Listing Rules and Guidance: Contents


 
 

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  • Guidance Letters

    This section comprises guidance letter to new applicants and listed issuers on the Listing Rules and other listing matters.

    Guidance Letters for New Applicants

    Guidance Letters for Listed Issuers

    Please visit Archive to view marked-up versions and versions that have been superseded or withdrawn.

    • Guidance Letters for New Applicants

      Select by Topic: Download the consolidated index here

      Date
      (dd/mm/yyyy)
      Reference No. Listing Rules/Topics Particulars Document Type Content Category
      13/07/2018 GL99-18 Main Board Rule 3A.07
      GEM Rule 6A.07
      Guidance on assessment of a sponsor's independence Guidance Letter New Applicants
      13/07/2018 GL98-18 Main Board Rules 2.03(2), 2.13(2), 3A.05, 3A.13, 9.07, 11.12, 11.15, paragraph 4 of Practice Note 21, paragraphs 2 and 38 of Appendix 1A and Appendix 19
      GEM Rules 2.06(2), 2.18, 6A.05, 6A.13, 12.15, 14.23, 14.27, 17.56(2), paragraph 4 of Practice Note 2, paragraph 38 of Appendix 1A and Appendix 7G
      Guidance on disclosure in listing documents — listing applicants' names; statistics and data quoted; listing document covers; non-disclosure of confidential information; and material changes after trading record period Guidance Letter New Applicants
      06/07/2018 GL97-18 Main Board Listing Rules 2.13(2), 8.04, 8.10, 11.07, 14A.53, 17.03, Paragraph 27A in Appendix 1A Guidance for applicants in the internet technology sector or that have internet-based business models (collectively, Relevant Sectors) Guidance Letter New Applicants
      30/04/2018 GL94-18 Main Board Listing Rules 8.04, 19C.02
      HKEX-LD43-3
      Suitability for Secondary Listing as a Qualifying Issuer under Chapter 19C Guidance Letter New Applicants
      30/04/2018 GL93-18 Main Board Listing Rules 8.04, 8A.04
      HKEX-LD43-3
      Suitability for Listing with a WVR Structure Guidance Letter New Applicants
      30/04/2018 GL92-18 Main Board Listing Rules 14.20 and 18A.03(1) Suitability for Listing of Biotech Companies Guidance Letter New Applicants
      02/02/2018 GL91-18 Practice Note 18 of the Main Board Listing Rules Practice Note 6 of the GEM Listing Rules Reallocation of shares from placing tranche to the public subscription tranche in an initial public offer Guidance Letter New Applicants
      02/02/2018 GL90-18 Paragraph 15(2)(c) of Appendix 1A of Main Board Rules Paragraph 15(3)(c) of Appendix 1A of GEM Rules Main Board Rule 2.13, GEM Rule 2.18 Pricing Flexibility for Initial Public Offerings Guidance Letter New Applicants
      11/11/2016 GL89-16 Main Board Rules 1.01, 6.12, 7.19, 7.24, 8.05(1)(c)/8.05(2)(c)/8.05(3)(c), 8.10, 9.03(3), 10.07(1), 13.17, 13.18, 13.36(4), 14.55, 14.89, 14.90, 14.91, 14A.11, 14A.28, 19A.04, 19A.14, 19B.03, paragraph 3(e) in Practice Note 15, paragraph 27A in Appendix 1A and 1E, paragraphs 6.3, 16 and 40.3 in Appendix 16/ GEM Rules 1.01, 9.20, 10.29, 10.39, 11.03, 11.04, 11.12A(2), 12.09, 13.16A, 13.19, 17.19, 17.20, 17.42A, 18.04, 18.26, 18.27, 18.55(9), 18.68, 19.55, 19.88, 19.89, 19.90, 20.26, 25.10, 25.04(1), paragraph 3(e) in Practice Note 3 and paragraph 27A in Appendix 1A Guidance on issues related to "controlling shareholder" and related Listing Rules implications

      (Updated in October 2017 and February 2018)
      Guidance Letter New Applicants
      02/02/2016 GL86-16 Main Board Rules 2.03(2) and 2.13
      GEM Rules 2.06(2) and 14.26
      Guide on Producing Simplified Listing Documents Relating to Equity Securities for New Applications

      (Updated in May, September 2016 and August 2017)
      Guidance Letter New Applicants
      22/01/2016 GL85-16 Main Board Rules 2.03(2) and (4), 10.03, 10.04 and 19A.04
      Paragraphs 5(1) and (2), and 13(7) of Appendix 6 to the Main Board Rules
      Placing to connected clients, and existing shareholders or their close associates, under the Rules

      (Updated in February 2018)
      Guidance Letter New Applicants
      13/08/2015 GL82-15 Main Board Rules 2.13, 4.11, 8.06, 19.14 and 19.39
      GEM Rules 7.12, 7.13, 11.11 and 17.56
      Disclosure of unaudited quarterly/interim financial information in the listing document where the new listing applicant or any of its subsidiaries is listed on another exchange Guidance Letter New Applicants
      03/06/2015 GL81-15 Main Board Rules 12.11A, 20.19A and 25.19B
      GEM Rules 16.04D and 29.21B
      Guidance on Mixed Media Offer

      (Updated in July 2018)
      Guidance Letter New Applicants
      07/11/2014 GL79-14 Chapter 20 of Main Board Rules Guidance on Documentary Requirements and Administrative Matters for Collective Investment Schemes ("CIS") Applications

      (Updated in November 2014, July and November 2015, June 2016 and March 2017)
      Guidance Letter New Applicants
      17/10/2014 GL75-14 Main Board Rules Paragraphs 5(1) and 13(7) of Appendix 6 Consents for placing of shares to connected clients who will hold the shares on behalf of independent third parties

      (Withdrawn in January 2016)
      Guidance Letter New Applicants
      24/03/2014 GL74-14 Main Board Rules 2.13(2) and 9.03(3)
      GEM Rules 12.09 and 17.56(2)
      Guidance on what constitutes a failure of the Initial 3-day Check

      (Withdrawn in September 2014 due to discontinuation of 3-Day Check after 30 September 2014)
      Guidance Letter New Applicants
      21/03/2014 GL73-14 Main Board Rules 14A.51 to 14A.59, 14A.71 to 14A.72
      GEM Rules 20.49 to 20.57, 20.69 to 20.70
      Guidance on pricing policies for continuing connected transactions and their disclosure

      (Updated in July 2014)
      Guidance Letter New Applicants / Listed Issuers
      29/01/2014 GL72-14 Main Board Rules 2.13(2) and 11.07, 13.90, 19.10(2) & (3) and paragraph 7 of Appendix 1A
      GEM Rules 14.08(7) and 17.56(2), 17.102, 24.09(2) & (3) and paragraph 7 of Appendix 1A
      Simplification Series — Disclosure in listing documents for IPO cases — the "Applicable Laws and Regulations" section

      (Withdrawn in May 2016, superseded by HKEX-GL86-16)
      Guidance Letter New Applicants
      24/01/2014 GL71-14 Main Board Rules 2.13(2) and 11.07
      GEM Rules 14.08(7) and 17.56(2)
      Gambling Activities Undertaken by Listing Applicants and/or Listed Issuers Guidance Letter New Applicants / Listed Issuers
      24/01/2014 GL70-14 Main Board Rules Chapter 14A
      GEM Rules Chapter 20
      Guide on Connected Transaction Rules

      (Withdrawn in July 2014)
      Guidance Letter New Applicants / Listed Issuers
      03/06/2016 GL68-13A Main Board Rules 8.04, 2.06
      GEM Rules 11.06, 2.09
      Guidance on IPO vetting and suitability for listing

      (Updated in April 2018)
      Guidance Letter New Applicants
      06/12/2013 GL68-13 Main Board Rules 8.04 and 2.06
      GEM Rules 11.06, 2.09
      Guidance on suitability for listing

      (Updated in June 2015)
      Guidance Letter New Applicants
      06/09/2013 GL65-13 Main Board Rules 2.13(2) and 11.07
      GEM Rules 14.08(7) and 17.56<(2)
      Disclosure in listing documents for IPO cases — information in property valuation report and market report

      (Withdrawn in July 2018; Superseded by GL56-13)
      Guidance Letter New Applicants
      23/07/2013 GL64-13 Main Board Rule 10.09
      GEM Rules 13.21 to 13.25
      Simplification Series — Disclosure requirements for IPO cases — White and Yellow Application Forms and other application forms for designated subscribers and "How to Apply for Hong Kong Offer Shares" section in a prospectus

      (Withdrawn in May 2016, superseded by HKEX-GL86-16)
      Guidance Letter New Applicants
      23/07/2013 GL63-13 Main Board Rules 2.03(2), 2.13(2), 3.08, 3.09 and 8.04
      GEM Rules 2.06(2), 5.01, 5.02, 11.06 and 17.56(2)
      Guidance on disclosure of material non-compliance incidents in listing documents

      (Updated in September 2013, May 2014 and May 2016)
      Guidance Letter New Applicants
      23/07/2013 GL62-13 Main Board Rules 2.13, 3.08, 3.09, 11.07 and Paragraph 41 of Part A of Appendix 1
      GEM Rules 5.01, 5.02, 14.08(7), 17.56 and Paragraph 41 of Part A of Appendix 1
      Disclosure of Directors, Supervisors and Senior Management section in listing documents

      (Withdrawn in May 2016, superseded by HKEX-GL86-16)
      Guidance Letter New Applicants
      01/10/2013 GL61-13 Chapter 2B of Main Board Rules, Rule 9.03(3)
      Chapter 4 of GEM Rules, GEM Rule 12.09(1)
      Guidance on accelerated procedures for reviewing a Listing Division and Listing Committee's decision to return a listing application

      (Updated in September 2014)
      Guidance Letter New Applicants
      01/10/2013 GL60-13 Main Board Rules 3A.01(3), 5.07, 9.03(3) and 18.24(2)
      GEM Rules 6A.01(3), 8.30, 12.09 and 18A.24(2)
      Guidance on Confirmations required on Expert Opinions in Application Proofs and subsequent draft listing documents (excluding any report, opinion or statement issued by the Reporting Accountant which is covered by Guidance Letter HKEx-GL58-13)

      (Updated in September 2014)
      Guidance Letter New Applicants
      23/07/2013 GL59-13 Main Board Rules 2.13(2), 11.07, Paragraph 34 of Appendix 1A, Paragraphs 32 and 47 (2) of Appendix 16
      GEM Rules 14.08(7), 17.56(2) and 18.41
      Guidance on management discussion and analysis on the historical financial information ("MD&A") in listing documents

      (Withdrawn in May 2016, superseded by HKEX-GL86-16)
      Guidance Letter New Applicants
      17/10/2014 GL58-13 Main Board Rules 4.04(1), 8.06 and 9.03(3)
      GEM Rules 7.03(1), 11.11 and 12.09
      Guidance on confirmations required on the accountants' report, pro forma financial information and profit forecast in Application Proofs and subsequent draft listing documents

      (Updated in September and October 2014)
      Guidance Letter New Applicants
      01/10/2013 GL57-13 Main Board Rules 9.08(2)(c), 12.01A, 12.01B, 20.25, 20.26, and 2
      GEM Rules 12.10(2) (c), 16.01A, 16.01B and Practice Note 5
      Guidance on logistical arrangements for publication of Application Proofs, Post Hearing Information Packs ("PHIP") and related materials on the Exchange's Website for listing applicants

      (Updated in September 2013 and February, March, June and September 2014, November 2016 and February 2018)
      Guidance Letter New Applicants
      23/07/2013 GL56-13 Main Board Rules 2.13(2), 9.03(3) and 11.07 Paragraph 4 of Practice Note 22 to Main Board Rules
      GEM Rules 12.09, 14.08(7) and 17.56(2) Paragraph 3 of Practice Note 5 to GEM Rules
      Guidance on (i) disclosure requirements for substantially complete Application Proofs; and (ii) publication of Application Proofs and Post Hearing Information Packs on the Exchange's website

      (Updated in September 2013, February, March, June, September 2014 and August 2015, May and November 2016, August 2017 and July 2018)
      Guidance Letter New Applicants
      01/10/2013 GL55-13 Rules Main Board Rules 9.03, 9.10A, 9.11 and 19A.22A
      GEM Rules 12.12 to 12.14, 12.22 to 12.26 and 25.17A
      Guidance on Documentary Requirements and Administrative Matters for New Listing Application (Equity)

      (Updated in September 2013, February and March 2014, December 2016, February and July 2018)
      Guidance Letter New Applicants
      03/05/2013 GL54-13 Main Board Rules 2.03(2), 2.13(2), 11.07 and 19A.42
      GEM Rules 2.06(2), 14.08(7), 14.22 and 17.56(2) and Paragraph 67 of Part A of Appendix 1
      Simplification Series — Disclosure in listing documents for IPO cases — the "Risk Factors" section

      (Withdrawn in May 2016, superseded by HKEX-GL86-16)
      Guidance Letter New Applicants
      23/04/2013 GL53-13 Main Board Rule 2.03
      GEM Rule 2.06
      Guidance on liquidity arrangements for issuers seeking to list by introduction where the securities to be listed are already listed on another stock exchange

      (Updated in July 2013)
      Guidance Letter New Applicants
      26/03/2013 GL52-13 Main Board Rules 2.13(2), 11.07 and Chapter 18
      GEM Rules 14.08(7), 17.56(2) and Chapter 18A
      Disclosure in listing documents for new applicant mineral companies that the Exchange normally expects and to address comments raised by the Exchange and the SFC in the vetting of previous listing applications

      (Updated in July 2013)
      Guidance Letter New Applicants
      22/02/2013 GL51-13 Main Board Rules 2.03(2) and (4), and 2.13
      GEM Rules 2.06(2) and (4), and 17.56
      Guidance on Cornerstone Investment — No Direct or Indirect Benefits to Cornerstone Investors other than Guaranteed Allocation at IPO price Guidance Letter New Applicants
      31/01/2013 GL50-13 Main Board Rules 2.13(2), 11.07, Paragraphs 28 to 31 of Part A of Appendix 1 and Appendix 27
      GEM Rules 14.08(7), 17.56(2), Paragraphs 28 to 31 of Part A of Appendix 1 and Appendix 20
      Simplification Series — Disclosure in listing documents for IPO cases — the "Business" section

      (Withdrawn in May 2016, superseded by HKEX-GL86-16)
      Guidance Letter New Applicants
      31/01/2013 GL49-13 Main Board Rules 2.13(2) and 11.07
      GEM Rules 14.08(7) and 17.56(2)
      Simplification Series — Disclosure in listing documents for IPO cases — the "History and Development" section

      (Withdrawn in May 2016, superseded by HKEX-GL86-16)
      Guidance Letter New Applicants
      31/01/2013 GL48-13 Main Board Rules 2.13(2) and 11.07
      GEM Rules 14.08(7) and 17.56(2)
      Simplification Series — Disclosure in listing documents for IPO cases — the "Industry Overview" section

      (Withdrawn in May 2016, superseded by HKEX-GL86-16)
      Guidance Letter New Applicants
      07/12/2012 GL46-12 Main Board Rule 8.05(1)(a) Main Board Rule 2.13 Guidance on unrealised fair value gains on valuation of biological assets for the purpose of trading record and profit requirements under Rule 8.05(1) (a); disclosure requirements for IPO applicants with biological assets and due diligence work expected to be performed by sponsor and other professional advisers on biological assets

      (Updated in October 2015)
      Guidance Letter New Applicants
      26/11/2012 GL45-12 Main Board Rules 4.04 and 8.05(1)
      GEM Rules 7.03, 11.10 and 11.12A
      Guidance on trading record requirements

      (Updated in February 2018)
      Guidance Letter New Applicants
      25/10/2012 GL44-12 Main Board Rules 2.03(2) and (4)
      GEM Rules 2.06(2) and (4)
      Guidance on Pre-IPO investments in convertible instruments

      (Updated in March 2017)
      Guidance Letter New Applicants
      25/10/2012 GL43-12 Main Board Rules 2.03(2) and (4) GEM Rules 2.06(2) and (4) Guidance on Pre-IPO investments

      (Updated in July 2013 and March 2017)
      Guidance Letter New Applicants
      30/08/2012 GL42-12 Main Board Rule 9.09(b) Guidance on Main Board Rule 9.09(b) in new listing cases Guidance Letter New Applicants
      22/08/2012 GL41-12 Paragraph 38 of Appendix 1A of Main Board Rules
      Paragraph 38 of Appendix 1A of GEM Rules
      Disclosure requirements for IPO cases — Disclosure of material changes in financial, operational and/ or trading position after trading record period

      (Withdrawn in July 2018; Superseded by GL98-18)
      Guidance Letter New Applicants
      17/08/2012 GL40-12 General principles for listing of business trusts and stapled securities The Exchange's approach to listing of:
      •   Business trusts
      •   Stapled Securities
      (Updated in March 2014)
      Guidance Letter New Applicants
      03/07/2012 GL39-12 Chapter 19B Hong Kong Depositary Receipts ("DR") — Pre-release and Pre-cancellation Guidance Letter New Applicants
      15/06/2012 GL38-12 Main Board Rules 2.03(2), 2.13, 11.07, Paragraphs 32 and 38 of Part A of Appendix 1
      GEM Rules 2.06(2), 17.56, 14.08(7), Paragraphs 32 and 38 of Part A of Appendix 1
      Guidance on the Latest Practicable Date and the Latest Date for Liquidity Disclosure in Listing Documents

      (Updated in July, September 2013 and March 2014)
      Guidance Letter New Applicants
      15/06/2012 GL37-12 Main Board Rules 8.21A, 9.11(17b), 9.11(28) and Paragraphs 32 and 36 of Part A of Appendix 1
      GEM Rules 12.22(13), 12.23A(1) and Paragraphs 32 and 36 of Part A of Appendix 1
      Guidance on indebtedness, liquidity, financial resources and capital structure disclosure in the listing documents and sponsor's confirmation on working capital sufficiency statement

      (Updated in July, September 2013 and January 2014)
      Guidance Letter New Applicants
      17/05/2012 GL36-12 Main Board Rules 2.13(2) and 11.07
      GEM Rules 14.08(7) and 17.56(2)
      Guidance on distributorship business model -risks and disclosure in listing documents Guidance Letter New Applicants
      08/05/2012 GL35-12 Main Board Rules 9.11(10)(b) and 11.17
      GEM Rules 12.22(14b) and 14.29
      Guidance on profit forecast under Main Board Rules 9.11(10) (b) and 11.17
      GEM Rule 14.29

      (Updated in July 2013)
      Guidance Letter New Applicants
      25/04/2012 GL34-12 Main Board Rules 2.13(2), 7.03 and 11.07 Disclosure in listing documents relating to hard underwriting Guidance Letter New Applicants
      17/04/2012 GL33-12 Main Board Rules 2.13 and Paragraphs 17 and 48 to 50 of Part A of Appendix 1
      GEM Rules 17.56, Paragraphs 15(2) and 48 to 50 of and note 8 to Part A of Appendix 1
      Disclosure in listing documents for IPO cases — Use of Proceeds

      (Withdrawn in May 2016, superseded by HKEX-GL86-16)
      Guidance Letter New Applicants
      28/03/2012 GL32-12 Main Board Rules 4.04(2), 4.04(4), 4.05A, 4.13 and 4.28
      GEM Rules 7.03(2), 7.03(4), 7.04A, 7.17 and 7.30
      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

      (Updated in January, March and October 2014)
      Guidance Letter New Applicants
      05/03/2012 GL31-12 N/A Typhoon and rainstorm warning arrangements
      (Updated in August 2012 and March)
      Guidance Letter New Applicants
      09/02/2012 GL30-12 Main Board Rule Appendix 1
      GEM Rule Appendix 1
      Guidance on disclosure of Intellectual Property Rights in Listing Documents under Main Board Rule Appendix 1 and GEM Rule Appendix 1

      (Withdrawn in July 2018; Superseded by GL56-13)
      Guidance Letter New Applicants
      16/01/2012 GL29-12 Main Board Rule 2.03(2) and (4)
      GEM Rule 2.06(2) and (4)
      Interim Guidance on Pre-IPO Investments (reproduction of HKEx News Release dated 13 October 2010)

      (Updated in March 2017)
      Guidance Letter New Applicants
      16/01/2012 GL28-12 Main Board Rules 2.13(2) and 11.07
      GEM Rules 14.08(7) and 17.56(2)
      Guidance on disclosure in listing documents for applicants engaged in the restaurant business Guidance Letter New Applicants
      12/01/2012 GL27-12 Main Board Rules 2.13 and 11.07
      GEM Rules 14.08(7) and 17.56
      Simplification Series — Guidance on disclosure in listing documents for IPO cases — the "Summary and Highlights" section

      (Withdrawn in May 2016, superseded by HKEX-GL86-16)
      Guidance Letter New Applicants
      03/01/2012 GL26-12 Main Board Rules 8.04 and 8.05(1)
      GEM Rule 11.06
      Guidance on business models with significant forfeited income from prepaid packages Guidance Letter New Applicants
      12/10/2011 GL25-11 Main Board Rule 4.04(1)
      GEM Rules 7.03(1) and 11.10
      Conditions for waivers from strict compliance with Main Board Rule 4.04(1) and GEM Rules 7.03(1) and 11.10

      (Updated in November 2011, March 2012, June 2013, March 2014, September 2015 and July 2016)
      Guidance Letter New Applicants
      30/03/2011 GL24-11 Main Board Rules 12.02, 12.04 and 12.05, Appendix 11 to the Main Board Rules
      GEM Rules 16.05, 16.09 and 16.10, Appendix 10< to the GEM Rules
      Simplification Series — Disclosure requirements for IPO cases — Formal Notice

      (Withdrawn in July 2018)
      Guidance Letter New Applicants
      24/12/2010 GL23-10 Main Board Rules 9.11 and 19A.22A
      GEM Rules 12.22(15) and 25.17A
      Documentation requirements for IPO cases — facilitative procedures

      (Withdrawn in July 2018; Superseded by GL55-13)
      Guidance Letter New Applicants
      22/10/2010 GL22-10 Main Board Rules 8.05 and 18.04, Paragraph 41(6) of Appendix 1A and Paragraph 41(6) of Appendix 1E
      GEM Rules 11.12A, 18A.01(3), 18A.04 and Paragraph 41(2) of Appendix 1A
      Pre-conditions for a waiver from the financial standards requirements for new applicant Mineral Companies under Main Board Rule 18.04

      (Updated in August 2013)
      Guidance Letter New Applicants
      22/10/2010 GL21-10 Main Board Rules 2.03(2), 2.13(2), 3A.13 and Appendix 19
      GEM Rules 2.06(2), 17.56(2), 6A.13 and Appendix 7G<
      Sponsor's due diligence on nondisclosure of confidential information in the listing document

      (Withdrawn in July 2018; Superseded by GL98-18)
      Guidance Letter New Applicants
      27/07/2010 GL20-10 Chapter 19 Matters to be considered by Germany incorporated listing applicants

      (Withdrawn, superseded by Germany Country Guide in December 2013)
      Guidance Letter New Applicants
      27/07/2010 GL19-10 Main Board Rule Paragraph 5.2 of Practice Note 12
      GEM Rules 11.16 to 11.19
      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 Guidance Letter New Applicants
      30/06/2010 GL18-10 Main Board Rule 9.08
      GEM Rule 12.10
      Guidance on publicity materials and e-IPO advertisements

