- 1 – Introduction
- 1.1 – Objective of Due Diligence Guidelines
- 1.2 – Nature of the Due Diligence Guidelines
- 1.3 – Approach Adopted by the Due Diligence Guidelines
- 1.4 – Structure of the Due Diligence Guidelines
- 2 – General Principles
- 2.1 – The Scope and Purpose of Due Diligence
- 2.2 – The Principal Responsibility for Accuracy and Completeness of the Listing Document
- 2.3 – Approach
- 2.4 – Materiality
- 2.5 – Verification
- 2.6 – Primary Role of the Sponsor and its Advisers for the Conduct of Due Diligence
- 2.7 – Reasonable Reliance on Third Parties and Experts
- 2.8 – The Desirability of Direct Third Party Confirmations
- 2.9 – When Due Diligence is Complete
- 2.10 – The Basis for the Subsequent Assessment of Due Diligence
- 3 – Approach and Scope
- 3.1 – Reasonable Judgement
- 3.2 – Stock Exchange Listing Rules
- 3.3 – Standards
- 4 – Submission Readiness
- 4.1 – Reasonable Due Diligence
- 4.2 – Completeness of Information in an Application Proof
- 4.3 – Resolving Fundamental Compliance Issues
- 4.4 – Identifying Material Issues
- 5 – Disclosure to the Market
- 5.1 – Overall Disclosure
- 5.2 – Disclosure: Non-Expert Sections
- 5.3 – Disclosure: Expert Sections
- 6 – Verification Practice
- 6.1 – Appropriate Verification
- 6.2 – Verification of Material Information
- 6.3 – Verification and Independent Due Diligence Steps for Material Matters
- 7 – Knowing the Listing Applicant and its Management
- 7.1 – Due Diligence on Directors and Key Senior Management
- 7.2 – Due Diligence on Major Business Stakeholders
- 7.3 – Appendix I
- 7.4 – Appendix II – Recommended Topics to be Covered in Directors’ Training
- 8 – Business Model
- 8.1 – Business Model – General
- 8.2 – The Listing Applicant’s Operating Environment
- 8.3 – Due Diligence on a Listing Applicant’s Industry
- 8.4 – Sustainability
- 8.5 – Reliance
- 8.6 – Illegality and compliance of the business operations
- 8.7 – Trends and Patterns
- 8.8 – Changes Affecting the Business Model
- 8.9 – Regulatory Guidance on Specific Industries
- 8.10 – Appendix I – Examples of Questions Raised by Regulators in the Past to Test Business Sustainability
- 9 – Interviews of Major Business Stakeholders
- 9.1 – Overview
- 9.2 – Selection of Interviewees
- 9.3 – Interview Timing and Preparation
- 9.4 – Arranging and Conducting Interviews
- 9.5 – Establishing the Identity and Authority of Interviewees
- 9.6 – The Interview and Follow-up
- 9.7 – Irregularities During Interviews
- 9.8 – Records of Interviews
- 9.9 – Appendix I
- 10 – Controlling Shareholders Relationship with the Listing Applicant
- 10.1 – Understanding Controlling Shareholder(s)
- 10.2 – Independence, Delineation and Competition Issues
- 10.3 – Disclosure in Listing Document
- 10.4 – Other Relevant Due Diligence Guidelines
- 11 – Connected Persons and Connected Transactions
- 11.1 – Introduction
- 11.2 – Identifying the Listing Applicant’s Connected Persons and Connected Transactions
- 11.3 – Sponsor’s Confirmation in relation to Continuing Connected Transactions for which a Waiver is Sought
- 11.4 – Reliance on Connected Persons
- 11.5 – Other Relevant Due Diligence Guidelines
- 11.6 – Appendix I – Listing Decisions Published by the Stock Exchange
- 12 – Financial
- 12.1 – Scope and Key Interdependencies
- 12.2 – Overview
- 12.3 – Financial Content of the Listing Document
- 12.4 – Financial Review Process (Overview)
- 12.5 – Detailed Financial Review Process
- 12.6 – Underlying Financial Statements
- 12.7 – Accounting Review Process
- 12.8 – Audit Review Process
- 12.9 – Management Discussion & Analysis
- 12.10 – Unaudited Financial Content
- 12.11 – Changes Subsequent to Latest Balance Sheet Date
