recent years has been to attract issuers frommore overseas jurisdictions to list on the Exchange. To that end, the SEHK and theSecurities and Futures Commission published a Joint Policy Statement Regarding theListing of Overseas Companies in March 2007 which sets out the key areas in which

8 Main Board Rule 8.21A and GEM Rule 12.22(13)9 ibid.


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a listing applicant is required to demonstrate substantial comparability between thestandards of shareholder protection provided in its home jurisdiction and thoseavailable in Hong Kong.

SEHK has so far approved the following ten jurisdictions of incorporation for listedissuers: Australia, the British Virgin Islands, Canada (British Columbia), Canada(Ontario), Cyprus, Germany, Jersey, Luxembourg, Singapore and the UnitedKingdom.

The Main Board and GEM Listing Rules set out additional requirements,modifications and exceptions which apply to companies incorporated outside HongKong and these are set out in Chapters 19 and 24 of the Main Board and GEMListing Rules, respectively. Specific requirements applicable to PRC incorporatedissuers are set out in Chapter 19A of the Main Board Listing Rules and Chapter 25 ofthe GEM Listing Rules. These chapters generally contain matters which relate tomodifications to the application procedures, the content requirements for listingdocuments and continuing obligations. In particular, an overseas issuer must ensurethat it has an authorised person to accept service of process on its behalf in HongKong and that it maintains a register of shareholders in Hong Kong

Secondary listings

A company that is already listed on a foreign market may apply for a secondarylisting on the Exchange. For a secondary listing:

(i) the listing on the overseas issuers primary exchange must have beengranted prior to the listing on the Exchange;

(ii) the SEHK may require the listing document to contain a summary of therelevant regulatory provisions which apply to the listing applicants primarystock exchange

(iii) the overseas public float requirement does not apply to companies with asecondary listing on the Exchange; and

(iv) the overseas issuer is only required to appoint one authorised representative

who need not be a director or secretary of the issuer and may be the sameperson as is authorised to accept service of process.

4. Shareholding Requirements

4.1 Public float

At least 25% of the issuers total issued share capital must at all times beheld by the public. Where an issuer has more than one class of sharesapart from the class of shares to be listed, is sought, the total number of theissuers shares that are held by the public at the time of the listing must be atleast 25% of the total issued share capital. However, the shares for which


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listing is sought must not be less than 15% of the total issued share capital,and must have an expected market capitalisation at the time of listing of atleast HK$50 million. If the public float requirement is not met, the SEHKmay suspend trading until appropriate steps have been taken to restore the

minimum percentage of securities held in public hands.

The SEHK may accept a lower public float of between 15% to 25% in thecase of issuers with an expected market capitalisation at the time of listingof HK$10 billion, provided it is satisfied that the number of sharesconcerned and the extent of their distribution would enable the market tooperate properly with a lower percentage and on the condition that the issuermakes proper disclosure of the lower prescribed percentage of public floatin the prospectus.

For the purposes of the public float requirement, the term the publiccomprises anyone other than:

(i) connected persons of the issuer (including any director, chiefexecutive or substantial shareholder (i.e. a person with 10% ormore of the voting power at general meetings of the company) ofthe issuer or any of its subsidiaries or an associate (including,broadly, family members of individuals and fellow group membersof a company, trusts and controlled companies);

(ii) any person whose acquisition of shares has been financed directlyor indirectly by a connected person; or

(iii) any person who is accustomed to taking instructions from aconnected person in relation to the acquisition, disposal, voting orother disposition of shares of the issuer.

Confirmation of sufficiency of public float must be included in the issuersannual reports post-listing.

4.2 Restrictions on Major Shareholders

4.3 Spread of Shareholders

There must be an adequate spread of holders of securities to be listed. Therequired number of shareholders will depend on the size and nature of theissue but for Main Board issuers, there must be a minimum of 300shareholders and for GEM issuers there must be at least 100 publicshareholders. There is a further restriction that not more than 50% of theshares in public hands at the time of listing can be beneficially owned by thethree largest public shareholders.

A company applying for listing on the Main Board under the marketcapitalisation/ revenue test must have at least 1,000 shareholders at the timeof listing. The 1,000 shareholder requirement for the market


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capitalisation/revenue test is the subject of a public consultation publishedin September 2010: the SEHK has proposed reducing the required numberof shareholders to 300 in line with the requirements under the other tests.