      (Updated in July 2013, March 2014 and July 2018)
      Guidance Letter New Applicants
      28/05/2010 GL17-10 Main Board Rules 21.04, 21.14(1), 21.14(3) and 21.14(5) Guidance for Chapter 21 companies

      (Updated in September 2011, March 2014 and August 2015)
      Guidance Letter New Applicants
      22/10/2009 GL16-09 Main Board Rules 9.07, 9.08, 11.13, 11A.04, 11A.10, 12.01, 12.02, 12.03, 12.05, 12.08, 12.09, 20.12 and Appendix 7G-para 6
      GEM Rules 12.10, 12.15, 14.24, 15.04, 15.10, 16.01, 16.07, 16.08, 16.10, 16.13, 16.14 and 17.31
      Pre-vetting of documents and announcements in IPO cases and post-vetting announcements relating to price stabilization actions

      (Updated in July 2010 and June 2016)
      Guidance Letter New Applicants
      22/10/2009 GL15-09 Main Board Rules 2.13(2), 8.21A and 11.16 to 11.19 Payment of special dividend based on a new applicant's estimated distributable profits for a period up to the day immediately before listing

      (Updated in January 2013)
      Guidance Letter New Applicants
      10/2009 GL14-09 N/A Application for exemptions from the Companies Ordinance

      (Updated in March 2014)
      Guidance Letter New Applicants
      10/2009 GL13-09 Main Board Rules 2.13(2), 9.07 and 11.15
      GEM Rules 2.18, 12.15 and 14.27
      Listing Document Covers

      (Withdrawn in July 2018; Superseded by GL98-18)
      Guidance Letter New Applicants
      09/2009 GL12-09 Chapter 19 of the Main Board Rules, Chapter 24 Streamlined procedures for listing overseas companies

      (Withdrawn on 24 November 2014)
      Guidance Letter New Applicants
      24/07/2009 N/A N/A Stock Exchange Publishes Guidance on its IPO Process

      (Withdrawn on 24 January 2014)
      Letter to Issuers New Applicants
      07/2009 GL11-09 Main Board Rule 17.02(1)(b) and paragraph 27 of Appendix 1A Conditions for a waiver from strict compliance with Main Board Rule 17.02(1)(b) and paragraph 27 of Appendix 1A regarding disclosure of pre-IPO share option schemes

      (Updated in March 2014)
      Guidance Letter New Applicants
      07/2009 GL10-09 Main Board Rules 13.46 and 13.49(1) Conditions for a waiver from strict compliance with Main Board Rules 13.46 and/or 13.49(1) regarding the publication of first annual report and first annual result respectively Guidance Letter New Applicants
      07/2009 GL9-09 Main Board Rules 8.12 and 19A.15 Conditions for a waiver from strict compliance with Main Board Rules 8.12 and 19A.15 regarding sufficient management presence in Hong Kong Guidance Letter New Applicants
      07/2009 GL8-09 Main Board Rules 2.13, 3A.13, 11.12 and Appendix 19(b)
      GEM Rules <2.18, 6A.13, 14.23, 17.56 and Appendix 7G(2)
      Statistics and data quoted in prospectuses

      (Withdrawn in July 2018; Superseded by GL98-18)
      Guidance Letter New Applicants
      07/2009 GL7-09 Main Board Rules 3A.02B, 3A.17, 3A.18 and 9.03(1)
      GEM Rules 6A.02B, 6A.17, 6A.18, 12.07 and 12.08
      Documentary requirements for refiling a listing application (a) more than six months after the date of the original listing application; or (b) where a sponsor has changed

      (Updated on 10 September 2010 and July 2013)
      Guidance Letter New Applicants
      01/10/2013 GL6-09A Main Board Rules 4.29, 8.06 and 9.03(3)
      GEM Rules 7.31, 11.11 and 12.09
      Guidance on the financial information for the trading record period expected in the first draft listing document for listing applications

      (Withdrawn in July 2018; Superseded by GL56-13)
      Guidance Letter New Applicants
      07/2009 GL6-09 Main Board Rules 4.29, 8.06 and 9.03(3)
      GEM Rules 7.31, 11.11 and 12.09
      IPO-filing administrative practices -Information in the first draft listing document -Acceptance for vetting

      (Withdrawn in February 2014; Superseded by GL6-09A)
      Guidance Letter New Applicants
      05/06/2009 N/A N/A Possible Waiver for Profit Test Requirement for Initial Listing Applicants on the Main Board

      (Withdrawn on 24 January 2014)
      News Release New Applicants
      21/07/2008 N/A N/A Guidance regarding indebtedness, liquidity, financial resources and capital structure disclosure in listing documents issued by new applicants

      (Withdrawn on 15/6/2012; Superseded by GL37-12)
      Letter to Issuers New Applicants
      07/2008 GL5-08 Main Board Rules 8.05 and 18.03 Guidance on the interpretation of the experience requirement of the directors and management of the issuer under Main Board Listing Rule 18.03 and the current standing of Listing Decision HKEx-LD9-3

      (Withdrawn in 10/2010; Superseded by GL22-10)
      Guidance Letter New Applicants
      01/2008 N/A N/A Pilot Pre-IPO Information Scheme Supports Hong Kong's Position as an International Financial Centre

      (Withdrawn on 24 January 2014)
      Exchange Newsletter New Applicants
      27/12/2007 N/A N/A Web Proof Information Packs Available Online in January
      (Withdrawn on 24 January 2014)
      News Release New Applicants
      05/11/2007 N/A N/A Earlier Disclosure of Information by IPO Applicants

      (Withdrawn on 24 January 2014)
      News Release New Applicants
      04/2007 N/A N/A Overview of Policy Statement on Issuers from Overseas Jurisdictions

      (Withdrawn on 24 January 2014)
      Exchange Newsletter New Applicants
      07/03/2007 N/A N/A SFC/HKEx Joint Policy Statement Regarding the Listing of Overseas Companies

      (Withdrawn on 24 January 2014)
      News Release New Applicants
      04/2006 GL4-06 Main Board Rule 3A.07(9)(c) Guidance on assessment of a sponsor's independence

      (Withdrawn in July 2018; Superseded by GL99-18)
      Guidance Letter New Applicants
      04/2006 GL3-06 Main Board Rules 9.08 and 11A.07 Application of an exchange participant 8 to the Exchange for approval of publication of a summary form of IPO prospectus and other publicity materials for promoting the sale of IPO shares

      (Withdrawn in July 2018)
      Guidance Letter New Applicants
      04/2006 GL2-06 Main Board Rule 3A.08A Procedures for assessing a sponsor's independence when a partnership is the controlling shareholder of the sponsor

      (Withdrawn in July 2018; Superseded by GL99-18)
      Guidance Letter New Applicants
      04/2006 GL1-06 Main Board Rule 8.06 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

      (Withdrawn in August 2015)
      Guidance Letter New Applicants
      02/04/2003 N/A N/A Response to CSRC Abolishing the Requirement to review PRC Legal Opinions in respect of Overseas Incorporated Companies with Mainland Interests Seeking a Listing outside the Mainland

      (Withdrawn on 24 January 2014)
      News Release New Applicants
      13/10/1999 N/A N/A The period covered by the accountants reports in the listing documents for companies applying for listing on GEM

      (Withdrawn on 24 January 2014)
      News release New Applicants
      16/05/1997 N/A N/A MB Rule 9.08 -Letter regarding publication materials under Rule 9.08

      (Withdrawn on 30/6/2010; Superseded by GL18-10)
      Letter to Issuers New Applicants

      • GL99-18

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        HKEX GUIDANCE LETTER
        HKEX-GL99-18 (July 2018)

        Subject Guidance on assessment of a sponsor's independence
        Listing Rules and Regulations Main Board Rule 3A.07

        GEM Rule 6A.07
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        Purpose

        1. This letter provides guidance on assessment of a sponsor's independence.

        Relevant Listing Rules

        2. Main Board Rule 3A.07 (GEM Rule 6A.07) provides that at least one sponsor of a new applicant must be independent of it and requires the sponsor to declare its independence or lack of independence in accordance with the terms set out in Appendix 17 to Main Board Rules (Appendix 7K to GEM Rules). It also set forth circumstances where the sponsor is not independent.

        Guidance

        3. The role of sponsors is critical in maintaining market quality and this is reflected in the requirements of Chapter 3A of the Main Board Rules (Chapter 6A of the GEM Rules), which were the results of:
        (a) the Consultation Conclusions on the Regulation of Sponsors and Independent Financial Advisers jointly published by the Exchange and the Securities and Futures Commission ("SFC") on 19 October 2004; and
        (b) the Consultation Conclusions on the Regulation of IPO Sponsors published by the SFC in December 20121.
        4. The assessment of independence is a fundamental responsibility of the sponsor, together with the directors of the listing applicant.
        5. In principle, the factors that a sponsor and an applicant should consider when determining whether the requirements of Main Board Rule 3A.07(9) (GEM Rule 6A.07(9)) are satisfied include, but are not limited to:
        (a) the nature of the relationship among the parties involved
        (b) when the business relationship in question commenced;
        (c) whether the parties in question were involved, directly or indirectly, in sourcing the engagement; and
        (d) the nature and materiality of other relevant business relationships.
        6. Many sponsor firms and financial institutions have invested considerable time and effort to establish comprehensive systems for reviewing conflicts of interest and assessing independence in various circumstances. However, the sponsor should not merely rely on the existence of such measures when assessing its independence, without taking into account other factors, including those in paragraph 5 above.
        7. Certain sponsor firm is or had been the compliance adviser of a GEM listed issuer, and may be appointed as a sponsor when the GEM listed issuer applies for transfer of listing to the Main Board. If the proposed sponsor's role will involve, among other things, the review of the GEM listed issuer's compliance records during the period when it acted as the GEM listed issuer's compliance adviser, such relationship will reasonably give rise to a perception that it may not objectively assess the GEM listed issuer's compliance records. In such cases, the GEM listed issuer should appoint another sponsor acting as the primary channel of information under Main Board Rule 3A.10.
        8. In the event a sponsor's controlling shareholder is a partnership, questions arise as to how the requirements under Main Board Rule 3A.07 (GEM Rule 6A.07) should be applied. The Exchange considers:
        (a) for partnerships and other legally recognised entities that are not bodies corporate, the analysis should be based upon the legal characteristics of the entity in question. A basic partnership structure would likely be treated as a group of persons for these purposes, given the individual liability and powers to bind the partnership normally held by general partners. For more complex partnership arrangements involving limited partners and/ or other features, the partnership may be considered as analogous to a body corporate, and treated in a manner consistent with that of a "company" for purposes of the Rules;
        (b) the legal characteristics of the partnership will also affect the determination of "associates" under the Rules. It is not accurate to equate such a review to each shareholder of a company because, unlike partners, shareholders generally have no liability beyond their equity investments and have no powers to bind the corporation; and
        (c) a sponsor should consider the following factors, among others:
        (i) the current conflict declaration arrangements for partners and staff within the sponsor's global organisation;
        (ii) the systems and controls that currently exist for reviewing the independence obligations of the sponsor, the partnership and other related entities for purposes of ensuring compliance with legal, regulatory and professional standards; and
        (iii) whether such systems are currently able, or capable of being modified without undue effort or expense, to review the independence of the partnership and other related entities or individuals for purposes of assessing independence as defined in the Rules.

        ****


        1 The new sponsor regulation became effective on 1 October 2013.

      • GL98-18

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        HKEX GUIDANCE LETTER
        HKEX-GL98-18 (July 2018)

        Subject Guidance on disclosure in listing documents - listing applicants' names; statistics and data quoted; listing document covers; non-disclosure of confidential information; and material changes after trading record period
        Listing Rules and Regulations Main Board Rules 2.03(2), 2.13(2), 3A.05, 3A.13, 9.07, 11.12, 11.15, paragraph 4 of Practice Note 21, paragraphs 2 and 38 of Appendix 1A and Appendix 19

        GEM Rules 2.06(2), 2.18, 6A.05, 6A.13, 12.15, 14.23, 14.27, 17.56(2), paragraph 4 of Practice Note 2, paragraph 38 of Appendix 1A and Appendix 7G
        Author N/A
        Related Publications IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        Purpose

        1. This letter provides guidance on disclosure of various matters in a listing document: (a) appropriateness of listing applicants' names; (b) statistics and data quoted; (c) listing document covers; (d) non-disclosure of confidential information; and (e) material changes in financial, operational and/ or trading positions after trading record period.

        Relevant Listing Rules

        2. Main Board Rule 2.03(2) (GEM Rule 2.06(2)) provides that the Listing Rules are designed to ensure that the issue and marketing of securities is conducted in a fair and orderly manner and that potential investors are given sufficient information to enable them to make a properly informed assessment of an issuer.
        3. Main Board Rule 2.13(2) (GEM Rule 17.56(2)) requires, among other things, that the information contained in the document must be accurate and complete in all material respects and not be misleading or deceptive.
        4. Main Board Rule 3A.05 (GEM Rule 6A.05) provides that a new applicant and its directors must assist the sponsor to perform its due diligence work and to enable the sponsor to gain access to all relevant records in connection with the listing application.
        5. Main Board Rule 3A.13 (GEM Rule 6A.13) requires each sponsor to submit a declaration under Appendix 19 to Main Board Rules (Appendix 7G to GEM Rules). The sponsor is required to confirm, among other things, that it has made reasonable due diligence inquiries and has reasonable grounds to believe that the applicant complies with the Listing Rules, and that the listing document is true, accurate, complete and not misleading in all material respects.
        6. Main Board Rule 9.07 (GEM Rule 12.15) provides that the listing document must not be issued until the Exchange has confirmed that it has no further comments.
        7. Main Board Rule 11.12 (GEM Rule 14.23) provides that the directors of an issuer are responsible for the information contained in the listing document.
        8. Main Board Rule 11.15 (GEM Rule 14.27) provides that a listing document may include illustrations of a pictorial or graphic nature provided that such illustrations are not misleading or likely to mislead in the form and context in which they are included.
        9. Paragraph 38 of Appendix 1A to the Main Board Rules (Paragraph 38 of Appendix 1A to the GEM Rules) requires disclosure of a statement by the directors of any material adverse change in the financial or trading position of the group since the end of the period reported on in the accountants' report, or an appropriate negative statement.
        10. Paragraph 4 of Practice Note 21 to the Main Board Rules (Paragraph 4 of Practice Note 2 to GEM Rules) provides that sponsors are expected to document their due diligence planning and significant deviations from their plans.
        11. Paragraph 2 of Appendix 1A to the Main Board Rules (GEM Rule 2.18) requires the directors' responsibility statement to include the accuracy and completeness of information in listing documents.

        Guidance

        Overall

        12. The following guidance is formed based on the basic requirement that the content of listing documents must provide potential investors sufficient, true and accurate information to enable them to make a properly informed assessment of an issuer and of the securities for which listing is sought.

        Listing applicants' names

        13. The name of an applicant is essentially a commercial matter. However, the Exchange's experience is that a name could be misleading. For example, during a technology boom, more applicants bear names with words such as "High-Tech", "Bio-Tech"; and there has been a trend for companies to brand themselves as "green" in view of the increasing awareness of environmental concerns. If such "branding" is not reasonable, there is a risk of misleading the market.
        14. The Exchange's focus is to ensure the description of the applicant's business in the listing document, including its name, appropriately reflects its present and future business engagements as required under Rule 2.13 (GEM Rule 17.56). This is assessed based on the specific circumstances of each applicant, including its history, committed development plan and its level of involvement at different stages

        Statistics and data quoted in listing documents

        15. It is common to include in listing documents statistics, data or extracts from the following three main categories:
        (a) public official documents or statements;
        (b) a report of an expert; and
        (c) commissioned/ non-commissioned research reports.
        16. For information sourced from public official documents or statements, we recognise the difficulty in assessing the competence of the public sources producing the official data, which in some cases may be the only available source of information on a particular topic. We therefore allow risk factors and other language limiting directors' and sponsors' responsibilities in ensuring the accuracy, reliability and/ or completeness of the information.
        17. For information sourced from expert reports, the use of cautionary language in the listing document to limit directors' and sponsors' responsibilities is not allowed as it will be inconsistent with their responsibilities under the Rules that they have to, among other things, exercise reasonable care when selecting an expert to prepare a report for inclusion in a listing documents.
        18. For information sourced from commissioned/ non-commissioned research reports, given the availability of data and research reports from various sources, directors and sponsors should make reasonable enquiries to confirm the accuracy and completeness of the information, and make appropriate judgment in choosing what data to be used and how it is presented in the listing document.
        19. Directors and sponsors may face practical difficulties in independently verifying the information in the commissioned/ non-commissioned research reports. It would therefore be appropriate to include cautionary language in this regard to bring to investors' attention the uncertainties involved.
        20. In this respect, the Exchange:
        (a) allows cautionary language along the following lines: "We believe that the source[s] of this information [is an/ are] appropriate source[s] for such information and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. The information has not been independently verified by us, the Sponsor, the Underwriters or any other party involved in the Global Offering and no representation is given as to its accuracy."; and
        (b) expects disclosure that the directors and sponsors have exercised reasonable care in selecting and identifying the named information sources, in compiling, extracting, and reproducing the information, and in ensuring no material omission of the information.
        21. Nevertheless, directors and sponsors are responsible for taking steps to ensure that information is reasonably represented in the listing document under the relevant Rules. Any qualifying language proposed to be included in the listing document should not violate this standard.
        22. Where an applicant discloses statistics, data or information published on the Exchange's website, directors and sponsors must obtain consent from the Exchange's Legal Services Department for such disclosure.

        Listing document covers

        23. The general rule is that information contained in or conveyed by a listing document cover should be accurate and complete in all material aspects and should not be misleading or deceptive so as to enable a reasonable investor to form a valid and justifiable opinion of an applicant.
        24. When assessing whether a listing document cover is acceptable, we consider:
        (a) the likely overall impression given by it;
        (b) whether the use of illustrations or examples to highlight an aspect of disclosure in a listing document is appropriate;
        (c) whether the illustrations shown on a listing document cover are properties/ employees of an applicant;
        (d) whether the graphs and other diagrams are drawn to scale, and what is depicted is a fair representation of the position with all relevant information provided; and
        (e) whether the logo shown has been registered, and if not, the likelihood that the logo may infringe other parties' intellectual property right.
        25. Matters that we consider to be unacceptable on the front and/ or back cover of a listing document include, but not limited to:
        (a) products, buildings, premises, trademark, logos that are not the applicant's properties;
        (b) images of a globe or continents, unless the applicant has substantial global or international presence;
        (c) any design that may present the offering's favourable characteristics as certain or more probable, e.g. upward arrows on graphical information;
        (d) artistic impressions of properties which have not yet been completed; and
        (e) any design that gives more prominence to a sponsor/ lead manager than to an applicant, e.g. by using an exceptionally large font size for their names.
        26. Before noon on the day when an applicant would like to obtain the Exchange's clearance for bulk-printing a listing document cover, it should provide a written confirmation from the applicant or the sponsor that (a) the logo shown has been registered, and if not, the legal advisers' view, with basis, on the likelihood that the logo may infringe other parties' intellectual property right; and (b) the listing document covers (both English and Chinese versions) meet the principles set out in this guidance letter.
        27. As a facilitative measure, we will issue a separate letter confirming the applicant's stock code, Chinese and English stock short names and that the Exchange has no further comment on the listing document covers.

        Non-disclosure of confidential information

        28. The Exchange only accepts non-disclosure of confidential information under very special situations. Applicants must demonstrate good cause why the information cannot be disclosed. All requests for non-disclosure of confidential information are considered on a case-by-case basis.
        29. In determining whether to allow an applicant not disclosing certain confidential information in a listing document, we take into account the following:
        (a) whether the inconvenience caused to the applicant by the disclosure outweighs the investors' information needs;
        (b) whether the alternative information disclosed in the listing document provides investors with sufficient, true and accurate information to enable them to make a properly informed assessment of the issuer and its securities as a whole; and
        (c) the directors' views and the sponsor's declaration under Main Board Rule 3A.13 (GEM Rule 6A.13) and Appendix 19 to the Main Board Rules (Appendix 7G to GEM Rules) on whether a listing document contains all material information to enable a reasonable investor to make a properly informed assessment of the issuer and its securities.
        30. The Exchange expects sponsors to have access to all information of the applicant necessary to enable them to complete their due diligence process. If a sponsor is prevented from access to certain information by law ("Restricted Information"), the sponsor must demonstrate the steps it has taken to fulfill its obligations under Chapter 3A of the Main Board Rules (Chapter 6A of the GEM Rules) despite not having access to the Restricted Information. The Exchange will not accept a sponsor confirming completion of the due diligence process with a qualification solely due to the applicant's internal policy on access restriction for confidential information, even if alternative due diligence work has been performed.

        Disclosure of material changes after trading record period

        31. An applicant must disclose material adverse changes to its financial and/ or trading position after the trading record period in its listing document.
        32. Sponsors and the applicants are best positioned to determine what information is material having regard to the specific facts and circumstances of each listing applicant. While this determination requires a degree of judgment, sponsors and the applicants should consider, as a minimum, whether there is any material adverse change which has taken place or is expected to take place in the near future, in the technological, market, economic, legal or operating environment in which the applicant operates. Non-exhaustive examples include:
        Financial
        (a) adverse change in the applicant's financial performance after the trading record period;
        (b) adverse change in market interest rates, selling prices of key products sold or services provided and purchase prices of key raw materials;
        Trading
        (c) loss of major customers/ suppliers or evidence of their deteriorating financial condition;
        (d) matters that affect the applicant's sales, or material product returns/ recall requests from customers;
        (e) international sanctions on countries/ companies with which the applicant conducts business;
        Operational
        (f) loss of permits/ licences/ patents or other intellectual property;
        (g) change in laws and regulations (e.g. prohibiting adoption of structured contracts) or government subsidising policies (e.g. government grants or preferential tax arrangements);
        (h) evidence of obsolescence of or physical damage to the applicant's key production units/ assets/ inventories;
        (i) litigation/ potential litigation from stakeholders, or any adverse developments in existing material litigation or claims; or
        (j) loss of key personnel, significant labour disputes/ strikes.
        33. Applicants should disclose in the "Summary", "Risk Factors" and "Financial Information" sections of the listing document (a) qualitative or quantitative disclosure with commentary on the adverse changes after the trading record period; and (b) how these changes affect their financial and/ or trading position, to enable investors to have a sense of materiality of such adverse changes. In this regard, the Exchange accepts qualitative or quantitative disclosure on financial information/ operating data such as revenue, gross profit/ loss, gross profit/ loss margin, average selling price and sale volume. However, disclosure of such information must be as updated as possible and will depend on the facts and circumstances of each case.
        34. If an applicant discloses its unaudited net profit/ loss figure, or financial information which allows investors assess the applicant's estimated net profit/ loss since the end of the trading record period (e.g. disclosing both revenue and net profit margin), such disclosure constitutes a profit forecast/ estimate and is subject to requirements under Main Board Rules 11.17 and 11.18 (GEM Rules 14.29 and 14.30).
        35. Any quantitative information (other than those that constitutes a profit forecast/ estimate in paragraph 34 above) relating to an applicant's financial performance after the trading record period should be reviewed by the reporting accountants, and a statement must be included in the listing document that such financial information has been reviewed by the reporting accountants. The disclosure of the comparative financial information to such financial information is not required but if disclosed, should at least be reviewed by the applicant's sponsor.

