Hk Listing

Front 1

Rules applicable to Pre-IPO Investment

Back 1

General principle (LR2.03(2) & 2.03(4)): issue of securities conducted in a fair and orderly manner, investors given sufficient information to make informed assessment, all holders treated fairly and equally

Timing:
1. ok for placing of shares shortly b4 listing application with full disclosure(LD36-1), not ok after A1 submission until listing (LR9.09: no deal rules)
2. completed either 28 clear days before A1 submission or 180 clear days before trading commence

if lock-up, not a member of the public

Cannot:
1. Not to create 2 prices (acceptable if no less than the final IPO price)(LD55-1)
2. Not to be conditional on milestones of the listing approval process (LD55-2)

Terminate upon listing:
1. right to nominate directors (but existing directors tolerated if value adding)
2. preferential investment terms (negative pledge, veto right)
3. conversion reset mechanism
but: exclusivity provision and no-more favorable-terms provision may be accepted if an explicit clause recognizing the fiduciary of directors is included in the agmts

Front 2

Profits Test

Back 2

LR8.05(1) the issuer or its group (excluding any associated companies and other entities whose results are recorded using the equity method of accounting) 3年营业纪录+3年5000万港币股东应占盈利(profit attributable to shareholders)（最近一年2000万，之前两年3000万）+3年管理层不变+1年控制权和拥有权不变, at least 25% shares held by the public (at least 300 shareholders)

Front 3

Relationship with controlling shareholders

Back 3

• The SEHK may allow certain extent of reliance exist in relation to H share company:
 Ok for the Parent Co to keep certain business in restricted industry, with call option granted to listco, contractual relationship between parent co and listco and subject to rules on CT (LD46-2).
 Ok for the parent co to keep land and lease to the listco, provided that the production lines are easy to relocate, terms of the lease to be decided by INEDs and call option granted (LD51-1).
• Financial reliance (all relevant guarantees provided by Parentco to be discharged or substituted by the company's guarantees and all non-trade balances to be settled) are generally required to release before listing (LD51-3). But it is not a mandatory requirement. The SEHK may accept orderly release of the guarantees and not required the listco to terminate the financial arrangements before listing provided that
 Listco had a record of fund raising on a stand-alone basis without any credit support from Parentco;
 Listco had received firm offers from a number of independent financial institutions to provide generally equivalent finance facilities, on a stand-alone basis, to refinance the loans secured by Parentco’s guarantees. The listing document would disclose this fact; and
 Listco had a strong financial position. Its business operations are in relatively matured and developed markets (LD69-1).
• In relation to the overlapping directorship, the SEHK will consider the percentage of overlapping directors against the shareholding ratio and the role of such directors (whether they are engaged in day to day operation)(LD52-2).

• Competing interest of controlling shareholders: competition is normally regarded by the Exchange as a disclosure issue and the requirement of Listing Rule 8.10 applies. However, in extreme cases where in the view of the Exchange, there are inadequate arrangements to manage conflicts of interest and delineation of businesses between the applicant and other businesses under common control, the Exchange would consider the impact on the applicant’s suitability for listing (LD51-3).

• Non-competition undertakings may or may not effectively contain competition within acceptable boundaries. Enforceability of non-competition undertakings, in turn, is often dependent on a number of other factors, including but not limited to (a) the effect of exemption clauses on non-competition undertakings, (b) how independently a listing applicant can exercise its right to enforce the non-competition undertakings in light of its own corporate governance and (c) the degree to which the management of the listing applicant and its controlling shareholders are closely connected. If there are indications that a non-competition agreement may not function effectively in light of the facts and circumstances of an individual case, the Exchange may disregard the agreement when determining whether the requirements of the Listing Rules have been satisfied(LD51-2 & LD51-3).

Front 4

Property valuation requirement

Back 4

(amendments effective on Jan 1, 2012)
- require different valuation requirements for property activities and non-property activities;

- for property activities, require property valuations unless the property interest has a carrying amount below 1% of the applicant’s total assets. The total carrying amount of property interests not valued must not exceed 10% of the applicant’s total assets. Summary disclosure in the listing document is allowed if the market value of a property interest as determined by the valuer is less than 5% of the applicant’s total property interests that are required to be valued;

- for non-property activities, require a property valuation only if the carrying amount of a property interest is or is above 15% of the applicant’s total assets; and

- for mining activities, not require a separate valuation of property interests ancillary to mining activities if the mining activities and ancillary property interests have been valued as a business or an operating entity.

Front 5

Publicity memo

Back 5

The overriding principle is that material information which is necessary to enable an investor to make an informed assessment should be included in the prospectus.

Principle: All publicity material released in Hong Kong relating to an issue of securities by a new applicant must be reviewed by the Exchange before release and must not be released until the Exchange has confirmed to the issuer that it has no further comments thereon. In addition, such publicity material must comply with all applicable statutory requirements.
Exception:
(i) publicity material does not relate to an issue of securities if its purpose is the promotion of the issuer or its products or business and not the promotion of the securities to be issued.

We normally consider that they relate to an issue of securities if they have the characteristics below, and we will be inclined not to consent to publication. Materials which are:
 not commensurate with the particular nature of the applicant’s business, products, customers or markets, e.g. that place disproportionate emphasis on the applicant’s name rather than its products and business;
 presented in a manner which makes them likely to be read together with information related to the public offering; and
 likely to condition the market ahead of the prospectus and affect perceptions of the upcoming offer.

(ii) circulation is permitted of documents of a marketing nature and documents in connection with the issue of the securities, provided that any obligations created thereunder to issue, subscribe, purchase or underwrite the securities are conditional on listing being granted.

Consequence for contravention: the Exchange may delay the timetable for the proposed meeting of the Listing Committee by up to a month.

Special caution paid to spin-off application: This is particularly important where a listed issuer plans to “spin off” part of its business in a separate listing. Where the Exchange believes that a listed issuer or its advisers have permitted price sensitive information regarding the issue of new securities to leak, prior to its proper publication, the Exchange will not normally consider an application for the listing of those securities.