4.4 Post-IPO Lock-up

Controlling shareholders (being persons who together control 30% or moreof the shares of the issuer) must not dispose of, or enter into any agreementto dispose of, or otherwise create any options, rights, interests orencumbrances in respect of any interest in their shares:

(i) in the six months after listing; and

(ii) in the six month period commencing on the expiry of the periodreferred to in (i) above if this would result in that person ceasing tobe a controlling shareholder.10

Whether shares placed at any pre-IPO placing of the issuer or shares heldfollowing conversion of convertible bonds issued prior to the IPO would besubject to any lock-up undertakings to the SEHK is determined by theSEHK on a case-by-case basis. Factors which the SEHK will considerinclude the size of any pricing discount, the length of time between theplacing or convertible bond issue and the listing application and whether theplacing or bond terms give special rights to the places or convertible bondholders. It is important to note that notwithstanding any voluntary or

involuntary lock-up periods on the shares, the listing application may berejected if the terms of the pre-IPO placing or convertible bond issue arefound to be contrary to the principles of Main Board Listing Rule 2.03 orGEM Listing Rule 2.06. These require the issue and marketing of sharesto be conducted in a fair and orderly manner and all holders of listed sharesto be treated fairly and evenly.

There are certain exceptions to the lock-up rule set out in the Listing Rules,for example, if the issue of shares has been approved by the SEHK pursuantto a share option scheme.

4.5 Disclosure Obligations

Investors acquiring 5% or more of a listed companys shares are required tofile a substantial shareholders notice with the listed company and theSEHK within three business days (which include Saturdays). A holder of5% or more is further required to file notice on any increase or decrease intheir holding which crosses a percentage level, when they cease to hold theinterest, on a change in nature of their interest (e.g. if the shares are chargedor pledged) and when they acquire a short position of 1% or more in theshares of the listed company.

10 10.07


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5. Listing Procedure and Timetable

Listing process and timeframe

Provided that all relevant listing criteria can be satisfied and documents required tobe submitted to the Exchange are in good order, the listing process may be achievedwithin 3-4 months although in practice this is often longer.

The formal listing process is initiated by the submission of the application Form A1(Listing Application Form) to SEHK together with supporting documents. Thefollowing is an indicative timetable and list of documents to be filed with the SEHK.

Event

Approximate

period prior tolisting

Business and legal due diligence 1-3 months +(ongoing)

Financial due diligence 1-3 months +(ongoing)

Property valuation 1-3 months +(ongoing)

Preparation of accounts, profit and cash flow forecast,financial forecast model

1-3 months +(ongoing)

Preparation of the prospectus 1-3 months +(ongoing)

Submission of the application Form A1 (Listing ApplicationForm) to the SEHK with a timetable and payment of fullinitial listing fee

Documentary requirements include:

- advanced drafts of the prospectus together withCD-ROMs containing the same drafts

- draft accountants report for 3 full financial yearsimmediately preceding the issue of the listing documenttogether with two copies of any draft statement ofadjustments

Further main documents / information to be submitted to theExchange:

- sponsors undertaking to comply with the Listing Rules,

At least 25 clearbusiness days

before expectedListing Committee

hearing(approximately 56days from listing)


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Event

Approximate

period prior to

listing

to use all reasonable endeavours to ensure all informationprovided to the Exchange is true and does not omitmaterial information and to cooperate in any investigationconducted by the Listing Division and/or the ListingCommittee of the Exchange;

- sponsors statement of independence;- confirmation letters from independent non-executive

directors in respect of their understanding of theirobligations and duties;

- sponsors confirmation that directors has confirmed that

s/he understandings his/her obligations under the StandingRequest passed to them by the sponsor- various checklists on such matters as listing qualifications,

prospectus content, property valuation report etc.;- qualification of company secretary (if required);- prescribed information such as information on top 5

suppliers and customers, details of reorganisation andcorporate structure etc.;

- draft of all requests for waiver from the requirements ofthe Listing Rules and the provisions of the CompaniesOrdinance;

- draft share option scheme (if any)- three drafts of the deposit agreement (for depositary

receipts)- two copies of legal opinion (for depositary receipts)- confirmation and undertaking from each

director/supervisor in relation to the accuracy andcompleteness of his/her information in the prospectus