        ****

      • GL97-18

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL97-2018 (July 2018)

        Subject Guidance for applicants in the internet technology sector or have internet-based business models (collectively, Relevant Sectors)
        Listing Rules and Regulations Main Board Rules 2.13(2), 8.04, 8.10, 11.07, 14A.53, 17.03

        Paragraph 27A of Appendix 1A to the Main Board Rules
        Relevant Publications HKEX-LD107-1 - Whether heavy reliance on a major customer would render Company A unsuitable for listing ("LD107-1")
        Author IPO Advisory and Projects

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Division on a confidential basis for an interpretation of the Listing Rules, or this letter. Unless otherwise specified, defined terms in the Listing Rules shall have the same meanings in this letter.

        1. Purpose
        1.1 This letter gives guidance on the Exchange's approach to companies in Relevant Sectors with reference to the characteristics of such companies to facilitate their listing within the existing regulatory framework.
        2. Relevant Listing Rules
        2.1. Main Board Rule 2.13(2) provides that the information contained in an issuer's document must be accurate and complete in all material respects and not be misleading or deceptive. In complying with this requirement, the issuer must not, among other things:
        (a) omit material facts of an unfavourable nature or fail to accord them with appropriate significance; and
        (b) present favourable possibilities as certain or as more probable than is likely to be the case.
        2.2. Main Board Rule 8.04 states that both the issuer and its business must, in the opinion of the Exchange, be suitable for listing.
        2.3. Main Board Rule 11.07 states that as an overriding principle, all listing documents must contain such particulars and information which, according to the particular nature of the issuer and the securities for which listing is sought, 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 of its profits and losses and of the rights attaching to such activities.
        2.4. Main Board Rule 14A.53 states that a listed issuer must set an annual cap for continuing connected transactions. The annual cap must be expressed in monetary terms, determined by reference to previous transactions and figures in the published information of the listed issuer's group, or if there were no previous transactions, set based on reasonable assumptions.
        2.5. Note 1 to Main Board Rule 17.03(3) states that the total number of securities which may be issued upon exercise of all options to be granted under the share option scheme must not in aggregate exceed 10% of the relevant class of securities of the listed issuer. The note to Main Board Rule 17.03(4) states that the maximum entitlement of each participant under the share option scheme must not exceed 1% of the relevant class of securities in issue unless separately approved by the shareholders. Main Board Rule 17.03(5) states that the period within which securities must be taken up under the option is limited to ten years from the date of grant of the option.
        2.6. Paragraph 27A of Appendix 1A to the Main Board Rules states that a listing document for a new applicant should include a statement explaining how the applicant is satisfied that it is capable of carrying on its business independently of its controlling shareholders (including any of the controlling shareholders' close associate) after listing.
        3. Guidance
            High Degree of Reliance
        3.1 Many companies in Relevant Sectors (especially internet-based companies) provide tailored products or services and leverage on their substantial shareholders' main businesses or platform to promote its products or services. This reliance can lead to extensive connected transactions under the Listing Rules
        3.2. The Exchange normally considers reliance to be a disclosure issue and requires a new applicant to disclose details of its reliance upon a substantial shareholder, connected persons, a major supplier or a major customer in its listing document. However, where the degree of reliance is extreme, the Exchange may have a concern on whether the applicant is suitable for listing.
        3.3. Listing Decision HKEX-LD107-1 sets out factors the Exchange considers when assessing whether an applicant's reliance on a major customer or supplier is so material as to impact suitability:
        (a) whether the applicant's business model can be easily changed to reduce the level of reliance;
        (b) whether the level of reliance is likely to decrease in the future;
        (c) whether the whole industry landscape is dominated by a few players making it unlikely for companies in the same line of business to break off the reliance;
        (d) whether the reliance is mutual and complementary; and
        (e) whether the applicant is able to maintain its revenue in the future in light of the reliance.
        3.4 The Exchange notes that the business models of many companies in Relevant Sectors at the early stage of their development often extensively use the services offered by the businesses of their parent company, or another connected person, to facilitate their own products or services. For example, a new applicant may promote its products or services using the internet based social network platform of its parent company. Companies in Relevant Sectors often have a high degree of dependence on their parent company or another connected person's platform and are unable to reduce their level of reliance in the foreseeable future given the nature of their industry and businesses. The reliance is typically not mutual and complementary and usually more important to the applicant than the parent company at the time of listing. It is also unlikely that the applicant will be able to switch to using another platform, given the competition in the industry.
        3.5. Given their nature, the Exchange is prepared to accept a higher level of reliance on parent companies / connected persons / major suppliers / major customers and place less emphasis on the need to demonstrate a reduction in reliance in relation to applicants in Relevant Sectors if the applicant is able to demonstrate the following characteristics:
        (a) the whole industry landscape is dominated by a few players that may or may not be the applicant's parent company (or other connected persons / major suppliers / major customers);
        (b) the services that the applicant relies on are provided by a small number of dominant major providers in competition with each other; therefore, it is difficult for the new applicant to use the services of an alternative provider to reduce the level of reliance;
        (c) there were legitimate commercial reasons for the applicant and its parent company (or other connected persons / major suppliers / major customers) to enter into the transactions, and these were on normal commercial terms in the ordinary course of business of the issuer as well as the parent company (or other connected persons / major suppliers / major customers), and will (in the case of transactions with a connected person) be subject to continuing connected transaction requirements under the Listing Rules after listing; and
        (d) there are long term agreements in place between the applicant and the parent company (or other connected persons / major suppliers / major customers) to provide continued access to the parent company's (or other connected persons / major suppliers / major customers) platform or services.
        3.6. Such applicant would also be required to disclose in its listing document:
        (a) the areas of reliance and the reason for the applicant's business model that results in the reliance;
        (b) details on the arrangements (including fees and charges) for the services rendered by the parent company/connected persons/major suppliers/major customers;
        (c) details of any mitigating factors to reduce the risk of reliance (e.g. the ability to use a different supplier/service provider); and
        (d) risks associated with such reliance, including a description of the "worst case scenario" if the services are no longer available.
        3.7. The business models of many companies in Relevant Sectors often leverage on the platform of their parent company, or another connected person, to facilitate their own products or services. Such an arrangement constitutes a continuing connected transaction under the Listing Rules, for which the new applicant is required to set a monetary annual cap. However, in such cases it is not uncommon for the new applicant to structure the payment for the use of such services as a percentage of the applicant's revenue generated through the connected person's platform. The Exchange evaluates connected transactions carefully on a case-by-case basis. When an applicant derives a significant portion of its turnover and/or net profit from continuing connected transactions and/or other connected transactions, the Exchange has the discretion to decide that the applicant is unsuitable for listing because there is an extreme reliance on another parties even if it meets all the factors in paragraph 3.5 of this guidance letter.

        Quantifying Caps for Continuing Connected Transactions
        3.8. There may be cases in which it is impractical for the applicant to accurately estimate the amount of payment required under a cooperative agreement for the use of the platform of the applicant's parent company or another connected person where the payment is based on transaction volume as they may have a short operating history or be in a growth phase such that historical revenues would not be very reliable for estimating future transaction volume. Imposing an arbitrary monetary cap may be unduly burdensome and not in the interests of the new applicant's shareholders after listing.
        3.9. In relation to applicants in Relevant Sectors, the Exchange proposes to grant waivers from strict compliance with the requirement to set a monetary annual cap under the Listing Rules and allow the annual cap to be set as a formula on a case by case basis, provided that the applicant demonstrates the necessity for such an arrangement in the circumstances of its case and the formula to be adopted is in line with historical and prevailing commercial practices. The issuer will demonstrate to the Exchange that it merits the continuing connected transaction at the time it is to be renewed and that the circumstances continue to justify the granting of the waiver (for example if the business volume over the platform has sufficiently stabilised at that point so as to allow a monetary cap to be set).

        Extensive Use of Share Incentive Schemes
        3.10. Companies in Relevant Sectors often place greater emphasis on retaining and incentivising talented persons in order to develop their businesses. This is often achieved through the grant of share options. These companies, particularly those in the stage of rapid growth, may find the existing 10% overall cap and the one percent cap on individual participants under Listing Rule 17.03 to be unduly restrictive and burdensome. Some companies may also find the limit of ten years for the securities under the option to be taken up to be too restrictive to allow them the flexibility to incentivise talents.
        3.11. Based on facts and circumstances of individual applicant in Relevant Sectors, the Exchange may at its discretion, grant or reject a waiver from strict compliance with (i) the percentage cap requirement on outstanding share options under a share option scheme and allow a higher cap to be set; and (ii) the ten year limit within which securities must be taken up under the option and allow a longer period to be set.
        3.12. An applicant that applies for such waiver should demonstrate the necessity for a higher cap/longer option period in its case and clear criteria for granting share options under the scheme. The Exchange also requires an applicant to disclose, in its listing document, the material terms of the scheme and the circumstances when it may grant options beyond the 10% limit under the Main Board Rules.

        Unestablished Regulatory Environment
        3.13. Companies in Relevant Sectors often operate in sectors (e.g. Financial Technology or FinTech) for which local laws and regulations are still evolving, and are still being drafted. Some applicants are uncertain as to how to demonstrate to the Exchange that they are in compliance given the evolving regulatory environment in which they operate.
        3.14. If the relevant laws and regulations applicable to an applicant are still developing and are not expected to be promulgated in the near future, the Exchange would normally expect disclosure of the associated risks in the listing document to be sufficient. In these circumstances, we would not expect an applicant's legal opinion regarding the applicant's compliance with local laws and regulations that it submits to support its application to cover the applicant's compliance with the unimplemented laws and regulations.
        3.15. However, if it is clear in the circumstances of the case that draft regulations affecting the applicant's business will be promulgated in the near future, the Exchange would normally expect the applicant to demonstrate, with the support of a local legal opinion, that it is able to comply with the requirements (and any guidelines) of the draft regulations in the event that the draft regulations are promulgated in the form as set out in public notices of the regulations (e.g. in a government gazette).

        ****

      • GL94-18

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL94-18 (April 2018)

        Subject Suitability for Secondary Listing as a Qualifying Issuer under Chapter 19C
        Listing Rules and Regulations Main Board Listing Rules 8.04, 19C.02

        HKEX-LD43-3

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules, or this letter. Unless otherwise specified, defined terms in the Listing Rules shall have the same meanings in this letter.

        1. Purpose
        1.1 This letter provides guidance to applicants applying for a secondary listing under Chapter 19C on the factors that the Exchange will take into account when considering whether an applicant is suitable for listing under Main Board Listing Rule 19C.02.
        1.2 This letter also provides guidance to applicants applying for a secondary listing under Chapter 19C on the use of contract-based arrangements or structures ("Contractual Arrangements") to indirectly own and control the parts of their business.
        2. Relevant Listing Rules
        2.1 Main Board Listing Rule 8.04 provides that in the opinion of the Exchange both the issuer and its business must be suitable for listing.
        2.2 Main Board Listing Rule 19C.02 states that a Qualifying Issuer seeking a secondary listing under Chapter 19C must demonstrate to the Exchange that it is both eligible and suitable for listing.
        3. Guidance

        Suitability
        3.1 The Exchange would normally consider a Qualifying Issuer to be suitable for secondary listing under Chapter 19C it is an innovative company by reference to the characteristics set out in paragraph 3.2 below.
        3.2 The Exchange considers an innovative company for the purpose of the Listing Rules would normally be expected to possess more than one of the following characteristics:
        (a) its success is demonstrated to be attributable to the application, to the company's core business, of (1) new technologies; (2) innovations; and/or (3) a new business model, which also serves to differentiate the company from existing players;
        (b) research and development is a significant contributor of its expected value and constitutes a major activity and expense;
        (c) its success is demonstrated to be attributable to its unique features or intellectual property; and/or
        (d) it has an outsized market capitalisation / intangible asset value relative to its tangible asset value.
        The Exchange recognises that what is considered "innovative" depends on the state of the industry(ies) and market(s) in which an applicant operates, and will change over time as technology, markets and industries develop and change. For example, a new and "innovative" business model may cease to be so if it is adopted by numerous industry players over time. Conversely, a company may develop an "innovative" way of deploying existing technologies that qualifies it for listing under Chapter 19C. Accordingly, the fact that a particular company has qualified for listing under Chapter 19C does not necessarily mean that another applicant with a similar technology, innovation or business model will also qualify for listing under Chapter 19C.

        The Exchange will review the facts and circumstances of each case to determine if an applicant has demonstrated that it is an innovative company for the purpose of this paragraph. The superficial application of new technology to an otherwise conventional business will not be sufficient to demonstrate the characteristics set out in this paragraph. So, for example, the Exchange may consider that an applicant that operates a retail business with an online sales platform may not be suitable to list under Chapter 19C if it does not exhibit other distinctive features or characteristics.
        3.3 Applicants should note that the factors set out in this section 3 are neither exhaustive nor binding and the Exchange will take into account all relevant circumstances in its assessment of the applicant.
        3.4 The Exchange retains the discretion to find a Qualifying Issuer not suitable for listing under the new concessionary route even if it satisfies the features set out in paragraph 3.2 and the applicant must, in any case, satisfy the general suitability requirement in Main Board Listing Rule 8.04.
        4. Contractual arrangements
        4.1 Companies operating in an industry sector that is subject to foreign ownership restrictions often use Contractual Arrangements to indirectly own and control the parts of their business which are subject to foreign ownership restrictions.
        4.2 The Exchange's current approach in relation to Contractual Arrangements is set out in Listing Decision HKEX-LD43-3. Among other things, Contractual Arrangements are required to be narrowly tailored to achieve the applicant's business purpose and minimise the potential for conflict with relevant PRC laws and regulations, and issuers may be required, on a case by case basis, to demonstrate that it is able to comply with the requirements under the draft PRC Foreign Investment Law in the event that the legislation is promulgated.
        4.3 The Exchange notes that the requirements of Qualifying Exchanges regarding Contractual Arrangement are not as extensive as the Exchange's requirements. This means that many of the Mainland companies listed on Qualifying Exchanges have done so with Contractual Arrangements that do not meet our existing guidance in all respects. These companies may find it undesirable or impractical to vary their corporate structures to incorporate all aspects of the Exchange's requirements for Contractual Arrangements for the sake of a secondary listing.
        4.4 Consistent with the purpose of Chapter 19C to facilitate the secondary listing of innovative companies, Grandfathered Greater China Issuers, being those Greater China Issuers which have been listed on a Qualifying Exchange before the Exchange published its proposals (and therefore did not list overseas for the purpose of regulatory arbitrage), will be able to secondary list with their existing Contractual Arrangements in place and will not be required to demonstrate that it is able to comply with the draft PRC Foreign Investment Law provided that they comply with the following requirements:1
        (a) The applicant is required to provide the Exchange with a PRC legal opinion that their Contractual Arrangements complies with PRC laws, rules and regulations; and
        (b) The applicant must comply with the disclosure requirements set out in Listing Decision HKEX-LD43-3.
        4.5 Non-Grandfathered Greater China Issuers applying for a secondary listing under Chapter 19C must ensure that it complies with the Exchange's requirements set out in Listing Decision HKEX-LD43-3. They may also be required, on a case by case basis, to demonstrate that it is able to comply with the requirements under the draft PRC Foreign Investment Law in the event that the legislation is promulgated.
        4.6 In the event that an applicant applying for a secondary listing under Chapter 19C uses weighted voting rights to demonstrate its ability to comply with the draft PRC Foreign Investment Law, and the weighted voting rights in question do not exist indefinitely (for example, they are personal to the holder and incapable of being transferred, or are subject to sunset), the applicant must clearly disclose the risk that its weighted voting rights may fall away and it may not be able to comply with the PRC Foreign Investment Law as a result.

        ****


        1 Non-Greater China Issuers would also be able to secondary list with their existing Contractual Arrangements, if they have them.

      • GL93-18

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        HKEX GUIDANCE LETTER
        HKEX-GL93-18 (April 2018)

        Subject Suitability for Listing with a WVR Structure
        Listing Rules and Regulations Main Board Listing Rules 8.04, 8A.04

        HKEX-LD43-3

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules, or this letter. Unless otherwise specified, defined terms in the Listing Rules shall have the same meanings in this letter.

        1. Purpose
        1.1 This letter provides guidance to on the factors that the Exchange will take into account when considering whether an applicant is suitable for listing with a weighted voting rights ("WVR") structure under Main Board Listing Rule 8A.04.
        1.2 This letter also sets out the Exchange's approach in relation to an issuer relying on its WVR structure to demonstrate compliance with the draft PRC Foreign Investment Law.
        2. Application of this Guidance Letter
        2.1 The concept of proportionality between the voting power and equity interest of shareholders, commonly known as the "one-share, one-vote" principle, is an important aspect of investor protection as it helps align controlling shareholders' interests with those of other shareholders and makes it possible for incumbent management to be removed, if they underperform, by those with the greatest equity interest in an issuer.
        2.2 The Exchange believes that the "one-share, one vote" principle continues to be the optimum method of empowering shareholders and aligning their interests in a company. Consequently, the Exchange will exercise its discretion to find an applicant suitable to list with a WVR structure sparingly. Demonstration of the characteristics in this guidance letter may not of itself satisfy the Exchange of an applicant's suitability to list with a WVR structure. The Exchange retains discretion to reject an application for listing with a WVR structure even if the applicant meets the requirements in this guidance letter.
        3. Relevant Listing Rules
        3.1 Main Board Listing Rule 8A.04 states that a new applicant seeking a listing with a WVR structure must demonstrate that it is both eligible and suitable for listing with a WVR structure.
        3.2 Main Board Listing Rule 8.04 provides that in the opinion of the Exchange both the issuer and its business must be suitable for listing.
        4. Guidance

        Suitability to list with a WVR structure
        4.1 An applicant must demonstrate that, in addition to the other requirements for listing as set out in the Main Board Listing Rules, it has met the following characteristics for the purpose of demonstrating to the Exchange that it is suitable for listing in Hong Kong with a WVR structure.
        4.2 Innovative company

        The applicant must be an innovative company. The Exchange considers an innovative company for the purpose of the Main Board Listing Rules would normally be expected to possess more than one of the following characteristics:
        (a) its success is demonstrated to be attributable to the application, to the company's core business, of (1) new technologies; (2) innovations; and/or (3) a new business model, which also serves to differentiate the company from existing players;
        (b) research and development is a significant contributor of its expected value and constitutes a major activity and expense;
        (c) its success is demonstrated to be attributable to its unique features or intellectual property; and/or
        (d) it has an outsized market capitalisation / intangible asset value relative to its tangible asset value.
        The Exchange recognises that what is considered "innovative" depends on the state of the industry(ies) and market(s) in which an applicant operates, and will change over time as technology, markets and industries develop and change. For example, a new and "innovative" business model may cease to be so if it is adopted by numerous industry players over time. Conversely, a company may develop an "innovative" way of deploying existing technologies that qualifies it for listing with a WVR structure. Accordingly, the fact that a particular company has qualified for listing with a WVR structure does not necessarily mean that another applicant with a similar technology, innovation or business model will also qualify for listing with a WVR structure.

        The Exchange will review the facts and circumstances of each case to determine if an applicant has demonstrated that it is an innovative company for the purpose of this paragraph. The superficial application of new technology to an otherwise conventional business will not be sufficient to demonstrate the characteristics set out in this paragraph. So, for example, the Exchange may consider that an applicant that operates a retail business with an online sales platform may not be suitable to list with a WVR structure if it does not exhibit other distinctive features or characteristics.
        4.3 Success of the company

        The applicant must demonstrate a track record of high business growth, as can be objectively measured by operational metrics such as business operations, users, customers, unit sales, revenue, profits and/or market value (as appropriate) and its high growth trajectory is expected to continue.
        4.4 Contribution of WVR holders

        Each WVR beneficiary must have been materially responsible for the growth of the business, by way of his skills, knowledge and/or strategic direction in circumstances where the value of the company is largely attributable or attached to intangible human capital.
        4.5 Role of WVR holders
        (a) Each WVR beneficiary must be an individual who has an active executive role within the business, and has contributed to a material extent to the ongoing growth of the business; and
        (b) each WVR beneficiary must be a director of the issuer at the time of listing.
        4.6 External validation

        The applicant must have previously received meaningful third party investment (being more than just a token investment) from at least one sophisticated investor1 (which must remain at IPO). Such investors will be required to retain an aggregate 50% of their investment at the time of listing for a period of at least six months post-IPO (subject to exceptions for de minimis investments by specific investors provided that the main investors are in compliance). The Exchange would not normally require an applicant to demonstrate that it has received meaningful third party investment if the applicant is a spin-off from a parent company2.
        4.7 The Exchange reserves the right to reject an applicant on suitability grounds if its WVR structure is an extreme case of non-conformance with governance norms (for example if the ordinary shares would carry no voting rights at all).
        4.8 Applicants should note that the factors set out in this section 4 are neither exhaustive nor binding and the Exchange will take into account all relevant circumstances in its assessment of the applicant.
        5. PRC Foreign Investment Law
        5.1 Under existing PRC laws, certain industry sectors are subject to foreign investment restrictions. A "foreign investor" is defined according to the form of the investment made i.e. whether investments are made by way of wholly-foreign-owned entities, foreign-invested equity joint ventures or contractual joint ventures.
        5.2 In January 2015, MOFCOM published a consultation draft of a Foreign Investment Law intended to replace existing PRC laws on foreign investment restrictions. The draft law looks through the form of the investment and instead defines a "foreign investor" according to several factors including the citizenship of the person in control, or de facto control, of the investor company. Under the draft Foreign Investment Law, companies in control, or de facto control, of a Chinese citizen would not be subject to foreign investment restrictions.
        5.3 The Exchange's current approach in relation to issuers operating in restricted industries is set out in HKEX-LD43-3. Since the PRC Foreign Investment Law is still in draft form with no proposed date for implementation, the Exchange will continue to examine each case on its individual merits to determine whether the arrangements an issuer proposes will provide appropriate investor protection. Under this approach, an issuer may be required, on a case by case basis, to demonstrate that it is able to comply with the requirements of the draft PRC Foreign Investment Law in the event that the legislation is promulgated. The Exchange has in the past accepted disclosure of the relevant risks without requiring the issuer to specify how compliance with the draft PRC Foreign Investment Law will be achieved if it is promulgated and will continue this approach.
        5.4 If the draft Foreign Investment Law were to come into effect, an issuer with a WVR structure could potentially use weighted voting rights to demonstrate compliance with the draft PRC Foreign Investment Law in that they had de facto control of an issuer that is in an industry subject to foreign ownership restrictions, if the WVR holders are PRC citizens. In this connection the Exchange believes that WVRs and foreign ownership restrictions are separate issues. Since the publication of the draft PRC Foreign Investment Law, a number of issuers have listed on the Exchange with a range of mechanisms to comply with foreign ownership restrictions that do not involve WVRs.
        5.5 In the event that an applicant seeks to demonstrate compliance with the draft PRC Foreign Investment Law through WVRs, given that WVRs could not exist indefinitely as a result of the required safeguards in Chapter 8A, the applicant must clearly disclose the risk that its WVRs may fall away and it may not be able to comply with the PRC Foreign Investment Law as a result.

