Chapter 4

Due Diligence Guidelines –

Submission Readiness

2. Completeness of Information in an Application Proof

2.1 Standards

Before submitting an application on behalf of a listing applicant to the Stock Exchange a sponsor should come to a reasonable opinion that the information in the Application Proof is substantially complete except in relation to matters that by their nature can only be dealt with at a later date. [Paragraph 17.4(b) of the Code of Conduct]

2.2 Guidance

2.2.1 A listing applicant is required to submit a listing application form, an application proof of the listing document and all other relevant documents under Listing Rule 9.10A(1), and the information in these documents must be substantially complete except in relation to information that by its nature can only be finalised and incorporated at a later date.5 If the Stock Exchange decides this information is not substantially complete, the Stock Exchange will not continue to review any documents relating to the application and will return the application. The listing applicant will only be able to re-file the listing application eight weeks after the letter returning the listing application.6

2.2.2 Information included in a listing application that is liable to be amended or updated in light of subsequent changes or developments should not, however, render the document incomplete.7

2.2.3 The listing applicant and the sponsor should ensure that the listing document filed with the listing application clearly and adequately discloses information which a reasonable investor would require to make a fully informed investment decision. The information contained in the listing document must be accurate and complete in all material respects and must not be misleading or deceptive. The sponsor should independently assess the standard of disclosure and not rely on the vetting process by the regulators as a catalyst for disclosure.8

2.2.4 The listing applicant is required to submit with the listing application: (i) an Application Proof of the listing document for vetting by the Stock Exchange (“AP-Vetting”); and (ii) an Application Proof of the listing document to be published on the Stock Exchange’s website (“AP-Publication”).

2.2.5 The AP-Vetting is required to clearly and adequately disclose information which a reasonable investor would require to make a fully-informed investment decision. The information contained in the AP-Vetting must be accurate and complete in all material respects and must not be misleading or deceptive. The sponsor should, in conjunction with the listing applicant and the other advisers engaged in the listing application process, assess the standard of the disclosure in the AP-Vetting to determine whether the disclosure meets the required standard and is suitable for submission to the Stock Exchange.

2.2.6 The Stock Exchange has provided guidance as to its expected disclosure requirements for the AP-Vetting to be substantially complete which is contained in Table A of Exchange Guidance Letter GL56-13 (“GL56-13”). The sponsor should review the draft AP-Vetting against Table A to ensure that all matters set out in Table A have been adequately addressed in the AP-Vetting, unless there are matters which are not applicable to the listing application (eg. not relevant to the listing applicant).  If there are any aspects of GL56-13 that cannot or do not need to be followed, the sponsor should include in the listing application detailed submissions with detailed reasoning explaining the position.

2.2.7 In particular, the sponsor should note that Table A to GL56-13 sets out certain limited information which the Stock Exchange will permit to be included in the AP-Vetting in square brackets where such information will be updated later in the vetting process (e.g., profit forecast figure and financial information as at the latest practicable date). In respect of such information included in square brackets, the Stock Exchange expects the information included in the AP-Vetting to be to the date of or shortly before submission of the AP-Vetting. Sponsors may consider including a statement in the AP-Vetting providing that such information is expected to be updated in subsequent draft listing documents or the final listing document. Additionally, there is certain limited information listed in Table A to GL56-13 which the Stock Exchange permits to be omitted from the AP-Vetting where such information is unavailable at the time of filing the listing application (e.g., stock code and offer-related information). If any of the information permitted to be omitted is actually available at the time of filing the listing application, it should be included in the AP-Vetting.

2.2.8 The sponsor should ensure that the listing applicant complies with all relevant Listing Rules or, where the listing applicant is unable to comply with any particular rule, the sponsor should ensure that an appropriate waiver has been sought.