- declaration and undertaking from each director/supervisorthat he/she will lodge a declaration and undertaking (FormB/H/I) with the Exchange

- for PRC issuers, PRC legal opinion covering issues oncorporate matters and property interests;

Submission of 15-day document

Documentary requirements include:

- two copies of the draft profit forecast memorandum andcash flow forecast memorandum

At least 15 clearbusiness days

before expectedListing Committee

hearing(approximately 42days from listing)

Submission of 4-day document At least 4 clear


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Event

Approximate

period prior to

listing

Documentary requirements include

- final hearing proof of prospectus and CD-ROMscontaining the same proof

- draft sponsors letter in relation to sufficiency of theissuers working capital

- legal advisers confirmation that the articles of associationare not inconsistent with the laws of the place ofincorporation and the Listing Rules

- certified copy of the signed deposit agreement (fordepositary receipts)- copies of all executed requests for waiver from the

requirements of the Listing Rules and the provisions ofthe Companies Ordinance

- written submission to the Exchange in support of theapplication for listing

business daysbefore expected

Listing Committeehearing

(approximately 27days from listing)

Prospectus verification complete N/A

Recommendation / Rejection by the Listing Division N/A

Hearing by the Listing Committee approximately 22days from listing

Further submission of documents before bulk-printing ofprospectus:

- two copies of the final proof of formal notice (whereapplicable)

- five copies of the final proof of any application form tosubscribe for or purchase securities

- certified copy of certificate of incorporation- three copies of listing agreement (for authorised collective

investment schemes and Chapter 21 investmentcompanies)

- a final letter from the sponsor in relation to sufficiency ofthe issuers working capital (unless previously supplied)

As soon aspracticable

after hearing

Further submission of documents on or before date of issue ofthe prospectus:

- four copies of the listing document (in English and

Chinese)- relevant application form for subscription of securities

As soon aspracticable

after hearing but onor before issue of

prospectus


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Event

Approximate

period prior to

listing

- where any copy of the above two items were signed by anagent, a copy of the authorisation for the agents signature

- copy of formal notice (where applicable)- copy of written notification issued by HKSCC stating that

the securities will be Eligible Securities- every written undertaking of the applicant, its

shareholders and/or relevant parties- original signed sponsor declaration(s) in relation to, inter

alia, the sufficiency of documents and informationsubmitted, directors qualifications etc.

Signing of the underwriting agreement, international placingagreement etc.

approximately 15days from listing

Issue of the prospectus and formal notice

Lodgement of the following documents with the Exchange:

- an application for authorisation for registration of theprospectus

- two copies of the signed prospectus

- a certificate from the translator certifying the accuracy ofthe translation (for every Chinese translation of theprospectus)

No later than 11amon the intended

date ofauthorisation of the

prospectus(approximately 15days from listing)

Road-show approximately 14days from listing

Public offer: approximately 14days from listing

(for run forapproximately 1

week)

Application lists open start of week

Latest time to lodge white and yellow forms end of week

Latest time to give electronic instructions to the HKSCC end of week

Application lists close end of week

Pricing approximately 3days after close of

application list


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Event

Approximate

period prior to

listing

(approximately 4days from listing)

Despatch of share certificates within 1 week fromclose of application

list

Despatch of refund checks within 1 week fromclose of application

list

Submission of the following documents:

- certified copy of the resolution(s) in general meetingauthorizing the issue of all securities

- list of successful applicants showing names and addresses- Form E sponsors declaration- Form F declaration by issuer- certified copy of the resolution(s) of the board or other

governing body authorizing the issue and allotment of thesecurities

- copy of the placing letter and separate marketingstatements (in the case of a securities placing)- declaration and undertaking from each director/supervisor

(Form B/H/I)

Before listing(approximately 1-2days from listing)

Listing N/A

Dealing of securities commences 0

Due diligence

The directors of the issuer are required under the Listing Rules to collectively andindividually accept full responsibility for the accuracy of the information containedin the prospectus and confirm, having made all reasonable enquiries, that to the bestof their knowledge and belief there are no other facts the omission of which wouldmake any statement in the prospectus misleading. Any misstatements in theprospectus may expose the directors to potential liabilities under the common law,SFO and Misrepresentation Ordinance by reasons of reckless, fraudulent or negligentmisrepresentations or misstatements.