        ****


        1 An investor that the Exchange considers to be sophisticated by reference to factors such as net assets or assets under management, relevant investment experience, and the investor's knowledge and expertise in the relevant field.

        2 For the purpose of assessing the eligibility and suitability of an applicant to list with a WVR structure, a spin-off applicant will be assessed on a stand-alone basis separate from the characteristics and track record of the parent (irrespective of whether the parent is listed on the Exchange or overseas).

      • GL92-18

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        HKEX GUIDANCE LETTER
        HKEX-GL92-18 (April 2018)

        Subject Suitability for Listing of Biotech Companies
        Listing Rules and Regulations Main Board Listing Rules 14.20 and 18A.03(1)

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules, or this letter. Unless otherwise specified, defined terms in the Listing Rules shall have the same meanings in this letter.

        1. Purpose
        1.1 This letter provides guidance on the factors that the Exchange will take into account when considering whether an applicant is suitable for listing under Chapter 18A of the Main Board Listing Rules and, after its listing, the application of certain rules on notifiable transactions and connected transactions to such issuers listed under Chapter 18A of the Main Board Listing Rules.
        2. Relevant Listing Rules
        2.1 Main Board Listing Rule 14.20 states that the Exchange may, where any of the calculations of the percentage ratios produces an anomalous result or is inappropriate to the sphere of activity of the listed issuer, disregard the calculation and substitute other relevant indicators of size, including industry specific tests. The listed issuer must provide alternative tests which it considers appropriate to the Exchange for consideration.
        2.2 Main Board Listing Rule 18A.03(1) states that an applicant that has applied for listing under Chapter 18A of the Main Board Listing Rules must demonstrate to the Exchange's satisfaction that it is both eligible and suitable for listing as a Biotech Company.
        3. Suitability Criteria
        3.1 An applicant applying for listing under Chapter 18A must meet the definition of a Biotech Company as defined in that chapter.
        3.2 A Biotech Company that does not meet either the profit test in Main Board Listing Rule 8.05(1), the market capitalisation/revenue/cash flow test in Main Board Listing Rule 8.05(2) or the market capitalisation/revenue test in Main Board Listing Rule 8.05(3) (together, the "Financial Eligibility Tests") for listing on The Stock Exchange of Hong Kong Limited could be permitted to list under Chapter 18A if it can demonstrate the following features:
        (a) the Biotech Company must have developed at least one Core Product beyond the concept stage. The Exchange would consider a Core Product to have been developed beyond the concept stage if it has met the developmental milestones specified for the relevant type of product (see paragraph 3.3 below);
        (b) it must have been primarily engaged in research and development ("R&D") for the purposes of developing its Core Product(s);
        (c) it must have been engaged with the R&D of its Core Product(s) for a minimum of 12 months prior to listing (and, in the case of a Core Product which is in-licensed or acquired from third parties, the applicant must be able to demonstrate R&D progress since the in-licensing/acquisition);
        (d) it must have as its primary reason for listing the raising of finance for R&D to bring its Core Product(s) to commercialisation;
        (e) it must have registered patent(s), patent application(s) and/or intellectual property in relation to its Core Product(s);
        (f) if the applicant is engaged in the R&D of pharmaceutical (small molecule drugs) products or biologic products, it must demonstrate that it has a pipeline of those potential products; and
        (g) it must have previously received meaningful third party investment (being more than just a token investment) from at least one Sophisticated Investor at least six months before the date of the proposed listing (which must remain at IPO). This factor is intended to demonstrate that a reasonable degree of market acceptance exists for the applicant's R&D and Biotech Product. Where the applicant is a spin-off from a parent company, the Exchange may not require compliance with this factor if the applicant is able to otherwise demonstrate to the Exchange's satisfaction that a reasonable degree of market acceptance exists for its R&D and Biotech Product (for example, in the form of collaboration with other established R&D companies).
        (i) The Exchange will assess whether an investor is a "Sophisticated Investor" for the purpose of applications for listing under Chapter 18A on a case by case basis by reference to factors such as net assets or assets under management, relevant investment experience, and the investor's knowledge and expertise in the relevant field.

        For this purpose, the Exchange would generally consider the following as examples, for illustrative purposes only, of types of Sophisticated Investor:
        (1) a dedicated healthcare or Biotech fund or an established fund with a division/department that specialises or focuses on investments in the biopharmaceutical sector;
        (2) a major pharmaceutical/healthcare company;
        (3) a venture capital fund of a major pharmaceutical/healthcare company; and
        (4) an investor, investment fund or financial institution with minimum assets under management of HK$1 billion.
        (ii) The Exchange will assess whether a third party investment is a meaningful investment in the circumstances on a case by case basis by reference to the nature of the investment, the amount invested, the size of the stake taken up and the timing of the investment. As an indicative benchmark the following investment amount will generally be considered as a "meaningful investment":
        (1) for an applicant with a market capitalisation between HK$1.5 billion to HK$3 billion, an investment of not less than 5% of the issued share capital of the applicant at the time of listing;
        (2) for an applicant with a market capitalisation between HK$3 billion to HK$8 billion, an investment of not less than 3% of the issued share capital of the applicant at the time of listing; and
        (3) for an applicant with a market capitalisation of more than HK$8 billion, an investment of not less than 1% of the issued share capital of the applicant at the time of listing.
        3.3 For the purpose of paragraph 3.2(a) above, the Exchange would consider the following to demonstrate that a Regulated Product has developed beyond the concept stage.
        (a) Pharmaceutical (small molecule drugs)
        (i) In the case of a Core Product that is a new pharmaceutical (small molecule drug) product, the applicant must demonstrate that it has completed Phase I1 clinical trials and that the relevant Competent Authority has no objection for it to commence Phase II2 (or later) clinical trials.
        (ii) In the case of a Core Product that is a pharmaceutical (small molecule drug) product which is based on previously approved products (for example, the 505(b)(2) application process of the US Food and Drug Administration ("FDA") in the US), the applicant must demonstrate that it has successfully completed at least one clinical trial conducted on human subjects, and the relevant Competent Authority has no objection for it to commence Phase II (or later) clinical trials.
        (b) Biologics
        (i) In the case of a Core Product that is a new biologic product, the applicant must demonstrate that it has completed Phase I clinical trials and the relevant Competent Authority has no objection for it to commence Phase II (or later) clinical trials.
        (ii) In the case of a Core Product that is a biosimilar, the applicant must demonstrate that it has completed at least one clinical trial conducted on human subjects, and the relevant Competent Authority has no objection for it to commence Phase II (or later) clinical trials to demonstrate bio-equivalency.
        (c) Medical devices (including diagnostics)

        In the case of a Core Product that is a medical device (which includes diagnostic devices), the applicant must demonstrate that:
        (i) the product is categorised as Class II medical device (under the classification criteria of the relevant Competent Authority) or above;
        (ii) it has completed at least one clinical trial on human subjects (which will form a key part of the application required by the Competent Authority or the Authorised Institution3); and
        (iii) either the Competent Authority or the Authorised Institution has endorsed or not expressed objection for the applicant to proceed to further clinical trials; or the Competent Authority (or, in the case of member(s) of the European Commission, an Authorised Institution) has no objection for the applicant to commence sales of the device.
        3.4 Other Biotech Products

        The Exchange will consider Biotech Products which do not fall into the categories set out in paragraph 3.3 on a case by case basis to determine if an applicant has demonstrated that the relevant Biotech Product has been developed beyond the concept stage by reference to, amongst other things, the factors described above in paragraph 3.3, and whether there is an appropriate framework or objective indicators for investors to make an informed investment decision regarding the listing applicant. A determination to accept such a listing application would be a modification that may only be made with the consent of the Securities and Futures Commission under Main Board Listing Rule 2.04. If the applicant is determined to be eligible for listing under Chapter 18A, references in this guidance letter and in Chapter 18A to "Core Products" shall be taken as referring to the Biotech Product of the applicant in question.
        3.5 Applicants should note that that the factors set out in this section 3 are neither exhaustive nor binding and the Exchange will take into account all relevant circumstances in its assessment of the suitability of the applicant for listing.
        4. Ownership continuity of a new applicant that is a Biotech Company
        4.1 The Exchange will review any change in ownership of the applicant in the 12 months prior to the date of the listing application in assessing the suitability of the applicant for listing.
        5. Subscription of shares by existing shareholders
        5.1 Biotech Companies listed under Chapter 18A are expected to have significant ongoing funding needs in order to develop their Core Product to commercialisation. Existing investors in a Biotech Company are likely to have subscribed for shares in the company on the basis of their confidence in the company's prospects, and may wish to be able to continue to participate in the company's fundraisings to prevent a dilution to their shareholding. Historically, in the US, a significant majority of existing shareholders at IPO will continue to participate in the issuer's fundraisings post-IPO
        5.2 Given the likely significant funding needs of Biotech Companies and the importance of existing shareholders in meeting the funding needs of these companies, the Exchange permits existing shareholders to participate in the IPO of a Biotech Company provided that the issuer complies with Main Board Listing Rules 8.08(1) and 18A.07 in relation to shares held by the public.
        6. Calculation of percentage ratios
        6.1 Since Biotech Companies listed under Chapter 18A are not required to meet any of the Financial Eligibility Tests at the time of listing, the application of the revenue ratio and the profit ratio to any proposed transaction that these issuers propose to undertake may not be appropriate in some cases.
        6.2 The Exchange may exercise its discretion under Rule 14.20 to disregard the revenue ratio and profit ratio for Biotech Companies listed under Chapter 18A and consider other relevant indicators of size, including industry specific tests suggested by the issuer, on a case by case basis. The listed issuer must provide alternative tests which it considers appropriate to the Exchange for consideration.
        7. Accountants' report

        Biotech Companies applying for a listing under Chapter 18A with an accountants' report covering two financial years are reminded that they must apply for a certificate of exemption from the relevant disclosure requirements under the Third Schedule of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong).

        ****


        1 Clinical trials on human subjects categorised as Phase I clinical trials by the FDA (or an equivalent process regulated by another Competent Authority). Where the applicant is conducting a combined clinical trial (for example a combined Phase I/Phase II clinical trial) the applicant will need to demonstrate to the Exchange's satisfaction that the safety profile of the combined clinical trial is at least equivalent to the completion of Phase I clinical trials.

        2 Clinical trials on human subjects categorised as Phase II clinical trials by the FDA (or an equivalent process regulated by another Competent Authority)

        3 An institution, body or committee duly authorised or recognised by, or registered with, a Competent Authority or the European Commission for conducting, assessing and supervising clinical trials in the relevant clinical fields. The Exchange may, at its discretion, recognise another institution, body or committee as an Authorised Institution on a case by case basis.

      • GL91-18

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        HKEX GUIDANCE LETTER
        HKEX-GL91-18 (February 2018)

        Subject Reallocation of shares from placing tranche to the public subscription tranche in an initial public offer
        Listing Rules and Regulations Practice Note 18 of the Main Board Listing Rules ("PN 18")

        Practice Note 6 of the GEM Listing Rules ("GR PN 6")1
        Related Publications HKEX-GL90-18 (February 2018) — Pricing Flexibility for Initial Public Offerings ("IPO")

        HKEX-GL85-16 — Placing to connected clients, and existing shareholders or their close associates, under the Rules

        HKEX-LD60-1, HKEX-LD60-2 — PN 18 Waiver applications
        Author IPO Advisory and Projects

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1 Purpose
        1.1 Although at times an IPO may be well-received by investors under the public subscription tranche, the Exchange would like to ensure that investors under this tranche are not unfairly treated by being unfairly allocated with shares when demand in the placing tranche is weak resulting in it being undersubscribed.
        1.2 This guidance aims to better protect investors who subscribe for shares under the public subscription tranche by limiting the extent such investors are allocated shares which are not taken up by institutional and professional investors for whatever reasons.
        1.3 This guidance specifies the circumstances under which an IPO listing applicant may (i) reallocate shares from the placing tranche to the public subscription tranche (a "Placing Tranche Reallocation") other than pursuant to PN18 / GR PN6 or a modified PN18 / modified GR PN6 which has been agreed with the Exchange2 or (ii) over-allocate shares to the public subscription tranche ("Public Subscription Tranche Over-allocation").
        2 Relevant Listing Rules and Interpretations
        2.1 Main Board Listing Rule 2.03 / GEM Listing Rule 2.06 requires that, among other things, the issue and marketing of securities be conducted in a fair and orderly manner.
        2.2 While paragraph 4.2 of PN18 / paragraph 4 of GR PN6 has clear minimum provisions for allocation to the public subscription tranche when the oversubscription in the public subscription tranche is 15 times or above, there is no provision for allocation in other circumstances including if the oversubscription in the public subscription tranche is less than 15 times.
        2.3 Paragraph 4.3 of PN18 / paragraph 5 of GR PN6 states that where the listing applicant has granted the underwriters an over-allotment option, any shares issued pursuant to its exercise may be divided between the public subscription tranche and placing tranche at the discretion of the underwriters. The extent of any over-allocation of shares is required to be limited to the size of the over-allotment option3 or offer size allotment option.
        2.4 Listing Decisions HKEX-LD60-1 and HKEX-LD60-2 set out the circumstances under which the Exchange had considered granting a PN 18 waiver.
        3. Guidance
        3.1 The maximum total number of shares that may be allocated to the public subscription tranche ("Allocation Cap") following a Placing Tranche Reallocation and a Public Subscription Tranche Over-allocation (if any) is the lesser of:
        (i) not more than double the initial allocation to the public subscription tranche4; and
        (ii) not more than 30% of the total offered shares5.
        3.2 If the IPO includes an offer price range, the final offer price must be fixed at the bottom end of the indicative offer price range or the downward adjusted final price in accordance with HKEX-GL90-2018– Pricing Flexibility for Initial Public Offerings.
        3.3 The Allocation Cap is applicable to circumstances when (i) the placing tranche before any reallocation is undersubscribed; or (ii) when the placing tranche is fully subscribed or oversubscribed and the public subscription tranche is oversubscribed by less than 15 times or, as applicable, by less than such other number which may trigger a clawback as agreed with the Exchange (i.e. a modified PN 18 / GR PN6 as agreed with the Exchange applies). Please refer to the Attachment for the application of the Allocation Cap in different scenarios.
        3.4 Disclosure requirements:
        (a) the prospectus, application form and formal notice must include:
        (i) (where any such right is reserved) the right to make a Placing Tranche Reallocation and/or a Public Subscription Tranche Over-allocation, and
        (ii) the maximum amount of the Allocation Cap (by number of shares and as a percentage of the total offering);
        (b) if there is a Placing Tranche Reallocation and/or a Public Subscription Tranche Over-allocation, the allotment results must include:
        (i) the number of shares and percentage of the total offering reallocated and/or over-allocated;
        (ii) the total number of shares in the public subscription tranche before and after the Placing Tranche Reallocation and/or Public Subscription Tranche Over-allocation; and
        (iii) confirmation by the sponsor(s) and each of the directors of the listing applicant that the Allocation Cap has not been exceeded.
        4. Guidance
             Consent or grant of a waiver to take up unsubscribed shares in the placing tranche
        4.1 As long as all relevant Listing Rules6, this Guidance Letter and Guidance Letter HKEX-GL85-167 are complied with, the lead broker or any distributors may take up unsubscribed shares from the placing tranche for its/their own account and/or place such unsubscribed shares to connected clients, connected persons and/or existing shareholders of the listing applicant and their respective close associates to reach a 100% IPO subscription rate. Parties are, however, reminded that a consent or grant of a waiver, as the case may be, must nevertheless be obtained from the Exchange for the placing of shares to such persons and such consent or waiver will be considered based on the specific facts and circumstances of the applicant.
             Over-allocation of shares to the placing tranche
        4.2 Over-allocation of shares to the placing tranche is allowed only if the number of shares in the placing tranche available for allocation is insufficient to satisfy the demand in the placing tranche (i.e. there is excess demand for shares under the placing tranche)8. When determining whether there is excess demand for shares in the placing tranche, no consideration can be given to any excess demand resulting from shares taken up by the lead broker or any distributors; or placed to their connected clients, connected persons and/or existing shareholders of the listing applicant and their respective close associates unless consent under Guidance Letter HKEX-GL85-16 has been obtained (see paragraph 4.1 above). On the other hand, consideration can be given to excess demand resulting from a Placing Tranche Reallocation9.

        *** End ***


        1 Effective 15 February 2018

        2 An applicant can apply to the Exchange for a different clawback mechanism from PN18 / GR PN6. Where a waiver is granted by the Exchange, full disclosure must be made in the prospectus.

        3 Pursuant to Listing Decision HKEX-LD26-3, an over-allotment option is typically not more than 15% of the initial offer size.

        4 If the initial allocation of shares to the public subscription tranche is 10% of the total offer, the maximum reallocation will be 10%, resulting in 20% of the total offer allocated to the public subscription tranche.

        5 If the initial allocation of shares to the public subscription tranche is 20% of the total offer, the maximum of reallocation from the placing tranche will be 10%, resulting in 30% of the total offer allocated to the public subscription tranche.

        6 Including for example, paragraph 5(2) of Appendix 6 to Main Board Listing Rules (Note 2 to Rule 10.12(4) of the GEM Rules) which prohibits allocations to directors or existing shareholders of the applicant or their close associates unless certain requirements are met.

        7 Guidance Letter HKEX-GL85-16 sets out guidance on the circumstances under which the Exchange will consent to placing under paragraphs 5(1) and (2) of Appendix 6 of the Main Board Listing Rules.

        8 If the initial allocation of shares to the placing tranche is 90% of the total offer, and the demand in the placing tranche is greater than 90%.

        9 If the initial allocation of shares to the placing tranche and the demand in the placing tranche is 90% of the total offer, and a Placing Tranche Reallocation of 10% occurs as allowed under this Guidance Letter, an over-allocation of shares to the placing tranche of 10% is allowed.


        Attachment

        Application of the Allocation Cap

          Public subscription tranche
        (A)
        Undersubscribed
        (B)
        100% subscription or oversubscribed
        <15 times
        (C)
        Oversubscribed by 15 times or more
        Placing tranche (1)
        Undersubscribed
        IPO cannot proceed unless fully underwritten by underwriters Allocation Cap applies
        (PN18/ GR PN6 cannot be triggered because Placing tranche is undersubscribed)
        (2)
        100% subscription
        or
        Oversubscribed

        Allocation Cap not triggered
        Allocation Cap applies
        unless a modified PN18/ GR PN6 clawback < 15 times previously agreed with the Exchange is triggered (Note)
        PN18/ GR PN6 clawback or a modified PN18/ GR PN6 clawback applies

        Note: Listing decisions HKEX-LD60-1 and HKEX-LD60-2.

      • GL90-18

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL90-18 (February 2018)

        Subject Pricing Flexibility for Initial Public Offerings ("IPO")
        Listing Rules and Regulations Paragraph 15(2)(c) of Appendix 1A of Main Board Rules
        Paragraph 15(3)(c) of Appendix 1A of GEM Rules
        Main Board Rule 2.13, GEM Rule 2.18
        Related Publications Listing Decisions HKEX-LD61-1 and HKEX-LD86-1
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1 Purpose
        1.1 This letter sets out the conditions under which an applicant is allowed to price the final offer price in an IPO below the indicative offer price or the bottom end of the indicative offer price range disclosed in the prospectus without triggering the withdrawal mechanism detailed in paragraph 2.4 below ("Withdrawal Mechanism"). Such pricing flexibility mechanism for IPO is referred to as "Pricing Flexibility Mechanism" below.
        1.2 The Pricing Flexibility Mechanism is intended to provide an applicant with additional flexibility in pricing its shares to facilitate the determination of the optimal price (which reflects the price discovered through the book-building process) without resorting to the Withdrawal Mechanism which is considered cumbersome and leads to delay in the listing timetable. Investors' interests are safeguarded through the conditions imposed under the Pricing Flexibility Mechanism, including price reduction limits and enhanced disclosure in the prospectus and other related documents (see section 4 below).
        1.3 The Pricing Flexibility Mechanism set out in this letter is implemented on a trial basis and will be subject to review by the Listing Department after 12 months of implementation.
        2 Relevant Listing Rules and Listing Decisions
        2.1 Main Board Rule 2.13 (GEM Rule 2.18) states that the information contained in the document must be accurate and complete in material respects.
        2.2 Paragraph 15(2)(c) of Appendix 1A to the Main Board Rules (Paragraph 15(3)(c) of Appendix 1A to the GEM Rules) states that the issue price or offer price of each security must be disclosed in the prospectus.
        2.3 Listing Decisions HKEX-LD61-1 and HKEX-LD86-1 set out that a change in the offer price constitutes a material change of circumstances if there was no disclosure of such anticipated change in the prospectus. An applicant is required to adopt the Withdrawal Mechanism if it proceeds with its IPO.
        2.4 The Withdrawal Mechanism requires the applicant, among other things, to (a) issue a supplemental prospectus informing potential investors of, among other things, the changes to the IPO, including the change in the offer price and offer period and the impact of such change on the sufficiency of working capital and use of proceeds; (b) extend the offer period to allow potential investors to have sufficient time to consider and, if they so desire, to confirm their applications using an opt-in approach1, that is, to positively confirm their applications for shares despite the change in the offer price.
        3. Current Practice
        3.1 The Listing Rules require that a prospectus must disclose an offer price for shares to be listed. In practice, we also allow an offer price range to be included in the prospectus and there is generally no restriction on the size of the range.
        3.2 If an applicant decides to change the share offer price, the Withdrawal Mechanism will apply. This requires the applicant to issue a supplemental prospectus providing investors with updated information in light of the revision to the indicative offer price or offer price range (as applicable), and extend the offer period and give investors who have applied for its shares a right to withdraw their applications using an "opt-in" approach.
        3.3 The Withdrawal Mechanism can be burdensome and costly.
        3.4 Alternatively, the applicant may terminate its share offering and relaunch it some other time when it sees appropriate, but this may result in both delay and increased costs, including as a result of information (such as the track record period accounts) having gone "stale".
        4. Guidance
        4.1 Applicants have an option to adopt the Pricing Flexibility Mechanism, without triggering the Withdrawal Mechanism. Salient features of the Pricing Flexibility Mechanism are as follows:
        (a) applicants are allowed to price up to 10% below the indicative offer price or up to 10% below the bottom end of the indicative offer price range (subject to (b) below) disclosed in the prospectus;
        (b) where an indicative price range is used, the range must be set with the top end of the range not more than 30% above the bottom end of the range;
        (c) an applicant is required to make disclosures as described in paragraph 4.2 below, including the issue of a separate pricing announcement ("Price Reduction Announcement") as soon as practicable after the final offer price is determined and before the issue of the allotment results announcement; and
        (d) for the avoidance of doubt, where the final offer price is more than 10% below the indicative offer price or more than 10% below the bottom end of the indicative offer price range, the Withdrawal Mechanism will be applied if the applicant proceeds with the IPO.
        4.2 Disclosure requirements (see the suggested disclosure template in the Attachment):
        (a) in the prospectus, application forms and formal notice:
        (i) clear and prominent disclosure of the indicative offer price or offer price range and the possibility of downward adjustment of the indicative offer price or the bottom end of the offer price range ("Downward Adjusted Offer Price");
        (b) in the prospectus and application forms:
        (i) detailed disclosure of how the Downward Adjusted Offer Price will affect the applicant including the change in the net proceeds from the offer and any associated change in the use of the listing proceeds, the impact on the applicant's future expansion plans, sufficiency of working capital, cash flow and (if applicable) profit forecasts and an appropriate risk factor;
        (ii) a clear statement that if the final offer price falls more than 10% below the indicative offer price or more than 10% below the bottom end of the indicative offer price range, the Withdrawal Mechanism will be applied if the applicant proceeds with the IPO; and
        (iii) a clear statement that the Pricing Flexibility Mechanism does not affect the applicant's obligation to issue a supplemental prospectus and to offer investors a right to withdraw their applications if there is a material change in circumstances not disclosed in the prospectus.
        (c) in the Price Reduction Announcement:
        (i) the Downward Adjusted Offer Price;
        (ii) revisions to the net proceeds, use of proceeds, and market capitalisation; and
        (iii) confirmation from each director of the applicant that, after taking into account the Downward Adjusted Offer Price, there is no material change of circumstances not disclosed in the prospectus after the issue of the prospectus and there is sufficient working capital for the applicant's requirements for at least 12 months from the date of the prospectus.
        Although we encourage applicants to include disclosure as set out in this letter in their draft prospectus, application form and formal notice as early as possible, we appreciate that an applicant may adopt the Pricing Flexibility Mechanism only after the listing hearing. If there is a variation to the proposed disclosure in this letter, please consult the Exchange for guidance to avoid any unnecessary delay in the listing timetable.
        4.3 The Exchange has to be satisfied:
        (a) with the relevant disclosure in the prospectus and related documents mentioned in paragraph 4.2; and
        (b) that the Downward Adjusted Offer Price will not affect the applicant's suitability for listing.
        4.4 Applicants planning to use the Pricing Flexibility Mechanism must take into account the reduced proceeds when preparing:
        (a) the forecast memoranda required under Main Board Rule 9.11(10(a)&(b)) (GEM Rule 12.22(14a)&(14b)); and
        (b) the directors' statement on working capital sufficiency required under paragraph 36 of Part A of Appendix I to the Main Board and GEM Rules.
        4.5 For the avoidance of doubt, applicants who do not choose to use the Pricing Flexibility Mechanism can continue to adopt the current pricing mechanism for IPO. If the final offer price is not the indicative offer price or is outside the indicative offer price range in the prospectus and the applicants wish to proceed with their IPO at the final offer price, the Withdrawal Mechanism will be applied. Also, for the avoidance of doubt, the Pricing Flexibility Mechanism does not entitle applicants to price the IPO shares above the indicative price or indicative price range.

