13 May, 2012
- When submitting a listing application:
– a sponsor should have completed the vast majority of due diligence;
– the first draft of the prospectus should be published on the website of Hong Kong Exchanges and Clearing Ltd; and
– a sponsor should have resolved key issues concerning the operation, governance and structure of the company, and issues affecting the suitability for listing.
- Due diligence – a sponsor should:
– gain thorough knowledge and understanding of a company;
– adopt an open and questioning approach and should not accept statements at face value; and
– collaborate and discuss with auditors, lawyers, directors and other experts to assess all information available to it about the company.
- Responsibility for disclosure – a sponsor should:
– be reasonably satisfied through due diligence on the company that information in the prospectus is true, accurate and complete;
– be able to demonstrate that it is reasonable for it to rely on accountants’,
valuers’ and other experts’ reports in the prospectus – this does not involve repeating the work done by experts but involves testing the information provided in the reports to ensure that the totality of disclosure in the prospectus is credible and coherent; and
– be closely involved in the preparation of the Management Discussion and Analysis section of a prospectus to ensure that sufficient qualitative information explaining the company’s track record is communicated clearly to potential investors.
- Resources and management – a sponsor’s Management should:
– ensure sufficient resources are allocated to an initial public offering (IPO);
– oversee the progress and the standard of due diligence; and
– be closely involved in resolving difficult issues.
- Restrict the number of independent sponsors for each listing to one only or a limited number.
- Make clear in sections 40 and 40A of the Companies Ordinance that sponsors have civil and criminal liability for untrue statements (including material omissions) in a prospectus.
Alec Tracy, a corporate partner in the Hong Kong office of Skadden Arps, said: "If adopted as proposed, some of these changes seem likely to have a significant impact on how sponsors think about their duties.
"How much sponsors will need to change their current practices will, however, vary greatly from sponsor to sponsor, as many already take their obligations very seriously and have very strong internal policies and procedures in place. Overall, many sponsors in Hong Kong IPOs are already doing as much as, if not more than, what is expected of market intermediaries in other financial centers."