One of the defences available to directors against the liabilities pertaining to the issueof the prospectus is what is sometimes referred to as the due diligence defence, thatis, the directors had reasonable grounds to believe that the statements made were trueas adequate due diligence was carried out.


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It is important as part of the listing process therefore that due diligence is carried out.This would typically involve:

the company providing responses to a number of due diligence questions prepared bythe issuers legal advisers in respect of various information contained in the draftprospectus;

the preparation of verification notes for the verification of all material statementsmade in the draft prospectus (often this is supported by independently preparedwritten materials). Such verification can be undertaken by the issuers advisers orother persons with necessary expertise to verify the relevant statements.

The sponsor to the issuer is also required by the Listing Rules to conduct reasonabledue diligence to enable it to give the required declaration to the SEHK. The SEHKhas issued guidelines as to the due diligence which should be conducted by sponsorson an IPO in Practice Note 21 to the Main Board Listing Rules and Practice Note 2to the GEM Listing Rules.

Comfort letters

The underwriters of the issuer will often obtain from the independent auditors of theissuer comfort letters as a due diligence defence regarding the correctness of thefinancial statements and other financial information included in the offeringdocuments. The actual scope of such comfort letters will vary and is subject to

negotiation between the parties.

Marketing the Offer

Listing applicants and their advisers need to be aware or the publicity restrictionsimposed by the Listing Rules. All publicity material which is to be released inHong Kong in connection with an IPO must be reviewed by SEHK prior to releaseand must not be released until SEHK has confirmed that it has no further commentsthereon. The circulation of marketing documents such as the invitation or offeringtelex and drafts of agreements to be entered into in connection with the issue ishowever allowed without review of the documents by the SEHK. Care must be

taken to ensure that material relating to the IPO is not released without prior SEHKapproval as this may result in the SEHK delaying the timetable for the ListingCommittee hearing by up to one month. In particular, no press releases should bepublished in relation to the IPO prior to the issue of the prospectus.

Required Documentation

The documents required to be submitted for review and approval by SEHK are setout in Chapters 9 and 12 if the Main Board and GEM Listing Rules, respectively.

Publication of the Prospectus


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When securities are offered to the public in a listing, a prospectus must be preparedin accordance with the requirements of the Listing Rules, the Companies Ordinanceand the SFO. The prospectus must also be vetted for compliance by the ListingDivision of the Exchange, approved by the SFC and filed with the Registrar of

Companies. The SFC may request further information to be disclosed in theprospectus or it may object to listing if it appears to the SFC that the prospectuscontains false or misleading information. However, any comments the SFC has ona draft prospectus are communicated to the listing applicant by the SEHK, whichremains the sole point of contact for the applicant and its advisers.

The listing of the new applicant will be approved by the Listing Committee in thecase of a Main Board listing applicant and by the Listing Division of the SEHK inthe case of a GEM listing applicant.

6. Documentary Requirements

6.1 Contents of the Main Listing Document

The content requirements for a prospectus are set out in the CompaniesOrdinance and the Listing Rules. The Companies Ordinance requires aprospectus to be in both English and Chinese and to contain the detailedinformation specified in Part I of the Third Schedule to the CompaniesOrdinance. The contents requirements of the Listing Rules are set out inAppendix 1A to the Main Board and GEM Listing Rules. Certain specificrequirements are highlighted below.

Strategic investment and other pre-IPO investments

Any pre-IPO and strategic investments must be fully disclosed in theprospectus. In particular, the SEHK requires disclosure of the following:

the identity, background and principal businesses of the investor; principal terms of the investment; reasons for investments; any contribution, benefits or payments the investor has or is

expected to make to the issuer; any agreed lock-up period on the shares issued to the investor; any representation on the investor on the board of directors of the

issuer; whether the relevant shares are subject to clawback; whether placing shares (if any) are included as part of the public

float; and investment agreements if they are deemed to be material contracts

(copies of which must be made available for public inspection0.

Accountants Report

The issuer must include in its prospectus an accountants report prepared by


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certified public accountants qualified under the Professional AccountantsOrdinance who are independent of the issuer to the same as extent as isrequired of an auditor under the Companies Ordinance and in accordancewith the Hong Kong Institute of Certified Public Accountants requirements

on independence.