        1 An opt-in approach gives investors who have applied for shares in an applicant a right to withdraw. The applicant must obtain positive confirmation from the investors confirming their desire to proceed before it can bind them to their applications. If the subscribers do not re-confirm their applications, their applications will be rejected.


        Suggested templates for the required disclosures (as shown underlined):

        A. Extracts of White Form

        B. Extracts of Prospectus:

          -   Important section
          -   Summary and other sections
          -   Definitions section
          -   Risk Factors section
          -   Information About the Global Offering section
          -   Financial Information section
          -   Future Plans and Use of Proceeds section
          -   Structure of the Global Offering section

        C. Extracts of Formal Notice

        D. Price Reduction Announcement

        These templates are for reference only. Listing applicants and their sponsors should exercise judgment as to the applicability of the suggested templates to their cases

        For Illustrative purpose, the following fixed offer price and offer price range are used in the suggested templates:

        Scenario 1: Offer Price (Fixed) HK$6.50
        Scenario 2: Offer Price (Range) HK$6.50 to HK$8.45

      • GL89-16

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL89-16 (November 2016) (Updated in October 2017 and February 2018)

        Subject Guidance on issues related to "controlling shareholder" and related Listing Rules implications
        Listing Rules and Regulations Main Board Rules 1.01, 6.12, 7.19, 7.24, 8.05(1)(c)/8.05(2)(c)/8.05(3)(c), 8.10, 9.03(3), 10.07(1), 13.17, 13.18, 13.36(4), 14.55, 14.89, 14.90, 14.91, 14A.11, 14A.28, 19A.04, 19A.14, 19B.03, paragraph 3(e) in Practice Note 15, paragraph 27A in Appendix 1A and 1E, paragraphs 6.3, 16 and 40.3 in Appendix 16/

        GEM Rules 1.01, 9.20, 10.29, 10.39, 11.03, 11.04, 11.12A(2), 12.09, 13.16A, 13.19, 17.19, 17.20, 17.42A, 18.04, 18.26, 18.27, 18.55(9), 18.68, 19.55, 19.88, 19.89, 19.90, 20.26, 25.10, 25.04(1), paragraph 3(e) in Practice Note 3 and paragraph 27A in Appendix 1A
        Related Publications Listing Decisions (HKEX-LD42-4, HKEX-LD44-4, HKEX-LD47-1, HKEX-LD48-3, HKEX-LD51-2, HKEX-LD51-4, HKEX-LD51-5, HKEX-LD85-2015 and HKEX-LD92-2015)

        Frequently Asked Questions (Series 1 No. 16 and Series 6 No. A4)

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1 Purpose
        1.1 This letter is intended to assist listing applicants, listed issuers and their advisers by (i) providing guidance on the Exchange's interpretation of the purpose of ownership continuity and control requirement; (ii) providing guidance on the Exchange's interpretation of the definition of "controlling shareholder" as set out in the Main Board Rules and the GEM Rules; and (iii) clarifying the Exchange's practice regarding the key obligations to which a "controlling shareholder" is subject pursuant to the Main Board Rules and the GEM Rules, including the ownership continuity and control requirement (Main Board Rules 8.05(1)(c)/8.05(2)(c)/8.05(3)(c)/ GEM Rule 11.12A(2)), the lock-up requirement (Main Board Rule 10.07(1)/ GEM Rule 13.16A) and various disclosure obligations at the pre-listing and post-listing stages. (Updated in October 2017)
        1.2 The Exchange expects listing applicants to follow this guidance letter when preparing listing applications. A listing document that does not follow this guidance may be considered not substantially complete as required under Main Board Rule 9.03(3) and GEM Rule 12.09.
        1.3 Issuers and sponsors are reminded that any change in shareholdings of an issuer referred to in this guidance letter may have implications under the Code on Takeovers and Mergers and they should separately seek appropriate professional advice.
        2 Purpose of ownership continuity and control requirement
        2.1 The ownership continuity and control requirement is one condition under the profit or cash flow test (Main Board Rule 8.05(1)(c)/GEM Rule 11.12A(2)) which a listing applicant must satisfy for its trading record to be counted towards the minimum required profit or cash flow.
        2.2 The ownership continuity and control requirement is therefore intended to ensure that the listing applicant's financial performance resulted from the actual dynamics between the controlling shareholder(s) and the management for at least the last financial year of the track record. This means that the listing applicant must have been operated as an integrated unit under the same shareholder(s) who was able to exert substantial influence on the same directors and management.
        2.3 Failure to satisfy the test raises concerns on packaging as there may be a material change in influence on management. However, a listing applicant can rebut these presumptions by demonstrating that there was no material change in influence on management despite the change in controlling shareholder(s) since a change in controlling shareholder(s) will not always render the listing applicant ineligible for listing. (Updated in October 2017).
        3 Definition and interpretation of "controlling shareholder"
            Relevant Listing Rules
        3.1 Main Board Rule 1.01 (GEM Rule 1.01) defines "controlling shareholder" as any person who is or group of persons who are together:
        (i) entitled to exercise or control the exercise of 30% (or such other amount as may from time to time be specified in the Code on Takeovers and Mergers as being the level for triggering a mandatory general offer) or more of the voting power at general meetings of the issuer; or
        (ii) in a position to control the composition of a majority of the board of directors of the issuer.1
        3.2 Main Board Rule 1.01 provides that for a listing of depositary receipts, a holder of depositary receipts can be treated as a "controlling shareholder" of the issuer, but Main Board Rules 14A.11 and 19B.03 state that a depositary will not be treated as such merely by reason that it is holding shares of an issuer as a depositary for the benefit of depositary receipt holders.2
            The Exchange's Interpretation
        3.3 At the outset, it is important to note that the process of identifying the "controlling shareholder(s)" of a listing applicant is a case-specific exercise and depends on the facts and circumstances of each case. The sponsors need to perform the necessary and appropriate due diligence to ensure that information with regard to a "controlling shareholder" of a listing applicant set out in a listing document is true, accurate and complete in all material respects and not misleading or deceptive in any material respect. However, the Exchange has the power to deem any shareholder to be a "controlling shareholder" or a group of "controlling shareholders" of an issuer based on the facts and circumstances of that case.
        3.4 We set out below some simplified examples of ownership structures of a listing applicant that are commonly seen and the way the Exchange would interpret the definition of "controlling shareholder" in these situations:3
        3.4.1 Example 1



        In Example 1, the Exchange considers each of Mr. A and Mr. B to be a controlling shareholder of the listing applicant as each of Mr. A and Mr. B is entitled to exercise 30% or more of the voting power at general meetings of the listing applicant. The Exchange does not consider Mr. C to be a controlling shareholder of the listing applicant as Mr. C is neither entitled to exercise, nor does Mr. C control the exercise of, 30% or more of the voting power at general meetings of the listing applicant.
        3.4.2 Example 24



        In Example 2, the Exchange considers each of Mr. A, SPV A, Mr. B and SPV B to be a controlling shareholder of the listing applicant as (i) each of SPV A and SPV B is entitled to exercise 30% or more of the voting power at general meetings of the listing applicant and (ii) each of Mr. A and Mr. B is entitled to, through SPV A and SPV B respectively, control the exercise of 30% or more of the voting power at general meetings of the listing applicant. The Exchange does not consider Mr. C or SPV C to be a controlling shareholder of the listing applicant as each of Mr. C and SPV C is neither entitled to exercise, nor does Mr. C or SPV C control the exercise of, 30% or more of the voting power at general meetings of the listing applicant.
        3.4.3 Example 35



        In Example 3, the Exchange considers SPV, which has 100% of the voting power at general meetings of the listing applicant, to be a controlling shareholder of the listing applicant as SPV is entitled to exercise 30% or more of the voting power at general meetings of the listing applicant. Mr. A also falls within the definition of "controlling shareholder" of the listing applicant as Mr. A controls SPV (and hence SPV's voting interests in the listing applicant) by virtue of holding more than 50% of the voting interests of SPV. On the other hand, since neither Mr. B nor Mr. C holds more than 50% of the voting interests of SPV, neither Mr. B nor Mr. C is in a position to control SPV's voting interests in the listing applicant.

        However, on the basis that Mr. A, Mr. B and Mr. C have decided to restrict their ability to exercise direct control over the listing applicant by holding their interests through a common investment holding company (namely SPV), the Exchange will presume Mr. A, Mr. B and Mr. C to be a group of controlling shareholders of the listing applicant. If Mr. B and/or Mr. C do not consider themselves as part of the group of controlling shareholders, the listing applicant should provide a detailed submission rebutting this presumption.6 Unless the Exchange accepts such rebuttal, Mr. B and Mr. C shall be disclosed as controlling shareholders in the listing document.
        3.4.4 Example 4



        In Example 4, although Spouse B is not individually entitled to exercise 30% or more of the voting power at general meetings of the listing applicant and hence does not fall within the definition of "controlling shareholder" of the listing applicant, the Exchange will presume Spouse A and Spouse B to be a group of controlling shareholders by virtue of their relationship of being spouses. If Spouse B does not believe he/she is part of the controlling group of shareholders, the listing applicant should provide a detailed submission rebutting this presumption.7 Unless the Exchange accepts such rebuttal, Spouse B shall be disclosed as a controlling shareholder in the listing document. The Exchange applies the same presumption to all shareholders who are "close associates" of each other as defined in Main Board Rule 1.01 (GEM Rule 1.01).8
        3.5 The Exchange notes that in past situations similar to Examples 3 and 4 above, applicants would state in their listing applications the identity of the controlling shareholder(s) without clearly explaining the basis. Listing applicants are required to disclose the basis for the identification of their controlling shareholder(s) in the listing documents submitted as part of their listing applications. To rebut the Exchange's presumption in situations similar to Examples 3 and 4 above, listing applicants must provide a detailed submission providing the reasons as part of their listing applications for the Exchange's consideration.
        4 Key requirements on "controlling shareholder" at the pre-listing stage

        Pre-listing, a controlling shareholder of a listing applicant is subject to the following key obligations pursuant to the Main Board Rules and the GEM Rules:
        (i) listing eligibility requirement: the ownership continuity and control requirement (Main Board Rules 8.05(1)(c)/8.05(2)(c)/8.05(3)(c)/ GEM Rule 11.12A(2)); and
        (ii) disclosure requirement in listing document: details of any controlling shareholders and their interests in any competing business (Main Board Rule 8.10/ GEM Rule 11.04; paragraph 27A in Appendix 1A and 1E to the Main Board Rules/ paragraph 27A in Appendix 1A to the GEM Rules).
            Ownership continuity and control requirement
        4.1 In practice:
        (i) the Exchange requires both Main Board and GEM listing applicants to demonstrate "ownership continuity and control" in the way required by Frequently Asked Questions (Series 1 No. 16) for at least the most recent financial year up until the time immediately before the offering and/or placing becomes unconditional (the "Relevant Period");
        (ii) the Exchange applies the definition and interpretation of "controlling shareholder" as set out in Section 2 above when applying the interpretation of "ownership continuity and control" as set out in Frequently Asked Questions (Series 1 No. 16);
        (iii) for a listing applicant to demonstrate "ownership continuity and control", for at least the Relevant Period, there has been no change to any controlling shareholder(s) identified at the beginning of the most recent financial year;
        (iv) for a listing applicant with a group of controlling shareholders holding their interests directly in the listing applicant to meet the ownership continuity and control requirement, for at least the Relevant Period: (1) the shareholders constituting the group of controlling shareholders must not change (i.e. no addition or departure of shareholders); (2) there must be no material changes in the voting interests in the listing applicant held by each shareholder constituting the group of controlling shareholders; and (3) such group of controlling shareholders together remains a group of controlling shareholders of the listing applicant and there are no new controlling shareholders;
        (v) for a listing applicant with a group of controlling shareholders holding their interests indirectly in the listing applicant (such as through SPV in Example 3) to meet the ownership continuity and control requirement, for at least the Relevant Period: (1) the shareholders constituting the group of controlling shareholders must not change (i.e. no addition or departure of shareholders); (2) there must be no material changes in the voting interests in the SPV held by each shareholder of SPV; and (3) SPV remains a controlling shareholder of the listing applicant and there are no new controlling shareholders; and
        (vi) the Exchange will assess whether any change in the voting interests held by each shareholder constituting the group of controlling shareholders amounts to a material change on a case-by-case basis. The Exchange encourages potential listing applicants to consult with the Exchange in advance on any plans to transfer any voting interest in the listing applicant (or SPV as the case may be).9
            Disclosure requirement in listing document: details of any controlling shareholders and their interests in any competing business
        4.2 A listing applicant shall apply the definition and interpretation of "controlling shareholder" as set out in Section 2 above and determine the identity of the controlling shareholders of the listing applicant immediately upon completion of the offering and/or placing, and disclose in the listing document as required by paragraph 27A in Appendix 1A to the Main Board Rules and the GEM Rules, Main Board Rule 8.10(1)(a) and GEM Rules 11.03 and 11.04 in respect of such controlling shareholder(s).
        5 Key requirements on "controlling shareholder" at the post-listing stage

        Post-listing, a controlling shareholder of a listed issuer is subject to the following key obligations under the Main Board Rules and the GEM Rules:
        (i) lock-up requirements (Main Board Rule 10.07(1)/ GEM Rule 13.16A(1)); and
        (ii) restrictions from voting and disclosures in specific circumstances.
            Lock-up requirements
        5.1 Main Board Rule 10.07(1) (GEM Rule 13.16A(1)) states that a person or group of persons shown by the listing document issued at the time of the issuer's application for listing to be controlling shareholders of the issuer shall not, apart from any offer of shares for sale contained in a listing document: (a) dispose of shares in the period commencing on the date by reference to which disclosure of the shareholding of the controlling shareholder is made in the listing document and ending on the date which is 6 months (GEM: 12 months) from the date of listing (the "First Lock-up Period"); and (b) dispose of shares in the period of 6 months (GEM: 12 months) commencing on the date on which the First Lock-up Period expires if immediately following such disposal that person or group of persons would cease to be a controlling shareholder (the "Second Lock-up Period 10"). (Updated in February 2018)
        5.2 The rationale of Main Board Rule 10.07(1) (GEM Rule 13.16A(1)) is that, when listing a new company, the controlling shareholder is giving potential investors a "snap shot" view of the issuer and a general indication of that controlling shareholder's intentions for the issuer in the coming months, normally for a period of at least 12 months (GEM: 24 months). Investors act on the contents of those listing documents and rely on the information given in the listing documents and on inferences which can reasonably be drawn from that information (unless the contrary is clearly and specifically stated). For example, if the controlling shareholder of the issuer remains the controlling shareholder post-listing, then it implies it has no intention to further sell down its interests in the near future. Main Board Rule 10.07(1) (GEM Rule 13.16A(1)) are therefore designed to enforce such implied intention for at least the first 12 months (GEM: 24 months) following a new issue. (Updated in February 2018)
        5.3 In practice:
        (i) the Exchange expects listing applicants to apply the definition and interpretation of "controlling shareholder" as set out in Section 2 above and determine the identity of the controlling shareholders of the listing applicant as at the date of the published listing document, and such controlling shareholder(s) should be subject to the lock-up requirements pursuant to Main Board Rule 10.07(1) (GEM Rule 13.16A(1));
        (ii) where the interest of a controlling shareholder identified as at the date of the published listing document will decrease to below 30% as a result of an occurrence of event(s) which is certain to happen based on the disclosure in the listing document, e.g. the issuance of shares by the issuer and/or sale of shares by any existing shareholder as part of the offering and/or placing, such shareholder shall be subject to lock-up during the First Lock-up Period, but not during the Second Lock-up Period. This is because the relevant shareholder would have ceased to be a controlling shareholder of the issuer during the Second Lock-up Period and the restriction on disposal such that it "cease[s] to be a controlling shareholder" under Main Board Rule 10.07(1)(b)/ GEM Rule 13.16A(1)(b) is not applicable; but (Updated in February 2018)
        (iii) where the interest of a controlling shareholder identified as at the date of the published listing document will decrease to below 30% as a result of the exercise of an over-allotment option by the underwriter(s) of an offering and/or placing, such shareholder shall be subject to a 12-month (GEM: 24-month) lock-up of its shares after the listing of the issuer, i.e. such shareholder must maintain at least the same number of shares immediately after listing as stated in the issuer's listing document for at least 12 months (GEM: 24 months) after the listing of the issuer. This approach is consistent with the policy rationale of Main Board Rule 10.07(1) because exercise of the over-allotment option is uncertain at the time of listing and the controlling shareholder was prepared to remain as a controlling shareholder of the issuer unless the over-allotment option is exercised based on its disclosure in the listing document. Investors should be able to reasonably expect the relevant shareholder's involvement in the issuer during the Second Lock-up Period: see relevant listing decision HKEX-LD85-2015. (Updated in February 2018)
        5.4 Where there is a group of controlling shareholders holding their interests directly or indirectly (such as through SPV in Example 3) in the listed issuer, to comply with the lock-up requirement pursuant to Main Board Rule 10.07(1)/ GEM Rule 13.16A(1):
        (i) in the First Lock-up Period, (1) the shareholders constituting the group of controlling shareholders must not change (i.e. no addition or departure of shareholders); (2) there must be no material changes in the voting interests held by each shareholder constituting the group of controlling shareholders in the listed issuer (or among the shareholders of SPV as the case may be); and (3) such group of controlling shareholders (or SPV as the case may be) must maintain the same aggregate voting interests in the listed issuer; and (Updated in February 2018)
        (ii) in the Second Lock-up Period, (1) the shareholders constituting the group of controlling shareholders must not change (i.e. no addition or departure of shareholders); (2) there must be no material changes in the voting interests held by each shareholder constituting the group of controlling shareholders in the listed issuer (or by each shareholder of SPV as the case may be); and (3) such group of controlling shareholders (or SPV as the case may be) must maintain an aggregate voting interests of at least 30% in the listed issuer. (Updated in February 2018)
        5.5 The Exchange will assess whether any change in the voting interests held by each shareholder constituting the group of controlling shareholders amounts to a material change on a case-by-case basis. The Exchange encourages listed issuers to consult with the Exchange in advance on any plan to transfer any voting interest in the listed issuer (or SPV as the case may be).
            Restrictions from voting and disclosures in specific circumstances
        5.6 A controlling shareholder of a listed issuer is also subject to the following key continuing obligations pursuant to the Main Board Rules and the GEM Rules:
        (i) restrictions from voting in favor of certain material corporate actions, including withdrawal of listing (Main Board Rule 6.12/ GEM Rule 9.20); rights issue/open offer enlarging share capital by over 50% (Main Board Rules 7.19 and 7.24/ GEM Rules 10.29 and 10.39); refreshment of general mandate (Main Board Rule 13.36(4)/ GEM Rule 17.42A), reverse takeovers (Main Board Rule 14.55/ GEM Rule 19.55) and spin-offs (Paragraph 3(e) in Practice Note 15 of the Main Board Rules/ Paragraph 3(e) in Practice Note 3 of the GEM Rules);
        (ii) for issuers listed for one year or less, abstain in voting on acquisitions or disposals or other transactions which would result in a fundamental change in the principal business of the issuer (Main Board Rules 14.89 to 14.91/ GEM Rules 19.88 to 19.90);
        (iii) announcements and disclosure in quarterly/interim/annual reports on (i) details of loans requiring controlling shareholders to pledge shares (Main Board Rule 13.17/paragraphs 6.3 and 40.3 of Appendix 16 to the Main Board Rules/ GEM Rules 17.19, 18.04, 18.55(9) and 18.68) or to fulfill specific performance obligations (Main Board Rule 13.18/ paragraphs 6.3 and 40.3 of Appendix 16 to the Main Board Rules/ GEM Rule 17.20, 18.55(9) and 18.68) and (ii) contracts of significance (paragraph 16 of Appendix 16 to the Main Board Rules/ GEM Rules 18.26 and 18.27); and
        (iv) connected transaction implications: acquisition of interest in a target company from third party is a connected transaction if target company's substantial shareholder is or is proposed to be a controlling shareholder of the listed issuer (Main Board Rule 14A.28/ GEM Rule 20.26).
        5.7 Listed issuers are required to apply the definition and interpretation of "controlling shareholder" as set out in Section 2 above in identifying the controlling shareholder(s) of the listed issuer, and such controlling shareholder(s) would be subject to the key obligations set out in paragraph 4.6 and other miscellaneous obligations of controlling shareholders under the Main Board Rules and the GEM Rules.

        ****


        1 In the case of a PRC issuer, see Main Board Rule 19A.14 (GEM Rule 25.10).

        2 Frequently Asked Questions (Series 6 No. A4) states that the depositary receipt framework applies to the Main Board only and depositary receipts are not allowed to be listed on GEM at this stage.

