Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – Amendments To HKEx Guidance Letters Relevant To Disclosure In Prospectuses / Listing Documents.

16 March, 2015

 

 
In January 2015, the HKEx updated four guidance letters governing the disclosure requirements in listing documents for IPO transactions, namely HKEx-GL62-13, HKEx-GL65-13, HKExGL27-12 and HKEx-GL41-12. A brief summary of these letters and the relevant updates are set out below.
 
Directors, Supervisors And Senior Management Section (HKEx-GL62-13)
 
The section of a listing document setting out directors, supervisors and senior management biographies should contain information about those individuals that are accurate and complete in all material respects and not misleading or deceptive. It must follow the disclosure requirements set out in HKEx-GL62-13, otherwise the listing document may be considered not substantially complete as required under the Listing Rules. The section must include a table setting out certain prescribed information of each director, supervisor and senior manager and relationship among them. It must also contain a biography of each director, supervisor and senior manager covering his/her academic background, professional qualifications, relevant previous working experience, and current and past directorships in any listed companies in the last three years. The section should also disclose the role, composition and chairperson of each board committee, the directors, supervisors and senior management’s remuneration, incentive plan for senior management, and key employees and any deviation from the Code Provisions of the Corporate Governance Code and Corporate Governance Report.
 
It is clarified in the revised guidance letter that any references to directors of the company that were not directors or senior management of the applicant or any of its subsidiaries during the track-record period are not required to be included in the table of directors’ remuneration in the accountants’ report.
 
Property Valuation Report And Market Report (HKEx- GL65-13)
 
A company that has included a property valuation report and a market report (if any) in its listing document should ensure that sufficient disclosure is made in its listing document in respect of the bases and justifications of assumptions adopted in both reports and must ensure that the information in both reports does not contradict each other. In relation to a property valuation report, the bases and justifications of the key assumptions (in the case of the discounted cash flow method) and details of comparable properties and the bases why they are selected, how the valuation of a company’s properties differ from those of comparable properties and reasons for material differences (in the case of the comparison method) must be disclosed. In relation to a market report, the listing document must include the bases and justifications of key assumptions specific to a company’s business. A company should also benchmark the assumptions adopted with historical data for a prolonged period of time to enable investors to assess the reasonableness of the assumptions and explain their material fluctuations. Certain disclosure must also be made in the “Summary” and “Risk Factor”sections and, where possible, a sensitivity analysis on the valuation of the properties must be included.
 
The revised guidance letter clarifies that in the property valuation report, the company is expected to disclose, among other things, clear references to tenure and other specific factors such as title defects and special requirements imposed on the properties by the land grant contracts and the associated value implications, if material.
 
Summary And Highlights Section (HKEx-GL27-12)
 
The “Summary” section in a listing document should (i) be comprehensible and readable, (ii) be concise, easy to read and in plain language and (iii) enable investors to decide whether they might be interested in the offer, and therefore wish to read the rest of the listing document. The section should only include information that is considered relevant and necessary and should be a high-level overview drafted separately instead of including paragraphs that have been extracted from elsewhere in the listing document. Specifically, the section should not include detailed description of a company’s competitive strengths and business strategies as well as multiple pages of financial statements.
 
It is clarified in the revised GL27-12 that:
 
  • when updating its financial position since the latest audited financial period, a company should disclose in the “Summary” section qualitative/quantitative information with commentary relating to its financial performance, and the disclosure must enable investors to have a sense of materiality of the recent developments;
  • the disclosure of comparative financial information to any nonprofit forecast financial information is not compulsory. If a company chooses to disclose comparative financial information to nonprofit forecast financial information in its listing document, this should be reviewed by the sponsor; and
  • the total amount of listing expenses relating to the offer (including underwriting commission) is recommended to be disclosed in the “Summary” section.
 
Disclosure Of Material Changes In Financial, Operational And/Or Trading Position After Trading Record Period (HKEx-GL41-12)
 
A listing document should disclose updated information relating to a company’s financial, operational and/or trading position after the trading record period. It must include a statement by the directors of any material adverse change in the financial or trading position of the group since the end of the period reported on in the accountants’ report, or an appropriate negative statement. In assessing whether a piece of information constitutes a material adverse change, sponsors and companies should consider, at a minimum, whether there is any adverse change that has taken place or is expected to take place in the near future, in the technological, market, economic, legal or operating environment in which the applicant operates.
 
The changes in the updated GL41-12 include:
 
  • a company is expected to make disclosure in the “Summary” section regarding the adverse changes affecting its financial, operational and/or trading position after the trading record period, and the disclosure must enable investors to have a sense of materiality of the adverse changes;
  • the disclosure of comparative financial information to any nonprofit forecast financial information is not compulsory. If a company chooses to disclose comparative financial information to nonprofit forecast financial information in its listing document, this should be reviewed by the sponsor; and
  • any adverse changes should be highlighted in the “Risk Factors” and “Financial Information” sections of the listing document.
 
Skadden 


For further information, please contact:

 

Christopher Betts, Partner, Skadden
christopher.betts@skadden.com


Edward Lam, Partner, Skadden
edward.lam@skadden.com


Alec Tracy, Partner, Skadden
alec.tracy@skadden.com


Will Cai, Partner, Skadden
will.cai@skadden.com

 

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