The accountants report must cover the three financial years (or twofinancial years for GEM listing applicants) immediately preceding thelisting and the latest financial period reported on must not have ended morethan six months before the date of the listing document. The financialhistory of results and balance sheets included in the accountants report musthave been prepared in accordance with either Hong Kong FinancialReporting Standards (HKFRS) or the International Financial ReportingStandards (IFRS). Where IFRS are used, the listing applicant isrequired to disclose and explain the differences of accounting practicebetween IFRS and HKFRS which have a significant effect on its financialstandards and to compile a statement of the financial effect of any suchmaterial differences.

Reporting accountants are required by the Listing Rules to express anopinion in their report as to whether or not the financial information gives atrue and fair view of the results and cash flows for the period reported onand of the balance sheet date as at the end of each period reported on.

Competing Business

As mentioned in paragraph 2.1 above, competing interests of the issuersdirectors and controlling shareholders must be fully disclosed in theprospectus.

7. Financial Information

The accountants report required to be included in the prospectus must contain theaudited income statements, balance sheets and cashflow statements for the trackrecord period for the issuer and, if the issuer is itself a holding company, theconsolidated financial statements for the issuer and its subsidiaries. Where the last

financial year reported on ended more than six months before the prospectus date,the reporting accountants additionally need to report on the interim period, oftenreferred to as the stub period. Comparative figures for the same period in theprevious year are also required to be included in the prospectus.

Where a listing applicant has acquired any businesses or companies since the date ofthe latest audited accounts,pro forma financial information must be included in theprospectus in respect of the enlarged group. The pro forma financial informationmust be reported on by the reporting accountants.

8. Parties Involved


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8.1 Sponsor

An issuer seeking a listing of shares on the Exchange must appoint one ormore sponsors to assist with its listing application. To be eligible to act as

the sponsor of a new applicant, a firm must be licensed by the SFC as acorporate finance adviser and permitted to conduct sponsor work.

If only one sponsor is appointed, that sponsor must be independent from theapplicant in accordance with the independence test set out in Rules 3A.07and 6A.07 of the Main Board and GEM Listing Rules, respectively. If thereare two or more sponsors, at least one sponsor must be independent and thelisting document must disclose whether each sponsor is independent inaccordance with the independence test. In addition, one sponsor must bedesignated as the primary channel for communication with the Exchange.

The role of sponsor carries a number of obligations and each sponsor isresponsible for ensuring that the sponsors obligations under the ListingRules are discharged. These obligations include providing corporate financeadvice to the issuer in relation to the listing, reviewing and supervising otherprofessional advisers, submitting all relevant documentation in relation tothe listing application, assisting the company in appointing and coordinatingwork of other professional advisers and liaising with the SEHK.

Each sponsor is required to give an undertaking to SEHK to: (i) complywith the Listing Rules; (ii) use reasonable endeavours to ensure the accuracy

of information provided to the SEHK and (iii) cooperate in any listingdivision investigation.

Between the date of the hearing of the listing application and the date ofissue of the listing document, sponsors must submit to SEHK a SponsorsDeclaration giving specific confirmations as to the accuracy of informationin the directors declarations, the applicants compliance with the conditionsfor listing, the sufficiency and accuracy of information in the prospectus andas to the adequacy of the applicants systems and its directors experienceand understanding of the Listing Rules to ensure the applicants compliancewith the Listing Rules post-listing.

Sponsors are required to conduct reasonable due diligence inquiries in orderto put themselves in a position to give the Sponsors Declaration. Thetypical due diligence steps expected of sponsors of initial listingapplications are set out at Practice Note 21 of the Main Board Listing Rulesand Practice Note 2 to the GEM Listing Rules. The actual due diligencesteps may need to be more extensive than those set out in the Practice Notedepending on the circumstances. The Exchange expects sponsors todocument their due diligence planning and any significant deviations fromtheir plans.

8.2 Other persons, advisers and professionals appointed for the listing


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process

Compliance adviser

A listed issuer is required to retain a compliance adviser acceptable to theSEHK for the period commencing on the date of listing and ending on thepublication of its financial results for the first full financial year after listingif it is listed on the Main Board, or for the second full financial year afterlisting if it is listed on GEM. A compliance adviser must be licensed bythe SFC to conduct sponsor work and while it is required to act impartially,it is not required to be independent of the issuer. An issuer may, but is notobliged to, appoint as its compliance adviser the same firm that acted as thesponsor of its listing.