        3 These examples are not intended to be exhaustive. Furthermore, it is assumed that none of the holders of voting interests in the listing applicants in these examples have identified themselves as groups of controlling shareholders in their listing applications.

        4 This example assumes that each of SPV A, SPV B and SPV C is an investment vehicle of Mr. A, Mr. B and Mr. C respectively, and exclusively hold the individuals' interests in the listing applicant and have no operations. If such investment vehicles do not exclusively hold the interests in the listing applicant and/or have other businesses, we will assess such cases on a case-by-case basis.

        5 This example assumes that the SPV is an investment vehicle of Mr. A, Mr. B and Mr. C and exclusively holds their interests in the listing applicant and has no operations. A listed issuer, for example, would not be an SPV. If such investment vehicle does not exclusively hold the interests in the listing applicant and/or has other businesses, we will assess such cases on a case-by-case basis.

        6 For the factors that the Exchange considers in determining whether any individual shareholder had been acting as part of a group of controlling shareholders, see listing decisions: HKEX-LD44-4 and LD51-5.

        7 See Footnote 6 above.

        8 In the case of a PRC issuer, see Main Board Rule 19A.04 (GEM Rule 25.04(1)).

        9 The Exchange ordinarily would not consider there to be a breach in the ownership continuity and control requirement in the situations set out below (these are not intended to be exhaustive):

        1. when a controlling shareholder has transferred his/her/its voting interests in the listing applicant held through his/her/its controlled SPV to another SPV controlled by him/her/it; and
        2. when a controlling shareholder has transferred his/her/its voting interests to a trust for estate planning purposes and the controlling shareholder has retained control over such trust consistent with the principles set out in HKEX-LD48-3.

        10 Note that Notes (2) and (3) to Main Board Rule 10.07 and GEM Rule 13.19 require any controlling shareholder of a Main Board and GEM listed issuer to inform the issuer of the pledge(s)/charge(s) of any securities beneficially owned by them in the issuer in favor of an authorized institution for a bona fide commercial loan and any disposal of such pledged/charged securities by the pledgee/chargee, and the issuer must disclose such information by way of an announcement as soon as possible.

      • GL86-16

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL86-16 (February 2016) (Updated in May 2016, September 2016 and August 2017)

        Subject Guide on Producing Simplified Listing Documents Relating to Equity Securities for New Applications
        Listing Rules and Regulations Main Board Rules 2.03(2) and 2.13
        GEM Rules 2.06(2) and 14.26
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Introduction

            General principle of the Listing Rules
        1.1 One of the general principles of the Listing Rules is that potential investors are given sufficient information to enable them to make a properly informed assessment of an applicant (Main Board Rule 2.03(2), GEM Rule 2.06(2)).
        1.2 A key Listing Rule requirement in support of this general principle is that information contained in a listing document must be clearly presented and in plain language format (Main Board Rule 2.13, GEM Rule 14.26).

        Concerns over the length and complexity of Hong Kong listing documents
        1.3 The SFC and the Exchange have previously published guidance to help applicants and their advisers produce listing documents that are clearly presented and in plain language. For example, the SFC published a "How to create a clear prospectus" guide in January 1998, and the Exchange has published a number of guidance letters on disclosure in listing documents, mostly included under the title "Simplification Series" from 2011 to 2014.
        1.4 Nevertheless, the Exchange is concerned that many Hong Kong listing documents may not be fulfilling the general principle referred to in paragraph 1.1 above. Hong Kong listing documents are often overly long and complex. Together with the use of legalistic and technical jargon, Hong Kong listing documents have become harder to understand (e.g. poor explanation of business model) and important information may be buried inside the document rather than highlighted upfront. This concern is heightened in Hong Kong due to high levels of participation by retail investors in IPOs.

        Purpose of publishing this Guide
        1.5 The Exchange believes a new guide which consolidates and updates guidance on this topic will be helpful to applicants and their advisers. A new guide also reinforces the importance which the Exchange attaches to listing documents being clear, concise and in plain language.
        1.6 The objectives of this Guide include:-
        -  assisting applicants and their advisers to produce listing documents which fulfil the general principle referred to in paragraph 1.1 above;
        -  providing guidance on what information the Exchange typically expects to be included in different sections of a listing document; and
        -  improving investors' ability to find and understand information in listing documents necessary to make properly informed assessments of applicants.
        1.7 This Guide does not:-
        -  prescribe a "one size fits all" formula in preparing listing documents. For example, there may be applicants in industries/ sectors which require specific disclosure; and
        -  identify a checklist of information which must or must not be disclosed, in order for applicants to satisfy listing document content requirements under applicable laws and regulations, the Listing Rules and guidance letters, including Main Board Rules 9.03(3) and 11.07, GEM Rules 12.09 and 14.08(7), and Guidance Letter HKEX-GL56-13.
        1.8 Similar to previous guidance letters, the Exchange expects applicants to follow the guidance herein when preparing listing documents.

        2. Structure of this Guide

        2.1 This Guide is divided into three parts.
        (a) Section 3 sets out guidance on producing a clear and concise listing document;
        (b) Section 4 and Appendix 1 set out a consolidated and updated version of a number of the Exchange's previous guidance letters on disclosure in listing documents, mostly included under the title "Simplification Series"; and (Updated in May 2016)
        (c) Section 5 sets out online hyperlinks to: (i) sample "Summary of the Constitution and Laws of Place of Incorporation" sections of listing documents of applicants incorporated in Bermuda, the Cayman Islands and the PRC; and (ii) the corresponding sample constitutional documents for applicants.

        3. Guidance on producing a clear and concise listing document

        3.1 General drafting principles

        Taking into account publicly available guides on plain language drafting, including guides prepared by securities regulators and stock exchanges in other jurisdictions on preparing simplified prospectuses and listing documents as well as the Exchange's own experiences, the Exchange has identified the following four drafting principles.
        (a) Does each piece of information in the listing document need to be disclosed?

        Consider why each piece of information is disclosed in the listing document.
        -  Is the information relevant and material i.e. its omission or misstatement would affect an investor in making an informed assessment about the applicant?
        -  Is it included to comply with a specific requirement under applicable laws and regulations or the Listing Rules?
        -  Is the information specific to the business of the applicant?
        -  Has the information been disclosed elsewhere in the listing document?
        Unnecessary information is often included in a listing document simply because other published listing documents contained it. Consider the business of the applicant and critically assess whether each piece of information needs to be disclosed. Do not include immaterial information that obscures information that is important to the investors.
        (b) Simplify the language

        Disclosure should read like part of an everyday conversation.
        -  Use everyday language as if you were speaking directly to the reader.
        -  Use short sentences. Instead of one long sentence to describe a complex issue, break up the description into separate, shorter sentences.
        -  Replace long phrases with fewer and simpler words that mean the same thing.
        Listing documents are often read by retail investors with little or no technical knowledge in the applicant's business or industry. Consider whether such a person can understand the disclosure.
        (c) Avoid using defined terms or technical jargon

        Defined terms make disclosure harder to understand because the reader has to stop mid-sentence to check their meaning.
        -  Avoid using a defined term or a technical jargon when the disclosure can be explained using plain language.
        -  When defined terms or technical jargon are necessary, use terms with plain language meaning which most closely explain their defined meaning. Avoid creating new defined terms which are unique to the listing document.
        -  Use a defined term consistently throughout the listing document.
        -  Ensure that all defined terms are set out in the "Definitions" or "Glossary" sections. This helps readers find the meaning to the defined terms.
        Defined terms, legal, financial and other technical jargon, by definition, are not plain language. Do not use these terms unless they improve the readability of the disclosure.
        (d) Simplify the layout

        Organise disclosure in the listing document in a logical manner.
        -  Use a simple design and layout, and choose a font and type size that is easy to read. The same font and type size should be used throughout the listing document (including in the "Summary and Highlights" section). Avoid using all upper-case characters.
        -  Start with the big picture; describe the applicant's business generally before describing detailed features of the business. Group related information together.
        -  Present information in a meaningful way to emphasise matters that are of most interests to investors.
        -  Use descriptive headers and sub-headers to break up information into small digestible parts. If possible, number headers and sub-headers for easy cross reference.
        -  Use tables and bullets to help present information. For example, figures such as revenue contribution by business segment during the track record period may be more easily presented in a table than in words.
        Even when using plain language, many applicants have complex businesses which require extensive disclosure. Organising disclosure in each section in a logical manner becomes key to preparing a useful listing document.
        3.2 Practical suggestions for the drafting process

        Set out below are some practical suggestions for the drafting process.
        -  Use a lead writer/ editor: A lead writer/ editor should be responsible for the quality of the listing document as a whole. He is not expected to write the entire document but he should review and, where necessary, amend sections produced by other participants in the IPO process. This helps the listing document to have a logical structure and consistent language usage.
        -  Avoid copying disclosure: Disclosure from other listing documents (e.g. risk factors) is often not material or not relevant to an applicant or its securities. It is acceptable to take ideas from other listing documents, but you should separately draft disclosure that is specific to an applicant's business.
        -  Tabulate financial information: Much of the financial information disclosed in a listing document can be presented in table form; it makes comparison between different periods in the track record period easier.
        -  Cross reference: Applicants should cross reference other relevant sections in the listing documents to provide more details on the subject matter and to avoid duplication. For example, the Accountants' Report contains a lot of useful information, such as year-to-year revenue and expense breakdowns, and critical accounting policies which impact an applicant's financial results. Cross reference the relevant page of the Accountants' Report instead of repeating the information in other parts of the listing document.
        -  Summaries of material agreements: Summarise material agreements by describing key provisions in plain language. These documents are available to investors for inspection so there is no need to include the full text of key provisions in the listing document.
        -  Summaries of Listing Rules, legislation or other regulations: Describe in plain language how the Listing Rules, legislation or other regulations apply to an applicant. Investors who want to read the actual provisions of the Listing Rules, legislation or other regulations can look them up directly.
        -  Avoid marketing language: Avoid statements that are included solely for "marketing" purposes. Listing documents should not be used as a marketing document. The Exchange will require removal of statements which do not give a fair, unbiased, balanced and factually supported view of an applicant's business. For example, the Listing Committee had previously requested an applicant to remove a reference that it was the "largest domestic fashion sportswear brand by revenue" on the basis the fashion sportswear market was itself a relatively small segment of the retail clothing market and a hybrid of the sportswear market. The statement may give a misleading impression on the size of the applicant.
        -  Step back and review: After a draft listing document is prepared, step back and review it. Consider whether any information can be removed, summarised, or structured in a way to emphasise more on matters important to investors.

        4. Guidance on disclosure in specific sections of a listing document

        4.1 Set out in Appendix 1 is a consolidation of a number of the Exchange's previous guidance letters on disclosure in listing documents, mostly included under the title "Simplification Series", updated with recent examples. It provides specific guidance on what information the Exchange expects in each section of a listing document. The guidance has been divided and ordered into sections as they typically appear in a listing document, as follows:
        A. "Summary and Highlights" section (superseded HKEX-GL27-12)
        B. "Risk Factors" section (superseded HKEX-GL54-13)
        C. "Industry Overview" section (superseded HKEX-GL48-13)
        D. "History and Development" section (superseded HKEX-GL49-13)
        E. "Business" section (superseded HKEX-GL-50-13)
        F. "Financial Information" or "Management discussion and analysis on the historical financial information (MD&A)" section (superseded HKEX-GL59-13)
        G. "Applicable laws and Regulations" section (superseded HKEX-GL72-14)
        H. "Directors, Supervisors and Senior Management" section (superseded HKEX-GL62-13)
        I. "Use of Proceeds" section (superseded HKEX-GL33-12)
        J. Application Forms and "How to Apply for Hong Kong Offer Shares" section (superseded HKEX-GL64-13). (Updated in May 2016)
        4.2 As a result of the consolidation in Appendix 1, the above standalone guidance letters have been withdrawn (see Frequently Asked Questions 003-2016). (Updated in May 2016)
        4.3 Set out in Appendix 2 is a list of certain other guidance letters published by the Exchange on disclosure in listing documents. These remain in full force and effect.

        5. Sample "Summary of the Constitution and Laws of Place of Incorporation" sections of listing documents of applicants incorporated in Bermuda, the Cayman Islands and the PRC

        5.1 The Exchange noted that the "Summary of the Constitution and Laws of Place of Incorporation" section of many published listing documents on average were lengthy. At the same time, the Exchange recognized that this section should be capable of being the same or very similar for most applicants from the same jurisdiction.
        5.2 As a result, subject to paragraph 5.4 below, the Exchange has prepared specimen versions of such section for applicants incorporated in the Recognised Jurisdictions of Bermuda, the Cayman Islands and the PRC for reference, and the corresponding standard articles of association or bye-laws which applicants incorporated in the Recognised Jurisdictions considering using.
        5.3 Electronic versions of these specimen sections and standard articles of association or bye-laws are available for use by applicants when preparing their listing documents. These versions can be accessed at: http://www.hkex.com.hk/eng/rulesreg/listrules/listsptop/guidepsld/psld_index.htm
        5.4 It should be noted that:
        (a) the specimen sections are provided by way of example only, and are accurate solely as at the date of issue; and
        (b) the standard articles of association or bye-laws of companies incorporated in each of Bermuda, the Cayman Islands and the PRC are also provided by way of example only, and were based on typical articles of association of companies incorporated in those jurisdictions and listed on the Exchange as at the date of issue.
        They may not be updated to reflect changes in law after the date of issue. We will revise these specimen sections, standard articles of association or bye-laws to reflect changes in this information only when notified of any changes.

        The contents of the specimen sections, standard articles of association or bye-laws should be reviewed, and amended as necessary, before being incorporated in a listing document or adopted by applicants. In all cases, applicants should seek the advice of suitably qualified legal advisers before doing so. If there is any conflict or inconsistency between these specimen sections, standard articles of association or bye-laws and the requirements of the Listing Rules, the Listing Rules shall prevail. Use of these specimen sections, standard articles of association or bye-laws does not absolve applicants and/ or their directors from the obligation to make their own judgment concerning the contents of their listing documents.
        6. Suspension of vetting (Added in August 2017)
        6.1 With the aim of promoting more succinct listing documents focused on material information, the Exchange had adopted a recommended 10 page limit for each of the “Summary and Highlights” (see section A below) section in January 2012 and “Industry Overview” (see section C below) section in January 2013. To further promote more succinct listing documents, the Exchange has extended its guidance in this respect and adopted a recommended 20 page limit for each of the “History and Development” (see section D below) and “Applicable Laws and Regulations” (see section G below) sections.
        6.2. As stated in paragraph 1.2 above, the Listing Rules require information contained in a listing document to be clearly presented and in plain language format (Main Board Rule 2.13, GEM Rule 14.26). This guidance letter is published to assist applicants and their advisers to produce listing documents in compliance with this requirement. To encourage compliance with this guidance letter, the Exchange may exercise its discretion to suspend vetting if:
        •   the listing document does not comply with any of the recommended page limits for the “Summary and Highlights”, “Industry Overview”, “History and Development” and “Applicable Laws and Regulations” sections; or
        •   information in the “Summary and Highlights” section (i) is almost entirely copied-and-pasted from other sections; or (ii) does not contain explanation of material fluctuation of key financial data.
        6.3 Listing applicants will be requested to redraft relevant sections of the listing document to fully comply with this guidance letter before the Exchange will continue to vet. Suspension of vetting is not a return or rejection of the application, so there is no need to upload the revised Application Proof onto the website of the Exchange and the initial listing fee will not be forfeited.

        *****


        APPENDIX 1

        A. "Summary and Highlights" section

        1. Listing Rules

        -  Main Board Rules 2.13 and 11.07
        -  GEM Rules 14.08 (7) and 17.56

        2. Related publications

        -  Frequently Asked Questions Series 23
        -  HKEX-GL41-12 - Disclosure requirements for IPO cases - Disclosure of material changes in financial, operational and/ or trading position after trading record period

        3. General guidance

        3.1 The "Summary and Highlights" section should enable investors to obtain a concise overview of an applicant and highlights of significant matters disclosed elsewhere in the listing document.
        3.2 It is not appropriate for the "Summary and Highlights" section to include paragraphs that have been copied from elsewhere in the listing document. The text in this section should be a high level overview drafted specifically for this purpose.
        3.3 The "Summary and Highlights" section should generally be no more than 10 pages, although the actual length will depend on the nature and complexity of an applicant, its business and the offering.

        4. List of information that might be included in the "Summary and Highlights" section

        4.1 Set out below is the information we would typically expect to be included in the "Summary and Highlights" section.

        Key areas Purposes Disclosure recommendations

        Business model

        Provide information on an applicant's current principal business activities (including any change in the business focus during and after the track record period), and how such activities generate revenue

        •  proper explanation and clarity on applicant's business model
        •  current principal business activities (consider using a flow diagram to describe the applicant's business model)
        •  pricing model
        •  any unique features of the applicant's industry (e.g. government grants, incentives, revenue recognition policies)
        •  major development milestones, mergers and acquisitions

        Provide information on major stakeholders

        -  an applicant's business may be significantly influenced by its major stakeholders and their relationships with the applicant
        •  major customers and distributors, suppliers, contract manufacturers and providers of finance, etc., and their relationships with the applicant or its shareholders
        •  sales/ distribution channels
        •  any material transactions which are not on normal commercial terms

        Provide information on an applicant's market position within the industry

        -  to help investors assess the competitive landscape of an applicant's business
        •  market share/ ranking data of key market players and the applicant

        Provide a summary of an applicant's competitive strengths and business strategies

        -  to help investors understand how the applicant differentiates itself from its competitors
        •  if unique to the applicant, list any key competitive strengths and business strategies
        •  if not self-explanatory, include a brief explanation of the competitive strength or business strategy

        Do not include:

        •  marketing statements

        Shareholder information

        Provide information on shareholders and investors that may control or have an influence on an applicant:

        -  to help investors assess any key business relationships between shareholders, investors and the applicant, business competition and reliance
        •  identities of controlling shareholders and pre-IPO investors; competition and key business relationships with controlling shareholders (e.g. key connected transactions)
        •  dilution impact resulting from full exercise of all outstanding pre-IPO share options and/ or other derivatives, if it would materially affect the shareholding structure

        Key operational and financial data

        Provide a brief overview of key financial information/ ratios which are particularly relevant to understanding the applicant's financial condition and results of operations during the track record period

        •  financial and operational data should preferably be limited to one page
        •  in relation to the banking sector, net interest spread, net interest margin, capital adequacy ratio, non-performing loan ratio, and loan-to-deposit ratio should be included
        •  in relation to the securities sector, amount of securities underwritten, average commission rates, trading volume, average rate of return, assets under management, and balances of margin financing and securities lending should be included
        •  any significant non-recurring items, or significant items which are not incurred in the ordinary and usual course of the applicant's business should be highlighted

        Recent developments

        Provide an update on an applicant's operations and financial position since the latest audited financial period

        •  where there have been material changes, a qualitative update on an applicant's business and its industry, and/ or market or regulatory environment to no more than ten calendar days before the date of a listing document (i.e. latest practicable date)
        •  an applicant should disclose qualitative or quantitative information with commentary relating to its financial condition and results of operations since the latest audited financial period, including by reference to the key financial information/ ratios referred to above.1 The disclosure must enable investors to have a sense of materiality of the recent developments
        •  Where an applicant discloses quantitative information relating to its financial performance after the track record period other than net profit/ loss (e.g. revenue, gross profit, etc.), this non-profit forecast financial information should be reviewed by the reporting accountants, and a statement must be included in the listing document that this information has been reviewed by the reporting accountants
        •  The disclosure of comparative financial information to the non-profit forecast financial information is not compulsory. If an applicant discloses such information in its listing document, this should at least be reviewed by the applicant's sponsor
        •  An applicant with material changes in its financial, operational and/ or trading position after the trading record period should refer to Guidance Letter HKEX-GL41-12 for the additional disclosure

        Listing expenses

        Enable investors to assess the impact of listing expenses on an applicant's financial performance

        •  total amount of listing expenses relating to the offer (including underwriting commission), and the accounting treatment of such expenses (e.g. charged to the income statement or as equity, and the relevant time periods)

        Future plans and prospects

        Provide investors with an idea of an applicant's future plans and prospects

        •  breakdown of the use of proceeds for various future plans and the expected timing of the use of proceeds in bullet or table form, with cross references to details in the "Use of Proceeds" section

        Information on an applicant's historical significant distributions and expected dividend payout ratio to enable investors to assess its dividend payout trend and intentions

        •  expected dividend pay-out ratio, significant distributions and material matters that should be drawn to investors' attention
        •  where future dividends are subject to discretion of the Board, disclose factors to be considered and where there is currently no intent to pay any dividends, specially state that the company does not have any dividend policy

        Do not include:

        •  detailed description of dividend policy

        Offer related information and Profit Forecast

        Key information for investors who wish to subscribe for an applicant's shares

        •  key offer statistics (e.g. number of shares to be issued, range of expected market capitalisation and adjusted net tangible value per share, etc.) in table form
        •  where a full-year profit forecast is included, the forecast P/E ratio (or other meaningful financial ratio derived from the profit forecast)
        •  cross reference to bases and assumptions in appendices/ other sections of a listing document rather than copying them out in the "Summary and Highlights" section

        Other information

        Highlights of any other significant matters or issues affecting an applicant or the offering.

        For example:

        •  material non-compliances, litigation and other material events (e.g. product recalls)
        •  a description of the most material risks to an applicant
        •  non-standard waivers granted (e.g. a waiver of a continuing connected transaction that has a term of more than 3 years)
        •  for property companies - a list of projects and their status (e.g. gross floor area sold, available for sale, yet to be developed, and the timeline for development)
        •  for companies whose businesses may be significantly affected by commodity prices/ fair value changes - sensitivity analysis and key initiatives to manage these risk exposures
        •  for novel overseas jurisdictions - highlights of unusual laws and regulations, etc.

        B. "Risk Factors" section

        1. Listing Rules

        -  Main Board Rules 2.03(2), 2.13(2), 11.07 and 19A.42
        -  GEM Rules 2.06(2), 14.08(7), 14.22 and 17.56(2), and Paragraph 67 of Part A of Appendix 1

        2. Related publications

        -  None

        3. General guidance

        3.1 The "Risk Factors" section should include all the material risks associated with investing in an applicant and its securities. It should explain why these risks are material from investors' perspective.

        Risks should be relevant to listing applicants
        3.2 The section should only present risks that are relevant to the particular applicant.
        3.3 Each risk factor should be described in context so that investors can understand the nature of, or circumstances giving rise to, the risk or uncertainty as it affects the applicant, its operations and securities, or the offering.
        3.4 If standardised language is used in a risk factor, it is important to ensure that the particular circumstances of the applicant do not require modification of that language.

        Make quantitative disclosure and focus on the risks, but not the background information
        3.5 The section should focus on explaining the nature and extent of the risks. If possible and meaningful, this should be in the form of quantitative disclosure of the likely impact of the risks to allow investors to assess the magnitude and impact on the applicants' business operations and financial position. If the likely impact cannot be ascertained, disclose the maximum quantitative impact, if possible.
        3.6 The risk factor should avoid unnecessary factual background and should only provide enough detail to place the risk in context. More detailed discussion of the background information may be included in other parts of the listing document and only cross-referenced in the risk factors.