- 12.12 – “Red Flags” and Similar Irregularities
- 12.13 – Modeling
- 12.14 – Forecasts and Projections
- 12.15 – Tax
- 12.16 – Timing and “Bring-Down”
- 12.17 – Records
- 12.18 – Quantitative Qualifications for Listing
- 12.19 – Appendix I – Common Categories of Discussion Topics
- 12.20 – Appendix II – Tax Discussion Points and Sample Tax Questions for the Reporting Accountant and Tax Advisers
- 13 – Internal Controls
- 13.1 – Understanding a Listing Applicant’s Procedures and Systems
- 13.2 – Scope of Work
- 13.3 – Appointment of Internal Controls Consultant
- 13.4 – Advice and Guidance to Listing Applicant to Remedy Material Deficiencies
- 13.5 – Timing of Internal Controls Due Diligence
- 13.6 – Steps to be Taken When Material Deficiencies Remain Outstanding
- 14 – Distributors, Franchisees and Consignees
- 14 – Understanding a Listing Applicant and its Business, Performance, Financial Condition and Prospects
- 15 – Anti-Corruption, Anti-Money Laundering and Sanctions
- 15.1 – Acquire a Thorough Understanding of the Listing Applicant and Assess the Legality and Compliance of its Business Operations
- 15.2 – Performance of Anti-Corruption, Anti-Money Laundering and Sanctions Due Diligence
- 16 – Material Contracts
- 16.1 – Understanding the Listing Applicant
- 16.2 – Ensuring Compliance with Listing Qualifications
- 16.3 – Assessing Any Potential Non-Compliance with Legal and Regulatory Requirements
- 17 – Legal and Regulatory Compliance and Legal Proceedings and Disputes
- 17.1 – Legality and Compliance of Business Operations
- 17.2 – Dealing with Material Non-Compliance
- 17.3 – Material Legal Proceedings and Disputes
- 17.4 – Appendix I
- 18 – Interaction with Third Parties including Expert Advisers
- 18.1 – Seeking Assistance and Reasonable Reliance
- 18.2 – Qualifications and Competencies
- 18.3 – Expert Resources
- 18.4 – Independence
- 18.5 – Third Parties Scope of Work
- 18.6 – Third Parties Bases and Assumptions
- 18.7 – Consistency and Sufficiency of the Work Results
- 18.8 – Guidance
- 18.9 – Appendix I – Sample Questions for Third Parties Including Expert Advisers
- 19 – Foreign Lawyers
- 19.1 – Engagement of Foreign Lawyers
- 19.2 – Understanding of Business, History and Background
- 19.3 – Reliance on Legal Opinions and Advice
- 19.4 – US “10b-5” Letters
- 19.5 – Appendix I – Foreign Lawyers
- 20 – Accountants
- 20.1 – Standard for Due Diligence on Accountants
- 20.2 – Qualification and Experience of Accountants
- 20.3 – Work Scope of Accountants
- 20.4 – Bases and Assumptions
- 20.5 – Review of the Accountant’s Report
- 20.6 – Interviews with Accountants
- 20.7 – Special Circumstances
- 20.8 – Appendix I – Accountants
- 20.9 – Appendix II – Accountants
- 21 – Inspection of Assets and Property Valuers Reports
- 21.1 – Inspection of Assets
- 21.2 – Property Valuers’ Reports
- 22 – Environmental
- 22.1 – Introduction – Environmental Due Diligence
- 22.2 – The EDD Process
- 22.3 – Review of Results, Rectification and Disclosure
- 22.4 – Appendix I – Environmental Due Diligence
- 23 – Mineral Companies
- 23.1 – Introduction – Mineral Companies
- 23.2 – Qualifications for Listing – Mineral Companies
- 23.3 – Management Experience and Listing Rule 18.04 Waiver of Listing Rule 8.05 Tests
- 23.4 – Qualifications of a Competent Person
- 23.5 – Competent Person’s Report
- 23.6 – Reporting Standards
- 23.7 – Financial: Cash Costs, Working Capital, Commodity Prices and Path to Profitability
- 23.8 – Title to Mineral Rights
- 23.9 – Environmental Issues
- 23.10 – Compliance with Laws
- 23.11 – Community Relations
- 23.12 – Project Development
- 23.13 – Workflow/Production