2.2.9 The sponsor should also consider, and include in the AP-Vetting if relevant, the following:

(a) any matters required to address all applicable Listing Decisions published by the Stock Exchange relevant to the listing applicant;

(b) any matters applicable to the listing applicant required to address any Guidance Letters published by the Stock Exchange;

(c) any comments raised at any preliminary hearing with the Listing Committee or comments from the Listing Division during any pre-IPO enquiries; and

(d) any outstanding comments, including from the Listing Division or Listing Committee, where a listing application is re-filed.9

2.2.10 In particular, the Exchange expects listing applicants to follow the specific guidance issued by the Stock Exchange in respect of the content of the Application Proof. A listing document that does not follow such guidance may be considered not substantially complete as required by the Listing Rules. In addition to GL56-13 discussed above, key guidance letters issued by the Stock Exchange in this regard, which sponsors should refer to when reviewing and preparing listing documents, include the following:

(a) Exchange Guidance Letter GL13-09 Listing Document Covers;

(b) Exchange Guidance Letter GL86-16 Guide on Producing Simplified Listing Documents Relating to Equity Securities for New Applications;

(c) Exchange Guidance Letter GL43-12 Guidance on Pre-IPO investments and Exchange Guidance Letter GL44-12 Guidance on Pre-IPO investments in convertible securities;

(d) Exchange Guidance Letter GL82-15 Disclosure of unaudited quarterly/interim financial information in the listing document where the new applicant or any of its subsidiaries is listed on another exchange;

(e) Exchange Guidance Letter GL37-12 Guidance on indebtedness, liquidity, financial resources and capital structure disclosure in listing documents and sponsor’s confirmation on working capital sufficiency statement;

(f) Exchange Guidance Letter GL38-12 Guidance on the Latest Practicable Date and Latest Date for Liquidity Disclosure in listing documents;

(g) Exchange Guidance Letter GL41-12 Guidance on disclosure requirements for IPO cases – Disclosure of material changes in financial, operational and/or trading position after trading record period;

(h) Exchange Guidance Letter GL32-12 Guidance on the accounting and disclosure requirements for (A) acquisitions of subsidiaries and businesses conducted during or after the trading record period and (B) stub period comparatives;

(i) Exchange Guidance Letter GL30-12 Guidance on disclosure of Intellectual Property Rights in listing documents;

(j) Exchange Guidance Letter GL19-10 Guidance on disclosure of: (1) Land use right certificates and/or building ownership certificates for properties in the PRC; (2) Properties with defective titles in the PRC and Hong Kong; (3) Idle land in the PRC; (4) Civil defense projects in the PRC; and (5) Land resettlement operations in the PRC;

(k) Exchange Guidance Letter GL73-14 Guidance on pricing for continuing connected transactions; and

(l) Exchange Guidance Letter GL81-15 Guidance on Mixed Media Offers.

2.2.11 In addition to the guidance letters referred to in paragraph 2.2.10 above, sponsors should also refer to the guidance on disclosure issued by the Stock Exchange in respect of listing applicants engaged in specific industries or business models, including Mineral Companies (Exchange Guidance Letter GL52-13), applicants with a distributorship business model (Exchange Guidance Letter GL36-12), applicants engaged in the restaurant business (Exchange Guidance Letter GL28-12), applicants whose business model includes significant forfeited income from pre-paid packages (Exchange Guidance Letter GL26-12), business trusts and stapled securities (Exchange Guidance Letter GL40-12) and listing applicants with biological assets (Exchange Guidance Letter GL46-12).

2.2.12 The sponsor should ensure that the financial information included in the listing application complies with the Listing Rule requirements. Please refer to Chapter 12 “Due Diligence Guidelines – Financial” for further details. Where the sponsor is proposing to file the listing application early in accordance with Exchange Guidance Letter GL6-09A, the sponsor should ensure that all of the requirements of GL6-09A have been met.

2.2.13 The sponsor should also refer to Exchange Guidance Letter GL35-12 for guidance on profit forecasts, Exchange Guidance Letter GL65-13 for guidance on information in property valuation reports and market reports, Exchange Guidance Letter GL34-12 for disclosure in respect of hard underwriting, Exchange Guidance Letter GL31-12 for guidance on disclosure of emergency arrangements in case of bad weather which may disrupt the listing timetable, Exchange Guidance Letter GL8-09 in respect of statistics and data quoted in prospectuses and Exchange Guidance Letter GL82-15 for guidance on disclosure of financial information in IPO prospectuses where the new listing applicants are also listed on an overseas exchange and the applicable rules and regulations of such foreign exchange require the applicants to publish such financial information.