        Identify risks individually, but avoid repetition and overlapping
        3.7 Each risk factor should focus on disclosing a single, specific principal risk and should avoid bundling together disclosure on multiple risks.
        3.8 Avoid multiple risk factors that address the same principal risk.

        Risks are matters that applicants are unable to mitigate adequately and that would have significant effects on the applicants if they occur
        3.9 Risk factor disclosure should relate to risks that applicants are unable to mitigate adequately. Where an applicant is capable of mitigating the risk, do not include a risk factor just because the applicant may not carry out the mitigation adequately. For example, it is not appropriate to include an applicant's possible failure to comply with legal requirements as a risk factor because applicants are expected to be law-abiding and rule compliant, unless there is a genuine and specific reason that gives rise to this uncertainty to comply.
        3.10 Risk factor disclosure should not be confined to risks that are considered to be reasonably likely to occur. If the occurrence of a particular risk would have a significant effect on the applicant, the applicant should disclose that particular risk even if it has a low probability of occurring.
        3.11 For example, an applicant relied on three suppliers which accounted for over 95% of its total cost of sales and services. However, the applicant did not believe this gave rise to material risks because of its long-standing relationships with the suppliers, as well as long-term supply agreements that had been entered into. Nevertheless, as the disruption to the applicant would be significant if it lost any one of these suppliers, a risk factor was included with respect to this risk.

        Appropriate headings and sub-headings
        3.12 Related risk factor disclosure should be grouped together, adopting appropriate and meaningful headings and sub-headings. As a guide, headings may include "risks relating to the applicant", "risks relating to the applicant's business", "risks relating to the applicant's industry" and "other relevant risks" (e.g. "any social, economic or political risks relating to countries where the applicant has substantial operations", and "risks that are specific to the securities"), etc.
        3.13 The sub-headings should not be too vague and generic, and should succinctly outline or reflect the risk that follows in the text as a result of certain facts/ uncertainties about the applicant. This means the headings need to say what the risk is and not merely disclose the facts or circumstances that give rise to the existence of the risk. For example, "Reliance on major customers" merely states a fact, whereas "Reliance on our top five customers which accounted for 75% of our revenue" describes the risk.

        Order from the most to least material
        3.14 As a general principle, applicants should seek to set out risk factors in an order that reflects their relative significance. Within each category of risk factors, applicants should similarly seek to present the risk factors in an order from the most to least material. However, ordering will always require the making of subjective judgments as to the magnitude of each risk (both in terms of likelihood of occurrence and in terms of consequences if it does). Accordingly it is the sole responsibility of the applicant to determine the appropriate ordering having due regard to this general principle.

        No mitigating facts
        3.15 Mitigating facts should not be included in the description of a risk factor as they may divert investors' attention from the magnitude and impact of the risks. Mitigating factors may however be included in other sections of the listing document to give a better assessment of the risk and how the applicant intends to mitigate it. Cross-referencing the risk factors to relevant disclosure in other sections of the listing document may be appropriate.

        Consistent disclosure
        3.16 The risks included within the "Risk Factors" section should be consistent with the information in other sections of the listing document. A disclosure discussed elsewhere in the listing document that clearly suggests a significant risk or uncertainty to the applicant should be included in the "Risk Factors" section.

        Exclude outdated risk factors
        3.17 The section should exclude risk factors which are outdated and no longer applicable. For example, a new law, when promulgated, may create some uncertainties and risks during the initial implementation stage. However, uncertainties may no longer exist after years of implementation. In this context, a risk factor on uncertainties of the law is unlikely to be relevant and so should not be included in the section.

        Avoid disclaimer statements that lack specificity
        3.18 The purpose of the risk factor disclosure is to provide meaningful cautionary statements. The same result cannot be achieved by using disclaimers that merely say that there may be undisclosed risks, for example, "the section is not complete and there may be risks that the applicant does not consider material at the date of listing document may become material in future" and "there may be risks that we have not yet identified at present". Accordingly the use of statements of this nature should be avoided.

        C. "Industry Overview" section

        1. Listing Rules

        -  Main Board Rules 2.13(2) and 11.07
        -  GEM Rules 14.08 (7) and 17.56(2)

        2. Related publications

        -  HKEX-GL8-09 - Statistics and data quoted in prospectuses

        3. General guidance

        3.1 Whilst not required, applicants usually include an "Industry Overview" section in their listing documents.
        3.2 The "Industry Overview" section normally contains, among other things, statistics and data extracted from commissioned research reports and/ or official public documents. The sources and reliability of these statistics and data are not always disclosed prominently and at times this section may discuss only general information which is not relevant to an applicant's business and industry, and is out-of-date. We recommend that this section provides investors with up-to-date and concise information specific to an applicant's business and industry, and only to the extent it affects an applicant's business model and the investor's investment decision.

        No extraneous information and be succinct
        3.3 The section should be as short as possible. It should not include general information which is irrelevant or unlikely to affect an applicant's business, or simply disclose the information without explaining the linkage to an applicant. Extraneous information makes the section unnecessarily lengthy and distracts investors' attention. This section should generally be no more than 10 pages, although its actual length will depend on the nature and complexity of each case.
        3.4 For example:
        -  It is neither relevant nor material information to investors for an applicant engaged in sales of consumer products in PRC, USA and Europe to provide pages of global economic trend data, or gross domestic product or consumer price index data (past and forecast) in these countries. Such data, if presented, must specifically relate to the applicant's business, as opposed to any company which sells to these markets.
        -  An applicant engaged in property development with 95% of its projects in the PRC and 5% in Hong Kong having no immediate plan to expand in the Hong Kong market should not include a lengthy discussion of the prospects and trends in the Hong Kong property market.
        -  An applicant engaged in manufacturing with sales focused in European countries and purchases from PRC suppliers may face significant foreign currency risk.
        Merely including information on the historical exchange rate of Euro and RMB in this section is not helpful to investors. Relevant information on the trend of the fluctuation of Euro and RMB and how it affected and/ or will affect an applicant's sales, cost structure and profit margin should also be provided.

        Source and reliability of information
        3.5 This section should disclose the source of information and whether any research report was commissioned by an applicant or its connected persons/ associates and/ or the sponsor to enable investors to assess the independence and objectivity of the information. The following additional disclosure should be included in the section: (1) the fees paid for commissioned research reports; (2) the business, background and credentials of the research house; (3) the parameters and assumptions used when these data or statistics (including forward-looking data) were collected and analysed; and (4) the basis upon which these data or statistics are considered reliable.

        Up-to-date market information
        3.6 An applicant should ensure that the most up-to-date market information is disclosed. This may include disclosure on the industry maturity and size, and key customers and suppliers and how they are relevant to an applicant's business. As a guide, all historical market information in this section should be for time periods consistent with the applicant's track record period, so that investors can compare the market information with an applicant's financial information in the listing document. If this information is not available, this should be stated.
        3.7 An applicant's directors should confirm in this section, after making reasonable enquiries, that there is no adverse change in the market information since the date of the commissioned research report which may qualify, contradict or have an impact on the information in the section. For example, in one case an applicant claimed to be one of the leading top 10 producers of household appliances in the PRC. The industry data contained in the commissioned report covered only up to 2011, whereas the track record period extended to the financial year 2012, and there was no supporting data afterwards and as at the latest practicable date. In this case, a directors' confirmation was required.

        Fair and balanced presentation of market share and ranking
        3.8 Where an applicant decides to include in the listing document information on its market share and/ or ranking, the information should be presented in a fair and balanced way against up-to-date market information and not be overly favourable or misleading.
        3.9 The disclosure is misleading if an applicant describes itself as a market leader in a particular segment without providing in proper context that such segment is a small subset of the overall industry. For example, it is not appropriate if an applicant describes itself as a market leader in the sportswear segment in certain provinces in the PRC with 70% market share without disclosing the fact that its market share in the overall apparel industry in the PRC is only 5%. Accordingly, this section should disclose information on the applicant's market share and ranking in the whole industry with the support of appropriate independent market or operational data, or that the applicant's leading position only applies to a distinct segment of the whole industry and provide the share of such segment within the industry.

        Competitive landscape and competitive advantages
        3.10 This section should include information on the competitive landscape of an applicant and its major products. For example, the identities and details of the key market players and their respective market share, nature of competition, barriers of entry to the markets, future opportunities, threats and/ or challenges to the markets. It should also include the market shares of an applicant's major products.
        3.11 This section should also substantiate an applicant's competitive advantages both quantitatively and qualitatively with the support of appropriate independent market or operational data. For example, an applicant with a competitive advantage of economies of scale should explain in the section the scale of its operation when compared with its peers quantitatively, and how its scale provides competitive advantage quantitatively and qualitatively.

        Historical price trends of raw materials and final products
        3.12 This section should include, preferably in the form of charts and tables with the same scale and in legible size, the historical prices of an applicant's major raw materials and final products (especially for applicants engaged in the commodities business), and commentary on any material fluctuations. It is also helpful to explain how any changes to its major raw material prices affected the selling prices of its final products historically.

        D. "History and Development" section

        1. Listing Rules

        -  Main Board Rules 2.13(2) and 11.07
        -  GEM Rules 14.08 (7) and 17.56(2)

        2. Related publications

        -  HKEX-LD43-3 - Contractual Arrangements

        3. General guidance

        3.1 The "History and Development" section should only include material information on an applicant's establishment, development, corporate structure and shareholding. It is not necessary to disclose each occasion of change in shareholders or shareholding unless such change is material information to an investor's understanding of the applicant, including its management. This section should generally be no more than 20 pages, although its actual length will depend on the nature and complexity of each case. (Updated in August 2017)
        3.2 Cross-referencing to relevant disclosure in other sections of the listing documents to avoid duplication of information if necessary.

        Disclosure in this section
        3.3 This section should usually include the following information:
        (a) Establishment and development of an applicant and its major subsidiaries
        -  information on founders (i.e. background and relevant industry experience if the information is not disclosed in the "Directors and Senior Management" section)
        -  the listing group's material developments milestones in a tabular form
        -  incorporation and commencement of business of each member of the listing group that made material contribution to the listing group's track record results
        (b) Corporate structure
        -  an applicant's corporate structure charts, in legible size, before and after major reorganizations and upon completion of the share offer
        -  the identities and principal business activities of an applicant and its major subsidiaries/ jointly controlled entities
        -  by way of notes to the corporate structure chart, the identities of the minority shareholders of each non-wholly owned subsidiary and whether they are independent third parties
        -  where there are many subsidiaries, an explanation for the need for a complex group structure
        -  the material steps of any reorganization (i.e. incorporation, share swap, disposal and acquisition)
        -  whether relevant regulatory approvals for reorganizations have been obtained and/ or the reorganization complies with the relevant laws and regulations, with the support of a legal opinion, if applicable
        -  the date of completion of the registration under Circular No. 37 of PRC State Administration of Foreign Exchange, if applicable2
        -  reasons for excluding certain companies/ businesses from the listing group if they are in the same or ancillary businesses
        (c) Acquisitions, disposals and mergers
        -  major acquisitions, disposals and mergers (including the basis and amount of consideration involved, settlement date of the consideration, etc.), the reasons for the disposals and their significance to the applicant
        -  whether each of the acquisitions, disposals and mergers has been properly and legally completed and settled, including all applicable regulatory approvals having been obtained
        -  the transferor/ transferee's relationship with the applicant, its shareholders or connected persons or that they are independent third parties
        (d) Shareholders
        -  shareholders' identities
        -  relationship amongst shareholders (e.g. family members, relatives, and parties acting in concert)
        -  for significant shareholding changes during the track record period, the background of the then shareholders, their relationships with the applicant and its connected persons, reasons for the shareholding transfer, amount, settlement date and basis of consideration involved. The use of tables, charts, diagrams and arrows to ensure clear and concise disclosure is recommended
        -  details of outstanding options, warrants and convertibles
        (e) Listing on other exchanges
        -  reasons for an applicant to seek a listing on the Exchange
        -  listing status (e.g. privatized or if delisted, why and when it was delisted)
        -  compliance record during an applicant's listing on other exchanges and whether there is any matter that should be brought to investors' attention
        -  where the applicant has been privatized, details of the privatization, including the consideration offered to then shareholders, how the privatization was financed, and, if the privatization offer price and the IPO offer price are materially different, reasons for the difference

        E. "Business" section

        1. Listing Rules

        -  Main Board Rules 2.13(2) and 11.07, and Paragraphs 28 to 31 of Part A of Appendix 1, and Appendix 27
        -  GEM Rules 14.08 (7) and 17.56(2), and Paragraphs 28 to 31 of Part A of Appendix 1 and Appendix 20

        2. Related publications

        -  HKEX-GL19-10 - Guidance on disclosure of land use rights in the PRC
        -  HKEX-GL26-12 - Business models with significant forfeited income from prepayments
        -  HKEX-GL28-12 - Restaurant operators
        -  HKEX-GL30-12 - Disclosure of intellectual property rights
        -  HKEX-GL36-12 - Distributorship business
        -  HKEX-GL63-13 - Disclosure of material non-compliance incidents
        -  HKEX-LD107-1 - Whether heavy reliance on a major customer would render Company A unsuitable for listing

        3. General guidance

        3.1 The "Business" section should properly explain the material components of an applicant's business model in a simple and easy to understand manner, and include information on keys areas e.g. market and competition, suppliers, customers, production, products and services, etc.
        3.2 This section should also include the applicant's risk management policies and procedures and explain how these policies and procedures mitigate risks identified in the "Risk Factors" section:
        -  description of the existing risk management policies and procedures;
        -  corporate governance measures (including board oversight and risk management committees with details of qualification and experiences on those personnel in charge); and
        -  on-going measures to monitor the effectiveness of these policies, procedures and measures.
        3.3 Whilst applicants may include competitive strengths in this section, care should be taken to give a fair, unbiased, balanced and factually supported view of an applicant's business.
        3.4 Disclosure should be specific rather than generic, and should tie to other sections of a listing document (e.g. explanations should be given if receivables and payables turnover days in the "Financial Information" section do not match the credit policy in the "Business" section, or if extended credit policy is given to specific customers).
        3.5 Cross-referencing to relevant disclosure in other sections of the listing documents to avoid duplication of information if necessary. Information should not be duplicated except in the "Summary" section where information to be highlighted needs to be summarized.
        3.6 Where possible, present information using tables, charts and diagrams to ensure clear, concise and precise disclosure.

        4. List of key areas that can be found in the "Business" section

        4.1 Set out below is a list of key areas that can be found in the "Business" section in listing documents.

        Key areas Examples Relevant guidance

        Business model

        •  The nature and major functions of an applicant's businesses, taking into account each business' scale and contribution to an applicant
        •  Any change in the business focus during the track record period (and, where applicable, include cross-references to relevant disclosure in the "Products and services" section)
        Guidance Letter HKEX-GL26-12
        Guidance Letter HKEX-GL28-12

        Strengths, strategies and future plans

        •  Business strategies (e.g. strengthening sales network, vertical expansion, entering into long-term contracts, acquisitions, etc.)
        •  Expansion plans (e.g. reasons for expansion, site selection, expected capacity, breakeven period and investment payback period together with the assumptions, etc.) and how an applicant will implement such plans, the time frame, capital expenditure requirements, amounts spent/ to be spent, timing for payments, and source of funding
        •  If an applicant has identified any acquisition targets, details of the targets and the selection criteria. If applicable, include cross references to the "Use of Proceeds" section for details
        •  If any change in business focus is planned, reasons for the change and any related change in cost structure, profit margins and risk profile

        Suppliers, raw materials and inventory

        •  Background of any material
        suppliers (e.g. business activities,
        years of business relationship,
        whether they are connected
        persons, credit terms and
        payment method)
        •  Costs related to an applicant's five
        largest suppliers during the track
        record period
        •  Detailed terms and conditions of
        any long-term agreements (e.g.
        duration, minimum purchase
        commitment and any penalty for
        non-compliance with such
        commitment, price adjustment
        provision, renewal and termination
        clauses) and whether they are
        legally binding. Details of any
        breaches of these agreements
        during the track record period
        •  Major countries where an
        applicant purchases its raw
        materials
        •  Concentration risk and
        counterparty risk, if any
        •  Sensitivity and breakeven analysis in relation to changes in costs
        •  Any shortage or delay in the supply of raw materials and measures to manage such shortage (e.g. alternative suppliers with comparable quality and prices and substitutes)
        •  Measures to manage fluctuations of raw material prices and whether an applicant can pass on the increase in purchase costs to its customers
        •  Inventory control measures (e.g. purchases on a back-to-back basis upon receipt of orders, level of inventory to be maintained) and provisioning policy
        •  Legality of the source of supply (e.g. parallel imports, fur, wood, diamonds)
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
        Listing Decision HKEX-LD107-1

        Production

        (Only if applicable to the applicant's business)

        •  Operation flows, production processes and production time (for each critical process) in the form of a flowchart
        •  Production facilities, capacity for each major product category and utilization of production facilities (with reasons for fluctuations, low or exceedingly high utilization rates, and basis for calculating utilization rates)
        •  Major asset and equipment (whether they are leased or owned, repair and maintenance history, age, depreciation method and time for replacement or upgrade)

        Subcontracting

        (Only if applicable to the applicant's business)

        •  Reasons for subcontracting and basis of selecting subcontractors. Details of subcontractors, including years of business relationship with an applicant and whether they are independent third parties
        •  Salient terms of the subcontracting arrangements/ agreements (e.g. duration, responsibilities of the subcontracting parties, raw materials procurement policy, compliance with relevant quality requirements, basis of determining the subcontracting fees, terms for renewal and termination clauses)

        Products and services

        •  Product and service types, product life cycle, seasonality and, if applicable, changes to product mix during the track record period
        •  Pictures of products sold, price ranges by brands and product types, reasons for material fluctuations during the track record period, and future price trends

        Sales and marketing

        •  Direct sales or through distribution channels (e.g. through trading companies, franchiser and distributors)
        •  Movement of point of sales opened and closed during the track record period and reasons for closure of point of sales in table format
        •  Pricing policy (e.g. fixed price or cost plus), and any rebates
        •  Advertising, sales incentive, promotion and discounts
        Guidance Letter HKEX-GL36-12

        Customers

        •  Background of any major
        customers (e.g. business
        activities, years of business
        relationship, whether they are
        connected persons, credit terms
        and payment method)
        •  Revenue from an applicant's five
        largest customers during the track
        record period
        •  Detailed terms and conditions of
        any long-term agreements (e.g.
        duration, minimum purchase
        commitment and any penalty for
        non-compliance with such
        commitment, price adjustment
        provision, renewal and termination
        clauses) and whether they are
        legally binding. Details of any
        breaches of these agreements
        during the track record period
        •  Whether major customers are also
        an applicant's suppliers or vice
        versa, and if so, the reasons for
        this arrangement, the percentage
        of revenue and costs related to
        them and a breakdown of their
        gross profit during the track record
        period
        •  Major countries where an applicant
        sells its products
        •  Concentration risk and counterparty risk, if any
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
         
        Listing Decision HKEX-LD107-1

        Product returns and warranty

        (Only if applicable to the applicant's business)

        •  Product returns policy, whether there is any warranty for products and details of the warranty policy (including warranty terms, time period and provisioning policy)
        •  Product recalls, products returned, product liability claims, warranty expenses and the amount of provision during the track record period
        •  Allocation of liability for product defects between an applicant and its suppliers
        •  Customer complaints policy (including procedures for handling complaints) and any customer complaints during the track record period

        Insurance

        •  Policies undertaken, risks not being covered and whether the insurance coverage is adequate and in line with the industry norm
        •  Include cross references to the "Risk Factor" section, if applicable

        Research and development matters

        •  Material technology and technical know-how required for production or the product
        •  Research and development policy (e.g. nature of R&D expenses incurred, when they are expensed or capitalized)
        •  Research and development team, qualifications and experiences of the personnel, expenses on research and development
        •  Salient terms of cooperation agreements with third parties (including the cost/ profit/ loss sharing arrangement, who owns the intellectual property rights, fees paid to third parties), and whether they are legally binding

        Health, work safety, social
        and environmental matters

        •  System of recording and handling accidents and implementation of the policies and the applicant's health and work safety compliance record
        •  Number of material accidents in the course of an applicant's operation, whether there were any claims for personal or property damages, and compensation paid to employees
        •  Occupational safety measures, staff issues and environmental protection policies
        •  Material information about an applicant's environmental obligations under applicable laws and regulations or other voluntarily adopted measures (including the annual cost of compliance with applicable rules and regulations during the track record period and the expected cost of compliance going forward)
        Main Board Rules Appendix 27 and GEM Board Rules Appendix 20

        Intellectual property

        •  Material trademarks (including goods marks and service marks), patents registered and pending registration
        •  Any dispute or infringement of trademarks and patents, whether they resulted in any legal actions and the reasons if not
        Guidance Letter HKEX-GL30-12

        Employees

        •  Number of employees by function and geographic location
        •  Training and recruitment policies
        •  Labor unions and any labor disputes
        •  Use of employment agents (with salient terms of arrangements) and whether the applicants or the agents bear the relevant costs of social insurance and housing funds or similar employee benefits in the jurisdiction of employment

        Properties

        •  Properties with defective titles, idle land, civil defense projects in the PRC and land resettlement operations in the PRC
        Guidance Letter HKEX-GL19-10

        Compliance matters

        •  Details of material impact non-compliances, including reasons for the non-compliance incidents, whether the applicant has been, or will be charged or penalized for the non-compliance, enhanced internal controls, any rectification actions and the views of the directors and the sponsor on the adequacy and effectiveness of the enhanced internal controls and the applicant's suitability for listing
        Guidance Letter HKEX-GL63-13

        Litigation

        •  Whether an applicant is subject to actual or threatened material claims or litigations and their impact on an applicant's operations, financials and reputation
        •  Whether an applicant's directors are involved in the above claims and litigations and if yes, whether they are able to comply with Main Board Rules 3.08 and 3.09 (GEM Rules 5.01 and 5.02)

        Risk management and internal control systems

        •  Details of an applicant's risk management and internal control systems, including measures over quality control market risk, credit risk and operational risk
        •  Composition of applicable risk management committees, including professional qualifications and industry experience
        •  Hedging strategy (e.g. percentage of exposure to be hedged, whether an applicant has engaged and/ or will engage in speculative activities, under what circumstances an applicant would adopt each particular type of hedging method, and key terms of hedging contracts) and an applicant's net hedging position

        Licenses,
        permits and approvals

        •  That an applicant has obtained all material requisite licenses, permits and approvals for its operation, when they were granted, when they will expire and whether they are required to be renewed
        •  Status of renewal of licenses, expected timeframe and, with the support of legal opinion, whether there is any legal impediment to renewing the licenses

        F. "Financial Information" or "MD&A" section

        1. Listing Rules and Regulations

        -  Main Board Rules 2.13(2) and 11.07, Paragraph 34 of Part A of Appendix 1, and Paragraphs 32 and 47(2) of Appendix 16
        -  GEM Rules 14.08 (7), 17.56(2) and 18.41
        -  Paragraph 3 of the Third Schedule to the Companies (Winding Up and Miscellaneous Provisions) Ordinance
        -  Paragraph 17.8 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the "Code of Conduct")

        2. Related publications

        -  HKEX-GL37-12 - Guidance on indebtedness, liquidity, financial resources and capital structure disclosure in listing documents
        -  HKEX-GL38-12 - Guidance on the Latest Practicable Date and the latest date for Liquidity Disclosure in listing documents

        3. General guidance

        3.1 Listing documents must include the MD&A because the financial statements alone do not provide all the information that investors need to make investment decisions. The financial statements mainly disclose the financial effects of past events and do not provide non-financial measures of performance or a discussion of future prospects and plans. The MD&A is to provide discussion and analysis of an applicant's past performance and main trends and factors that are likely to affect its performance, position and prospects in order to enable investors to see the applicant through the eyes of management.
        3.2 To meet the above objectives, applicants are expected to disclose not only past events or information responsive to specific requirements of the Listing Rules, but also an analysis that explains management's view of the implications to an applicant's future and the significance of that information.

