Due Diligence Guidelines –
Provision of Information to Analysts
Addendum 5: Form of Memorandum from Sponsor to Issuer
Re: Project [•] – Control of information to investment research analysts
This memorandum sets out important Hong Kong laws and regulations regarding communications between the Company and investment research analysts during the listing application process.
The securities offering is made on the basis on the prospectus only
Throughout the listing preparations, it is crucial to bear in mind that the contemplated offer of securities by the Company in Hong Kong must be made solely on the basis of the prospectus (and in the case of the offer to participants in the international offer, on the basis of the international offering circular the contents of which substantially mirrors the prospectus). In other words, public as well as institutional investors should make their investment decision on the basis of these documents only.
Serious legal consequences of existence of another selling document
[As outlined in the publicity memorandum to you dated [•],] there are serious legal consequences if investors are found to have relied on information contained in a different document – e.g. a research report – to make their investment decision. A document, by whatever name it is called, which offers securities or invites others to acquire securities carries legal risks of being an “investment advertisement” under the Securities and Futures Ordinance, as well as a “prospectus” under the Companies (Winding Up and Miscellaneous Provisions) Ordinance.
Personal liability of directors
If material information not in the prospectus is disclosed by the Company or any of its directors, employees or substantial shareholders, or any of their respective advisers, to an analyst who uses such information in his or her research report, this may have serious consequences as it triggers onerous legal compliance matters including registration requirements, mandatory content requirements and language requirements for the research report. Failure to comply with such requirements may result in statutory liabilities on the part of the Company as well as the directors.
In normal cases, neither the Company nor its directors or senior management is liable for “independent research” produced by analysts. However, if the Company is too closely involved in the preparation of investment research, there is a risk that the analyst’s independence may be compromised and the resulting research will be taken to be representations by the Company. This may in turn give rise to the argument that the Company’s securities are being offered partly on the basis of the research. In this case, any error, inaccuracy or misleading statement in the research report could give rise to contractual claims against the Company for investor’s compensation, as well as statutory penalties for misstatements. In some circumstances, the research report may be taken to be a prospectus in itself, and if this is the case, any misstatement in it may lead to personal liabilities, including criminal liabilities, for the directors and senior managers concerned.
Do not provide research analysts with non-prospectus material information
To avoid the risk of liability, the directors and senior management of the Company must ensure that no material information, including forward-looking information (whether qualitative or quantitative) concerning the Company that is not reasonably expected to be included in the prospectus or publicly available, is provided to any investment research analyst. When assessing whether any such information is “material” information, the test that should be applied is whether the information is material to an investor in forming a valid and justifiable opinion of the Company and its financial condition and profitability.
This restriction covers any information provided to an analyst, directly or indirectly, formally or informally, and in writing or verbally. It covers all communications in a meeting, during a presentation, site visit or interview, or in any other context.
Consequences of disclosure to research analysts
If the Company discloses to an analyst material information that is not reasonably expected to be included in the prospectus or publicly available, there are immediate legal and regulatory risks and the Company may be compelled to disclose the same information in the prospectus.
In the event of disclosure (whether intentional or otherwise) to analysts, corresponding disclosure of the material information in the prospectus may be required, even if such information is in fact inappropriate for a prospectus and/or cannot be verified. Once such information is put into the prospectus, the directors take full responsibility for its truthfulness, accuracy and completeness in the same way as for all the other information in the prospectus.
As a corporate finance advisory firm licensed by the SFC to carry on the work of a sponsor, we are under an express regulatory requirement to ensure that all material information, including forward-looking information (whether quantitative or qualitative) disclosed or provided to research analysts is contained in the prospectus or is publicly available.
Please seek assistance
In view of the above, [the Sponsors in this project] reserve all rights to supervise and coordinate, monitor and/or place restrictions on all communications between the Company and research analysts throughout the listing application process.
The Company is strongly advised to seek the guidance and assistance of [names of the Sponsor and both teams of Hong Kong legal advisers] if there are any uncertainties in this area.
Form of memorandum from sponsor to issuer (Chinese version):
有关：[•]项目 – 对发给投资研究分析员的资料之控制
[就如在日期为 [•]年[•]月[•]日 发给阁下的宣传备忘录所概述，] 如果投资者被发现曾经依赖一份不同的文件所载的资料–例如一份研究报告–而做出其投资决定，则会带来严重的法律后果。一份发售证券或邀请其他人收购证券的文件 (无论该文件被怎样命名)会带有作为《证券及期货条例》项下的 “投资广告”及《公司条例》项下的“招股章程”的法律风险。
在正常情况下，公司或其董事或高级管理层均无须对分析员做出的 “独立研究” 负责。不过，如果公司在预备投资研究时有太密切之参与，则会产生就分析员的独立性妥协及其做出的研究被视为公司陈述的风险。因此，可引起公司的证券部分是根据研究发售的论点。在此情况下，研究报告的任何错误、不准确或误导的陈述会导致投资者针对要求公司就合同申索提供赔偿，以及错误陈述的法定处罚。在某些情况下，研究报告本身可被视为招股章程，而在此情况下，其中的任何错误陈述可导致个人责任，包括相关的董事及高级经理的刑事责任。
如果向分析员进行披露 (不论是出于有意或其他原因)，就算该资料事实上不适合用于招股章程及/或不可验证 ，亦可能需要在招股章程就相关重要资料作出披露。一旦该资料加入招股章程内，董事须以对招股章程内所有其他资料相同的方式对其真实性、准确性及完整性负全责。
作为证监会许可的、担任保荐人工作的机构融资顾问公司，我们须根据明确的监管要求以确保所有重要资料 (包括向研究分析员披露或提供的前瞻性资料 (不论是量化或质化方面) 已载于招股章程或可公开取得。
如果在此方面有任何不确定之处，在此强烈建议公司向 [保荐人及两个香港法例顾问团队的名称] 寻求指导和协助。
HKCFEF Limited and the contributing law firms, accountants and sponsors are not offering these due diligence guidelines as legal, financial or professional advice or services and they should not be relied upon as such. These due diligence guidelines should not be used as a sole basis for any decision, action or inaction and are not meant to serve as a substitute for the advice of qualified professionals. See here for the full terms and conditions.