2.2.14 The Stock Exchange expects the following for Application Proofs:

(a) the latest practicable date in an Application Proof is a date no more than 10 calendar days before the date of the Application Proof. Financial information as at the latest practicable date can be in brackets to indicate it will be updated in the Post Hearing Information Pack (to the extent practicable) and the final listing document; and

(b) the latest date for Liquidity Disclosure in an Application Proof is a date no more than two calendar months before the date of the Application Proof. Financial information disclosed here can be in brackets to indicate it will be updated in the Post Hearing Information Pack (to the extent practicable) and the final listing document.10

2.2.15 Before filing the listing application, the sponsor should work with the listing applicant and its lawyers to ensure that the information required to be redacted from the AP-Vetting is properly removed from the AP-Publication so that the AP-Publication does not constitute a prospectus under section 2(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, or an advertisement under section 38B(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance or an invitation to the public in breach of section 103(1) of the SFO.11 Table A to Exchange Guidance Letter GL56-13 sets out information that should be redacted from the AP-Vetting for these purposes and the sponsor should review the AP-Publication to ensure that the redaction follows the guidance in Table A. Redaction should only be made to the extent necessary to avoid the Companies (Winding Up and Miscellaneous Provisions) Ordinance and SFO implications.12

Where the listing applicant proposes to redact additional information other than that specified in Table A, the listing applicant should apply to the Stock Exchange prior to submitting the listing application (allowing sufficient time for the Stock Exchange to consider the request) giving detailed reasons for the proposed additional redacted information.13

2.2.16 The sponsor should also ensure that the AP-Publication (and the Stock Exchange’s website) includes appropriate disclaimer and warning statements to advise readers of the legal status of this document to the effect that:

(a) it is not an offer to sell or an invitation to induce/solicit an offer to acquire, purchase or subscribe for securities;

(b) it is not in a final form and is subject to change;

(c) no investment decision should be based on the information contained in the AP-Publication;

(d) there is no guarantee that there will be an offering; any offer of securities will require a final listing document which is the only document investors should rely on to make investment decisions; and

(e) there is no indication that the application to which the document relates has been approved for listing.

Minimum warning statements and disclaimer statements are included in Enclosure 1 to Exchange Guidance Letter GL57-13. The listing application is also required to include a confirmation letter from the listing applicant’s legal advisers that the listing applicant has complied with the Stock Exchange’s guidance on redactions in the AP-Publication and has included the appropriate warning and disclaimer statements.14

2.2.17 Where the listing applicant has been listed on a recognised overseas exchange for not less than five years and has a significantly large market capitalisation (as determined by the Stock Exchange from time to time) at the time of filing its listing application, the listing applicant is entitled to make a confidential filing of its listing application and draft listing document. The listing applicant is not subject to the publication requirements for the AP-Publication unless requested to comply with them by the Stock Exchange or the SFC (as the case may be). The Stock Exchange or the SFC may also waive or modify the publication requirements for an AP-Publication in a spin-off from an overseas listed parent upon application by the listing applicant. The sponsor should consider with the new applicant whether the confidential filing criteria are met or whether a waiver may be sought and should consult the Stock Exchange or the SFC if it envisages any difficulties in complying with the publication requirements at least 2 months before submission of the listing application.15

2.2.18 The sponsor should ensure that the listing application contains all of the documents required to be included in the listing application as specified in Listing Rules 9.03, 9.10A and 9.11. As a useful checklist, the sponsor should refer to Exchange Guidance Letter GL55-13 (“GL55-13”) which contains as Attachment IM a checklist of the documents to be submitted to the Stock Exchange at various times during the listing application, including at the time of filing the listing application. The sponsor should ensure all such documents specified are included in the listing application.

