Chapter 4

Due Diligence Guidelines –

Submission Readiness

1. Reasonable Due Diligence

1.1 Standards

Before submitting an application on behalf of a listing applicant to the Stock Exchange a sponsor should have (i) performed all reasonable due diligence on the listing applicant except in relation to matters that by their nature can only be dealt with at a later date, and (ii) ensure that all material information as a result of this due diligence has been included in the Application Proof. [Paragraph 17.4(a) of the Code of Conduct]

1.2 Guidance

1.2.1 In assessing whether a sponsor has performed reasonable due diligence, regard would be had to all of the facts and circumstances available at the time of making the listing application. Where a specific matter exists prior to submission of the listing application, the sponsor should reach a view that all reasonable due diligence has been completed, even if changes may occur subsequently.1

1.2.2 The reasonable due diligence standard should be determined based on what a sponsor’s peers would consider to be objectively appropriate, having regard to all relevant facts and circumstances at the time of making a listing application.2

1.2.3 The SFC acknowledges that a sponsor has to update the due diligence after submission of the listing application where there are subsequent changes. However if a specific matter exists before the submission of the listing application, the sponsor should reach a view that all reasonable due diligence on that matter has been completed even if changes may occur subsequently and it is therefore noted as a “keep-in-view” item that must be revisited before the listing.3

1.2.4 “Matters that by their nature can only be dealt with at a later date”, would be those matters which cannot be ascertained, finalised or fulfilled at the time a listing application is submitted. Common examples include the following, although each matter should be assessed on a case-by-case basis:

(a) treatment of waivers;

(b) determination of size and structure of the offering;

(c) preparation of an indebtedness statement or a working capital forecast;

(d) a change in financial position since the most recent reporting period; and

(e) changes in circumstances and developments or events arising subsequent to the submission of the application.4

1.2.5 In Exchange Guidance Letter GL56-13, the Stock Exchange has provided guidance as to information which may be omitted from the listing application at the time of its submission or which may be included in square brackets and updated later in the vetting process (see further paragraph 2.2.7 below).

Endnotes

1. Paragraph 108 of the Consultation Conclusions on the Regulation of Sponsors.

2. Paragraph 106 of the Consultation Conclusions on the Regulation of Sponsors

3. Paragraph 108 of the Consultation Conclusions on the Regulation of Sponsors.

4. Paragraph 107 of the Consultation Conclusions on the Regulation of Sponsors.