Issuers are required to consult with, and if necessary, seek advice from theircompliance advisers on a timely basis in the following 4 situations:

(i) before publication of any regulatory announcement, circular orfinancial report;

(ii) where a notifiable or connected transaction is contemplated;(iii) where the issuer proposes to use the listing proceeds differently to

the manner detailed in the listing document or where the issuersbusiness activities, developments or results deviate from anyforecast, estimate or other information in the listing document; and

(iv) where the Exchange makes an inquiry of the issuer in relation to

any unusual movements in the price or trading volume of its shares.

The SEHK may also require an issuer to appoint a compliance adviser atany other time after the specified period, for example if the issuer hasbreached the Listing Rules. In this case the Exchange will specify the periodof appointment and the circumstances in which the compliance adviser mustbe consulted.

Where the authorised representatives of the issuer are expected to befrequently outside Hong Kong, the compliance adviser must also act as theprincipal channel of communication between the issuer and the Exchange.

Underwriters

Underwriters may underwriting part of the offering.

Legal advisers

Legal advisers commonly involved in the listing on the Exchange includeHong Kong legal adviser and legal advisers of other jurisdiction(s) to theissuer, sponsor(s) and underwriter(s). Their duties include but is not limited

to:


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(a) providing legal advice to the issuer in relation to Hong Kong oroverseas legal and regulatory requirements of the listing;

(b) preparation of relevant documentation;(c) assist in the local due diligence and preparation of verification

notes;(d) issuing legal opinions which may be required.

Share registrar and transfer office

The share registrar will be responsible for the following functions over thelisting process:

(i) processing and balloting public offer applications;(ii) liaising with the sponsors, Hong Kong Securities Clearing Co. Ltd.,

and the issuer for preparation and dispatch of share certificates tosuccessful applicants; and

(iii) processing of share transfers of the issuer after listing

Reporting accountants

Reporting accountants to the issuer for the listing would be required toprepare, inter alia:

(i) an accountants report;

(ii) a report on unaudited pro forma financial information;(iii) an opinion on profit forecast; and(iv) appropriate comfort letters

Receiving Banks

Receives banks shall be appointed for receiving and processing applicationsunder public offering tranche.

Independent property valuer

The independent property valuer will be responsible for preparing anindependent valuation on the property interests of the issuers group detailsof which may be included in the prospectus for the listing.

Public relations consultant

A public relations consultant may be engaged for the provision of strategicadvice on communications, media relations and event support to the listing.

8.3 Other persons and committees which must be appointed

Independent Non-Executive Directors


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The Listing Rules require all listed companies to appoint a minimum of

three independent non-executive directors, at least one of whom must have

appropriate professional qualifications or accounting or related financial

management expertise.

Company secretary

The secretary of the issuer must be an individual ordinarily resident in HongKong who has the requisite knowledge and experience to discharge thefunctions of the secretary of the issuer and who:

(i) is a member of the Hong Kong Institute of Company Secretaries, asolicitor or barrister as defined by the Legal Practitioners

Ordinance or a professional accountant; or

(ii) is an individual with the relevant academic or professionalqualifications or experience who, in the view of the SEHK, will beable to fulfill the role of a company secretary.

Authorised representatives

Every issuer must appoint two authorised representatives who may be eithertwo directors or a director and the company secretary unless the SEHK, inexceptional circumstances, agrees otherwise. The responsibilities of anauthorised representative include:

(i) at all times (particularly prior to commencement of trading in themorning) being the principal channel of communication betweenthe SEHK and the listed issuer and supplying the SEHK with hiscontact details (including home and office telephone and facsimilenumbers);

(ii) to ensure that whenever he is outside Hong Kong, suitablealternates are appointed, available and known to the SEHK and to

give the SEHK their contact details in writing.

Audit committee

The committee must be made up of non-executive directors only and themajority of the committee and the chairman must be independentnon-executive directors of the listed issuer. The committee must have aminimum of three members, at least one of whom must be an independentnon-executive director with appropriate professional qualifications oraccounting or related financial management expertise.