2.2.19 Attachment IM to GL55-13 refers to the following documents required at the time of submission of the listing application:

(a) a sponsor’s confirmation that the listing applicant has submitted the Application Proof for publication on the Stock Exchange’s website in accordance with Listing Rule 12.01A;

(b) documents under Listing Rules 9.03, 9.11(1) to 9.11(17c) together with additional information set out in Form M104 to be submitted with the Form A1;

(c) completed checklists on: (i) basic qualifications for new listing under the Listing Rules (Form M105); (ii) basic requirements for the contents of listing documents under the Listing Rules and Companies (Winding Up and Miscellaneous Provisions) Ordinance (Form M106); (iii) rules on valuation of and information on properties (Form M107); and (iv) rules on accountants’ reports (Form M108);

(d) for listing applicants seeking an exemption from the prospectus requirements under the Companies (Winding Up and Miscellaneous Provisions) Ordinance, a final or advanced draft of the applications to the Stock Exchange and the SFC; and

(e) a final or draft legal opinion on the listing applicant’s Chinese name if a Chinese stock short name is required for a non-Hong Kong or non-PRC applicant.

2.2.20 In respect of Form M104, the sponsor should review the additional information to ensure that it is substantially complete, except in relation to information that by its nature can only be finalised and incorporated at a later date. Form M104 (paragraph 11) requires a confirmation from the reporting accountants that no significant adjustment is expected to be made to the draft accountants’ report and the reporting accountants’ reports on the pro forma financial information and profit forecast (if any) which are included in the Application Proof. The sponsor should refer to Exchange Guidance Letter GL58-13 for details on the requirements for, and content of, such confirmation letter.

2.2.21 Similarly, Form M104 (paragraph 21) requires a confirmation from each expert (other than the reporting accountants who are subject to Exchange Guidance Letter GL58-13 as referred to in paragraph 2.2.20 above) who is named in the listing document that no material change is expected to be made to the relevant expert opinion included in the Application Proof based on the work done as of the date of the confirmation. The sponsor should refer to Exchange Guidance Letter GL60-13 for details on the requirements for, and content of, such confirmation letter.

2.2.22 Note 3 in Appendix 1, Section H to Exchange Guidance Letter GL86-16 requires that all executive directors and non-executive directors must be appointed when an applicant submits its listing application. All independent non-executive directors must be identified when an applicant submits its listing application, but their actual appointments may take place closer to the time the listing document is issued.

Endnotes

5. This requirement is slightly different from the requirement prior to 1 October 2013 which provided that the Stock Exchange expected to receive an advanced proof of the prospectus with the listing application form that was not an initial proof so that the Stock Exchange could commence its review immediately. The information set out in Chapter 11 of the Listing Rules was required to be substantially completed in the advanced proof of the prospectus.

6. Listing Rule 9.03(3).

7. Paragraph 114 of the Consultation Conclusions on the Regulation of Sponsors.

8. Paragraph 3.1 of Exchange Guidance Letter GL56-13 – Guidance letter on (i) disclosure requirements for substantially complete Application Proofs; (ii) a 3-day checklist for disclosure matters that the Exchange will check in Application Proofs prior to acceptance; and (iii) publication of Application Proofs and Post Hearing Information Packs on the Exchange’s website.

In addition, Listing Rule 2.13 sets out the general principles under which information in the listing document must be presented. Similarly, Listing Rule 11.07 sets out the overriding principle by which particulars and information must be included in the listing document, being information which “is necessary to enable an investor to make an informed assessment of the activities, assets and liabilities, financial position, management and prospects of the issuer and its profits and losses and of the rights attaching to such securities”.

9. Paragraph 3.6 of Exchange Guidance Letter GL56-13.

10. Exchange Guidance Letter GL38-12.

11. Paragraph 5 of Practice Note 22 to the Listing Rules.

12. Paragraph 5 of Practice Note 22 to the Listing Rules.

13. Paragraph 4.3 of Exchange Guidance Letter GL56-13.

14. Paragraph 7 of Practice Note 22 to the Listing Rules.

15. Paragraphs 18 and 19 of Practice Note 22 to the Listing Rules.

Disclaimer

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.

Hong Kong Sponsors Due Diligence Guidelines

Information Contained in The Listing Document Must Be Accurate and Complete

Completeness of Information in Application Proof

Application proof (AP) Publication

Hong Kong Regulatory Regime

Application Proof of Listing Document

Due Diligence Checklist

Due Diligence Process

Due Diligence Compliance

Fully informed investment decision
Application proof (AP) Vetting
Hong Kong Exchange Guidance Letter GL56-13

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