- 23.14 – Transportation and Logistics
- 23.15 – Sales and Marketing
- 23.16 – Infrastructure/Utilities
- 23.17 – Labour Issues and Health and Safety
- 23.18 – Outsourcing of EPC, Mining and Processing
- 23.19 – Insurance
- 23.20 – Risks
- 24 – Biological Assets
- 24.1 – Introduction – Biological Assets
- 24.2 – Independent Valuation Of Biological Assets
- 24.3 – Experience of Valuer, Scope of Work and Bases and Assumptions
- 24.4 – Physical Existence, Condition/Development Status, Quantity and Valuation
- 24.5 – Validity and Accuracy of Licences/ Rights/ Permits
- 24.6 – Verification of Actual Operations and Consistency and Compliance with Licences/ Rights/ Permits and Records
- 24.7 – Appendix I – List of Hong Kong Main Board IPOs of Companies Involved in Agricultural Activities/ Biological Assets 2008-2012
- 24.8 – Appendix II – Examples of Factors for Consideration for Biological Assets
- 24.9 – Appendix III – Useful Industry Publications
- 25 – Record Keeping
- 25.1 – Record Keeping In General
- 25.2 – Documenting Transaction Team Composition
- 25.3 – Documenting Due Diligence
- 25.4 – Documenting Expert Engagements
- 25.5 – Documenting Bases for Opinions, Assurances and Conclusions under Paragraphs 17.3 – 17.5 and 17.7 of the Code of Conduct
- 25.6 – Documenting the Consideration of Key Issues arising from Due Diligence and the Elevation of Critical Matters to Key Senior Management
- 25.7 – Retention Of Records
- 26 – Sponsor Appointment, Fees, Staffing and Controls
- 26.1 – Sponsor Appointment
- 26.2 – Sponsor Fees
- 26.3 – Sponsor Staffing
- 26.4 – Sponsor Controls
- 26.5 – Appendix I – Sample Provisions Suggested to be Included in a Sponsor’s Engagement Letter
- 27 – Expectations of the Listing Applicant and its Directors during the Listing Application Process
- 27.1 – Introduction – Expectations of Listing Applicant
- 27.2 – Standards
- 27.3 – Guidance
- 28 – Overall Management of a Public Offer
- 28.1 – Overall Management and Delegation of Responsibilities
- 28.2 – Sufficient Arrangements and Resources
- 28.3 – Appendix I – Mixed Media Offer
- 29 – Communications with Regulators
- 29.1 – Introduction
- 29.2 – SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct)
- 29.3 – SFC’s Corporate Finance Adviser Code of Conduct (the CFA Code)
- 29.4 – Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (The Listing Rules)
- 29.5 – Appendix 1 – Hyperlinks
- 30 – Provision of Information to Analysts
- 30.1 – Information Provided to Analysts in New Listings
- 30.2 – Appendix I – Recommended Addenda
- 30.3 – Addendum 1: Analysts’ Dos and Don’ts
- 30.4 – Addendum 2: Instructions to Research Analysts on Providing Notice to Issuers
- 30.5 – Addendum 3: Suggested Rider for (a) Presentation Materials for Kick-off Meeting and (b) Hong Kong Publicity Memorandum
- 30.6 – Addendum 4: Standard Form Research Report Guidelines
- 30.7 – Addendum 5: Form of Memorandum from Sponsor to Issuer
- 30.8 – Addendum 6: Suggested Text of Email or other Written Reminder for Issuer’s Counsel
- 30.9 – Addendum 7: Suggested Insert for Directors’ Training Presentation
- 30.10 – Addendum 8: Suggested Rider for Invitation to Analysts’ Presentation
- 30.11 – Addendum 9: Form of Letter to be Signed by Syndicate Members (for exceptional situations)
- 30.12 – Addendum 10: Suggested Text of Email or other Written Reminder to Underwriters’ Counsel Regarding Review of Research Reports
- 30.13 – Addendum 11: Suggested Riders regarding the Issuer’s Confirmation to be Included in the International Underwriting Agreement
- 30.14 – Addendum 12: Suggested Rider for Agreement Among Underwriters
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.