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8.4 Committees under the Code of Corporate Governance Practices11

Remuneration committee

The issuer must set up a remuneration committee comprising of mainlyindependent non-executive directors. This remuneration committee shall,inter alia, advise and make recommendations in respect of the issuerspolicy and structure for remuneration of directors and senior management.An issuer which does not have a remuneration committee must disclose andexplain the reasons for that fact in its annual report.

Nomination committee

A nomination committee should be established which comprises mainlyindependent non-executive directors. The nomination committee is required,inter alia, to advise and make recommendations in respect of the structure,size and composition of the board of directors, the qualifications of boardmembers and succession plans for directors.

9. Listing Costs

The cost of listing may differ according to factors such as the issuers size, theamount of funds to be raised, the listing board, the kind of listing (primary, secondaryor backdoor listing), and the issuers jurisdiction of incorporation. A listing wouldinvolve both implicit and explicit costs.

Implicit costs may include:

(i) absorption of management and staff time by the listing process;(ii) the efforts of any necessary restructuring; and(iii) discount on the sale of shares at the listing.

Explicit costs may include:

(i) underwriting commissions (usually this is the biggest component of the totallisting costs);

(ii) professional service fees (e.g. fees of sponsor, legal advisers, reportingaccountants, property valuers, translators etc.) these depend on the amountof work required to comply with the regulations and properly communicatethe issuers value;

(iii) share certificates;(iv) fees of registrar and receiving banks;(v) publicity costs (road-show, announcements, public relations materials and

printing etc.); and(vi) fees charged by the SEHK (initial listing fee and trading fee) (see below).

11 Appendix 14 of the Main Board Listing Rules


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9.1 Fees charged by the Exchange

Initial listing fess

The fees charged by the SEHK in relation to a listing is set out in Appendix8 of the Main Board Listing Rules. The initial listing fee payable on theapplication for listing (usually on submission of the listing application form)of equity securities ranges from HK$150,000 where the value of the sharesto be listed is less than HK$100 million to HK$650,000 where the value ofthe shares to be listed exceeds HK$5 billion.

On a transfer of listing from GEM to the Main Board, the new applicantpays an initial listing fee at a 50% discount to the fee that would otherwisebe payable. For secondary listings, the new applicant pays an initial listingfee at a 75% discount to the applicable fee.

Annual listing fee

An annual listing fee (payable in advance in one instalment) is required tobe paid by the issuer with reference to the nominal value of the shares listedor to be listed on the Exchange. The annual fee ranges from HK$145,000for shares with a nominal value of less than HK$200 million toHK$1,188,000 for shares with a nominal value exceeding HK$5 billion.

Other fees

In addition to the above, subsequent issue fees, transaction levies on newissues, trading fees on new issues, brokerage fees and other trading fees andlevies may be payable in respect of the listing or subsequent events.

9.2 Sponsors Fees and Lawyers and Accountants Fees

Fees charged by the professional advisers to the issuer will vary accordingto the size and complexity of the issue.

10. Continuing Obligations

The Listing Rules impose a number of continuing obligations on listed issuers,including inter alia the following:

Public Float

The requirement to maintain the public float is a continuing obligation andissuers must inform WEHK immediately on becoming aware that thepercentage of shares in public hands has fallen below the requirementminimum.

GeneralDisclosure Obligation


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Listed issuers must inform SEHK and the market as soon as reasonablypracticable of any information: (i) necessary for them to appraise theposition of the group; (ii) necessary to avoid the establishment of a false

market; or (iii) which might reasonably be expected to materially affect themarket activity in and the price of securities.

Disclosure ofFinancial Information

Main Board listed issuers must publish audited annual financial statementswithin 4 months of the financial year end and audited half-year financialstatements within 2 months of the end of the half-year. Publication ofquarterly financial reports is not a Listing Rule requirement for Main Boardissuers but is a recommended best practice under the Code on CorporateGovernance Practices.

GEM listed issuers must publish audited annual financial statements within3 months of the financial year end and audited half-year and quarterlyfinancial statements within 45 days of the end of the relevant financialperiod.

11. Our Office

For further information, please contact:

Julia CharltonCharltons10th Floor, Hutchison House10 Harcourt RoadHong KongDirect line: + 852 2905 7688Email:[email protected]

ipo hongkong

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