Due Diligence Guidelines –
Sponsor Appointment, Fees, Staffing and Controls
2. Sponsor Fees
The appointment should clearly: … specify the terms of the sponsor’s fees, including the basis on which the fees are determined, the payment structure and timing and any other factors that would affect the fees. No provisions should be made for any “no deal; no fee” arrangements (or arrangements to that effect). [Paragraph 17.11(b)(ii) of the Code of Conduct]
2.2.1 Sponsor fees should appropriately reflect the role and responsibilities to be discharged by a sponsor and should not be confused with other services, notably book-building, pricing and similar functions governed by underwriting and related agreements.13
2.2.2 A sponsor’s mandate should specify that the sponsor fee is not contingent on the success or the final size of the offering. Any staged payments should be proportional to the amount of work done up to that stage.14
2.2.3 Any “no deal; no fee” arrangements (or arrangements to that effect) should be avoided. In this respect, sponsor fees should be clearly specified in every mandate or appointment letter, including the basis on which the fee is determined, the payment structure and timing and any other factors that would affect the fee.15
2.2.4 The total amount of sponsor fees paid and payable should be disclosed in the listing document.16
2.2.5 A sponsor may agree to deduct its sponsor fee received against the underwriting commission that it would otherwise earn.
2.2.6 Sample provisions regarding sponsor fees to be included in a sponsor’s engagement letter are set out in clause 6 of Appendix I.
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.