        General Principles
        3.3 The following are the general principles which should be observed in preparing the MD&A:
        (a) there should be a balanced discussion of all major businesses and segments (both existing and planned) including both positive and negative circumstances of an applicant. Generic discussions that do not provide insight into an applicant's past performance and prospects should be excluded;
        (b) Cross-referencing to relevant disclosure in other sections of the listing documents to avoid duplication of information if necessary. For example, disclosure on forward looking statements and matters affecting an applicant's future performance can be cross-referenced to the "Future Plans and Prospects" section, and disclosure on basis of presentation, critical accounting policies and estimates, and risk analysis can be cross-referenced to the Accountants' Report; and
        (c) presenting information using tables, charts and diagrams is recommended to ensure clear, concise and precise disclosure.
        Guidance and Principles on Specific Disclosure
        3.4 Below are some guidance and principles on specific disclosure generally found in the MD&A.

        Key Factors Affecting the Results of Operations
        3.5 Highlight key events or factors that management considers most important in driving the changes in an applicant's operating results, financial position and cash flows, which may include the following information where appropriate, and not a detailed description or repeating information from the "Business" section:
        -  economic and regulatory factors that affect the industry and market in which an applicant operates. For example, in the case of a PRC banking business, market conditions such as the interest rate environment and the unique regulatory challenges of operating a banking business in the PRC; and
        -  significant relationships, opportunities, challenges and specific risks that are likely to affect an applicant's performance, financial position, liquidity and cash flow in the future.
        Critical Accounting Policies and Estimates
        3.6 Disclose an applicant's critical accounting policies, accounting estimates and assumptions made in applying such policies. It should supplement, and not duplicate, the description of accounting policies disclosed in the notes to the financial statements which at times are too generic. For example:
        -  in relation to revenue recognition policies, instead of stating that revenue is recognized upon transfer of risks and title, an applicant should clearly state at which point of time revenue is recognized (e.g., upon delivery of goods or issue of invoice to customers) and whether there is any delay due to time required for inspection and acceptance by the customers; and
        -  where the relevant accounting standards allow different treatments but only one treatment can be adopted in a consistent manner, disclose the treatment adopted by the applicant. State which treatment has been adopted by the applicant and do not disclose all permissible treatments.
        3.7 For critical accounting estimates and assumptions, an applicant should disclose:
        -  the procedures and methods used by management in making accounting estimates;
        -  how accurate the estimates (or underlying assumptions) have been in the past by comparing with actual results;
        -  how the estimates (or underlying assumptions) have changed in the past; and
        -  whether the estimates (or underlying assumptions) are likely to change in the future and the reasons for this.
        Review of Historical Results, Financial Position and Cash Flows ("Financial Information")
        3.8 Disclosure should provide clear descriptions of an applicant's financial and non-financial performance, including factors which explain or provide insights into material fluctuations in the applicant's operations and performance (including by reference to key financial ratios) during the track record period, and any other significant items. Management should also state its view on whether historical results are indicative of future performance and management's assessment of an applicant's prospects.

        Examples of disclosure we do not consider meaningful include:
        -  explaining the changes in operating cash flows by reciting the cash flow movements in narrative form without providing the underlying causes for the changes; and
        -  explaining that the decrease in accounts receivables turnover days is due to the increase in sales without providing the reasons/ explanation of the events causing the increase in sales.
        3.9 Where there have been significant changes in the applicant's industry such as material changes to commodities prices, political unrest or where an applicant's operations have been affected by recent natural disasters, appropriate commentary should be made in the MD&A on the extent of the actual and potential impact on an applicant's operations, financial position and performance and cash flows.
        3.10 Explanations of management's perspective of an applicant's direction, targets and prospects, in addition to explanations of past events can help investors develop expectations about an applicant from its past performance and current state. Such explanations should be based on qualitative and quantitative information, and be neutral.
        3.11 Additional disclosure on the following items should be made in the MD&A:
        (a) details of any related party loans, advances, guarantees and/ or pledges of securities to/ from an applicant including the terms, and the intentions of these arrangements after listing;
        (b) details of any material related party transactions during the track record period, the directors' views on whether they were conducted on an arm's length basis. If the related party transactions would distort an applicant's track record results or make the historical results not reflective of its future performance, adjusted results may be included to present the applicant's track record results without such transactions; (Updated in May 2016)
        (c) applicable tax rate which an applicant is subject to, and details of any preferential tax treatments, tax benefits or special tax arrangements (and their expiry dates). (Note: If expiry is within one year, a risk factor in the "Risk Factors" section is recommended);
        (d) details of any disputes/ unresolved tax issues with the relevant tax authorities, including any provisions made or reasons for no provisions having been made; and
        (e) any post balance sheet events (including share subdivisions, share consolidations, and declaration and payment of dividends). The sponsor and reporting accountants must ensure the information in a listing document is complete and accurate by confirming that proper adjustments and disclosure, if necessary, have been made in the listing document and the Accountants' Report, including relevant post-adjustments financial indicators such as earnings per share.
        Liquidity and Capital Resources
        3.12 Provide a clear picture of an applicant's ability to generate cash and to meet known, or reasonably likely, future cash requirements, which usually include the following:
        -  historical information regarding sources of cash and significant expenditures;
        -  an evaluation of the amounts and certainty of cash flows;
        -  the existence and timing of capital expenditures and commitments;
        -  expected changes in the mix and relative cost of capital resources;
        -  indications of which balance sheet, income or cash flow items should be considered in assessing liquidity;
        -  prospective information regarding sources of and needs for capital; and
        -  material covenants relating to outstanding debts, guarantees or other contingent obligations, and whether the covenants have been breached during the track record period (and any related consequences).

        G. "Applicable Laws and Regulations" section

        1. Listing Rules

        -  Main Board Rules 2.13(2), 11.07, 13.90 and 19.10(2) & (3), and Paragraph 7 of Part A of Appendix 1
        -  GEM Rules 14.08 (7), 17.56(2), 17.102 and 24.09(2) & (3), and Paragraph 7 of Part A of Appendix 1

        2. Related publications

        -  Joint Policy Statement (27 September 2013) regarding the listing of overseas companies

        3. General guidance

        3.1 The "Applicable Laws and Regulations" section should describe the rules and regulations that are material to applicant's current and/ or future business. This section should generally be no more than 20 pages, although its actual length will depend on the nature and complexity of each case. (Updated in August 2017)

        Avoid use of legalistic language
        3.2 The "Applicable Laws and Regulations" section is no different from other sections of the listing documents, and should be prepared in a manner that conveys a regulatory overview that is easy to understand by investors who are not lawyers.

        Key laws and regulations of the relevant jurisdictions
        3.3 This section should include up-to-date laws and regulations that are specific and have a material impact on an applicant's business (e.g. rules and regulations governing the applicant's key licences for operation). Disclosure should explain clearly how each law or regulation affects an applicant's business instead of abstract summaries of such law and regulation. An applicant should avoid boilerplate disclosure of laws and regulations that do not materially impact its business (e.g., laws that apply to a business segment which represented, and is expected to represent, a relatively small percentage of an applicant's revenue and profits).
        3.4 Where an applicant has or plans to have material businesses, in terms of its operations and sales, in a number of jurisdictions, an appropriate description of the laws and regulations that have a material impact on the applicant's businesses in each such jurisdiction should be made (e.g. protective tariffs or trade restrictions imposed on the applicant's goods imported into the customer's country; intellectual property protection in relation to the products sold by the applicant in the customer's country and the applicant's liabilities for breaches).

        Key changes in the laws and regulations
        3.5 Future changes in laws and regulations that are expected to have a material impact on the applicant's business should be included under this section (e.g. the impact of increase in stamp duty on a property development company; or a more stringent financial requirement for obtaining a licence). There should be cross references to the "Business" and the "Risk Factors" sections to describe the impact of changes on the applicant, and its plans and procedures implemented or to be implemented to deal with such changes.
        3.6 Changes in laws and regulations during or prior to the track record period do not need to be disclosed unless (1) such changes continue to have a material impact on the applicant's business, or (2) such changes affect the interpretation of the applicant's financial performance during the track record period, in which case cross references should be included to other sections of the listing document (e.g. the "Business" section or "Financial Information" section).

        Risk of non-compliance
        3.7 Where there is a risk that the applicant's business may commit a material breach of applicable law or regulation, the steps that the applicant has taken and plans to take to ensure compliance should be disclosed, cross references should be included to other sections of the listing document (e.g. "Risk Factors" section or the "Business" section), and it may be appropriate to include the opinion of a legal adviser as to the materiality of the risk, the risk of enforcement, and the maximum liability of the applicant.

        Highly regulated industries
        3.8 For applicants engaged in a highly regulated industry (e.g. banking, insurance or gambling), the "Applicable Laws and Regulations" section should not only focus on local statutory laws governing the industry (e.g. banking laws, laws governing insurance companies, gambling laws), but also other internationally implemented industry specific rules and regulations (e.g. anti-money laundering).

        Laws of the issuer's jurisdiction of incorporation
        3.9 Reference is made to the Joint Policy Statement (27 September 2013) regarding the listing of overseas companies.
        3.10 The disclosure of regulatory provisions (see Main Board Rules 19.10(2) and (3) and specific disclosure items in paragraphs 63-66 of the Joint Policy Statement) in relation to an applicant's jurisdiction of incorporation should be set out in a section of the listing document separate from the "Applicable Laws and Regulations" section.
        3.11 Where an applicant experiences legal process inefficacy in its jurisdiction of incorporation (e.g. considerable backlog in the local courts giving rise to significant delays in enforcing legal remedies; difficulty of enforcing of a foreign judgment against the applicant due to complexity over recognition of overseas judgements; procedural impediments in the judicial systems) which would affect the operation of its business and how shareholders (including depositary receipt holders) would exercise their rights against the applicant or among themselves in a timely manner, the applicant should highlight its observations on the difficulty of law enforcement in this section. There should be cross references to the "Business" and the "Risk Factor" sections to describe the impact, and its plans implemented or to be implemented (if any) to mitigate the impact on the applicant and its shareholders.

        H. "Directors, Supervisors and Senior Management" section

        1. Listing Rules and Regulations

        -  Main Board Rules 2.13, 3.08, 3.09 and 11.07, and Paragraph 41 of Part A of Appendix 1
        -  GEM Rules 5.01, 5.02, 14.08(7) and 17.56, and Paragraph 41 of Part A of Appendix 1
        -  Paragraph 6 of the Third Schedule the Companies (Winding Up and Miscellaneous Provisions) Ordinance

        2. Related publications

        -  None

        3. General guidance

            Summarised information of Directors, Supervisors and Senior Management
        3.1 The first page of the "Directors, Supervisors and Senior Management" section should include a table setting out the full name, age, date of joining the applicant, present position in the applicant, date of appointment as director or senior manager and brief description of the roles and responsibilities of each director,3 supervisor, if applicable, and senior management, and any relationship among them.

        Biographies of Directors, Supervisors and Senior Management
        3.2 The biography of each director, supervisor and senior management should include:
        (a) his/ her academic background (e.g. names and locations of universities or colleges , level of education, major of studies, and whether the courses attended were long distance learning courses or online courses) and professional qualifications, including when (month and year) obtained and the granting authorities;
        (b) his/ her previous working experience relevant to his/ her present position in the applicant (preferably in tabular format if information is extensive), including how he/ she gained access to and possessed relevant industry knowledge and experience in relation to the applicant's businesses, the names and principal business activities of companies which he/ she was previously engaged in before joining the applicant, his/ her roles and responsibilities and period of services in the previous jobs;
        (c) any current or past directorships in listed companies in the last three years (or an appropriate negative statement); and
        (d) if he/ she was a director of a listed company which has a history of material non-compliances with applicable rules and regulations, details of such non-compliances and his/ her level of involvement in the non-compliances, and the sponsor's view on why he/ she is suitable to be a director, supervisor or senior management of the applicant.
        Other disclosure
        3.3 The following should also be disclosed:-
        (a) the role and composition of audit committee, remuneration committee, nomination committee, and other committees, if applicable, including the identity of the chairperson of each committee;
        (b) the directors, supervisors and senior management's remuneration and incentive plan for senior management and key employees; and
        (c) any deviation from the Code Provisions of Appendix 14 to Main Board Rules (Appendix 15 to GEM Rules) (e.g. reasons for the same individual acting as chairman and chief executive officer, succession plan, etc.).
        3.4 Persons who were not directors or senior management of the applicant or any of its subsidiaries during the track record period are not required to be included in the table of directors' remuneration in the Accountants' Report.

        I. "Use of Proceeds" section

        1. Listing Rules and Regulations

        -  Main Board Rules 2.13, and Paragraphs 17 and 48 to 50 of Part A of Appendix 1
        -  GEM Rules 17.56, and Paragraph 48 to 50 of Part A of Appendix 1
        -  Paragraphs 32 and 33 of the Third Schedule of the Companies (Winding Up and Miscellaneous Provisions) Ordinance

        2. Related publications

        -  None

        3. General guidance

            Meaningful Breakdown of the Use of Proceeds
        3.1 This section should include a detailed breakdown of the use of proceeds. For example, where the net proceeds will be allocated to each of an applicant's proposed expansion plans, a detailed breakdown of the use of proceeds for each component of the expansion plan (e.g. land acquisition, purchase of plant and equipment, increase in head-count, etc.) should be disclosed.

        Proceeds for General Working Capital
        3.2 Where an applicant has no current or specific plans for the proceeds, or a material portion of them (generally 10% or more), the "Use of Proceeds" section must include a statement to that effect and discuss the principal reasons for the offering.
        3.3 The Exchange considers that references to "working capital" or "general corporate purposes" do not constitute current or specific plans for the proceeds unless a reasonably detailed explanation is given of how the working capital is to be applied or what the general corporate purposes are.
        3.4 The Exchange will consider the facts of individual cases to determine whether the explanation for use of proceeds is acceptable. For example, the Exchange has previously decided as follows:

        Case 1

        The Exchange considered the allocation of all net proceeds as "working capital" by an applicant in the banking industry acceptable as it explained in detail in the listing document that the proceeds were to be used to increase its capital base to enable it to meet certain statutory capital requirements for business expansion.

        Case 2

        An applicant allocated 25% of its net proceeds as "working capital" including the expansion of sales force and operations team. The applicant was requested to include a clear explanation in the listing document of why it was necessary to allocate 25% of the proceeds to working capital, and a more detailed explanation on other intended allocations, e.g. for unidentified acquisitions and increase in inventory.

        Proceeds for Acquisition of Properties
        3.5 Where the proceeds will be used to acquire properties from any connected persons or their associates, the "Use of Proceeds" section must disclose the basis for determining the acquisition costs.

        Proceeds for Acquisition of Businesses
        3.6 Where the proceeds will be used to finance acquisitions of businesses, the "Use of Proceeds" section must disclose the identities of the businesses acquired or to be acquired or, if not yet identified, the nature and a brief description of the types of businesses to be sought, the acquisition strategy, and the status of any related negotiations.
        3.7 Where pro forma financial information reflecting acquisitions is not required under Main Board Rule 4.28 (GEM Rule 7.27) or the Companies (Winding Up and Miscellaneous Provisions) Ordinance, an applicant is still required to disclose the terms of any proposed acquisition, the identities of the parties and the business nature of the acquisition target.

        Proceeds for Discharge of Indebtedness
        3.8 Where the proceeds will be used to discharge debt, the listing document must disclose the interest rate and maturity of the debt. The listing document should also describe how the proceeds from the borrowing were used.

        Other related disclosure in Listing Document
        3.9 Details of proposed capital expenditures would normally be included in different sections of a listing document. For example, if the expenditures are for a programme of construction or equipment purchases, the "Financial Information" section of the listing document should discuss matters such as liquidity and proposed capital expenditures.
        3.10 If material additional funding is necessary for the specified purposes for which the issue proceeds are to be used, the amounts needed and funding source for each specified purpose should be disclosed in the "Use of Proceeds" or the "Business" section of the listing document.

        Amount and Allocation of the Proceeds
        3.11 The "Use of Proceeds" section should set out the amount of net proceeds to be received by an applicant if the offer price is fixed at low-end, mid-point and high-end of the offer price range with and without exercising the over-allotment option, if applicable, and the breakdown of the use of proceeds under different circumstances where the amount to be raised is variable.
        3.12 With respect to GEM applicants:
        -  paragraph 15(2) of Part A of Appendix 1 to the GEM Rules requires the listing document to disclose whether or not, and if so to what extent, the issue has been underwritten and, if not fully underwritten, the minimum amount of capital, if any, which an applicant must raise for the issue to proceed;
        -  note 8 to Part A of Appendix 1 to the GEM Rules states that where the listing document refers to an amount proposed to be raised in excess of the minimum amount indicated under paragraph 15(2) of Part A of Appendix 1 to the GEM Rules, the listing document must explain the impact to an applicant and its statement of business objectives for raising such excess amount. In this regard, a statement that the excess will represent working capital shall not be adequate unless a reasonably detailed explanation is given as to how such working capital is to be applied; and
        -  paragraph 48 of Part A of Appendix 1 to the GEM Rules states that except for a listing by introduction, the listing document should disclose a detailed explanation of the intended use of the proceeds of the issue. The explanation must, so far as practicable, be given by reference to the content of an applicant's statement of business objectives contained in the listing document (thereby providing an indication of the timing of the deployment of the proceeds).
        Change of Use of Proceeds
        3.13 An applicant may change the use of proceeds due to certain contingencies if these are discussed specifically and the alternatives are clearly described in the "Use of Proceeds" section. Any material change of use of proceeds is generally price sensitive and, if such information was not previously disclosed in the listing document, an applicant must make an announcement to notify investors of the change after listing.

        Sale Shares
        3.14 The listing document should disclose the number of sale shares in the offer, the amount of net proceeds received by selling shareholder from the sale shares and that the sale proceeds do not belong to the applicant.

        J. Application Forms and "How to Apply for Hong Kong Offer Shares" section

        1. Listing Rules and Regulations

        -  Main Board Rule 10.09
        -  GEM Rules 13.21 to 13.25
        -  Paragraph 8 of the Third Schedule and Part 4 of Eighteenth Schedule of the Companies (Winding Up and Miscellaneous Provisions) Ordinance
        -  Paragraphs 5.1.2 and 5.1.5 of the Guide to Eligibility and Admission of Securities to the CCASS (the "CCASS Guide")

        2. Related publications

        -  None

        3. General guidance

        3.1 The Application Forms (including the white, yellow and other colored application forms for designated subscribers) (the "Application Forms") and the "How to Apply for Hong Kong Offer Shares" section in a listing document (the "How to Apply Section") provide information on the application procedures.
        3.2 We have set out as Exhibits I, II and III sample white and yellow Application Forms and the How to Apply Section, which are intended to make them more comprehensible for investors without distorting the meaning and intention of the current published Application Forms and the How to Apply Section.
        3.3 The sample white and yellow Application Forms and How to Apply Section set out as Exhibits I, II and III to this Guide are based on the following principles:
        (a) all the information described/ prescribed under the applicable Listing Rules, Companies (Winding Up and Miscellaneous Provisions) Ordinance and CCASS Guide are disclosed;
        (b) duplicated information in the Application Forms and the How to Apply Section is removed unless necessary;
        (c) information in the Application Forms and the How to Apply Section is drafted in plain language for easy understanding; and
        (d) information in Application Forms is presented to be easy to read by requiring the font size in the Application Forms to be at least an equivalent of 12 Times New Roman font and that the Application Forms should be printed on A3 paper.
        Application Forms for other designated subscribers (e.g., pink forms for use by the applicant's employees) should be prepared following the same principles.
        3.4 Application Forms should include clear instructions to investors on how to use the Application Forms to apply for offer shares and what investors need to do after submitting their applications. The Application Forms must remind investors to read the Application Forms in conjunction with the listing document, which contains more information on the application procedures.
        3.5 The How to Apply Section should contain more detailed information on the application procedures such that all investors who apply for offer shares through various channels can refer to Exhibits I, II and III.
        3.6 For applicants who intend to adopt Mixed Media Offer ("MMO"), the following should be included in their Application Forms and the How to Apply Section:

        Mixed Media Offer

        The Company will be relying on section 9A of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong) and will be issuing the application forms without them being accompanied by a printed prospectus. The contents of the printed prospectus are identical to the electronic form of the prospectus which can be accessed and downloaded from the websites of the Company at [Company's website] and the Stock Exchange at www.hkexnews.hk, under the "HKEXnews > Listed Company Information > Latest Listed Company Information" section, respectively.

        Members of the public who wish to obtain a copy of the printed prospectus may obtain a copy, free of charge, upon request during normal business hours from [time and date] until [time and date] at the following locations:




        Table of address of each location



        Details of where printed prospectuses may be obtained will be displayed prominently at every location where the white and yellow application forms are distributed.

        During normal business hours from [time and date] until [time and date], at least [number] copies of the printed prospectus will be available for inspection at every location where the white and yellow application forms are distributed.

        Appendix 2

        List of certain other guidance letters published by the Exchange relating to disclosure in listing documents. These remain in full force and effect.


        Industry-specific guidance letters
        1 HKEX-GL26-12 01/2012 Business models with significant forfeited income from prepayments
        2 HKEX-GL28-12 01/2012 Restaurant operators
        3 HKEX-GL36-12 05/2012 Distributorship business
        4 HKEX-GL52-13 03/2013 Mineral companies
        5 HKEX-GL71-14 01/2014 Gambling activities
        Other guidance letters on disclosure in a Listing Document
        6 HKEX-GL8-09 07/2009 Disclosure of statistics and data quoted in listing documents
        7 HKEX-GL24-11 03/2011 Disclosure requirements for IPO cases - Formal Notice
        8 HKEX-GL30-12 02/2012 Disclosure of intellectual property rights
        9 HKEX-GL34-12 04/2012 Disclosure of hard underwriting
        10 HKEX-GL38-12 06/2012 Latest practicable date and the latest date for liquidity disclosure
        11 HKEX-GL37-12 06/2012 Indebtedness, liquidity, financial resources and capital structure disclosure
        12 HKEX-GL41-12 08/2012 Disclosure of material changes in financial, operational and/ or trading position after trading record period
        13 HKEX-GL63-13 07/2013 Disclosure of material non-compliance incidents
        14 HKEX-GL65-13 09/2013 Disclosure of property valuation report and market report

        1 Reference should be made to our Frequently Asked Questions Series 23 "Disclosure of a new applicant's unaudited net profits/ losses after its track record period in a listing document".

        2 Circular No. 37 of the State Administration of Foreign Exchange on issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purposes Vehicle ("国家外汇管理局关于境内居民通过特殊目的公司境外投融资及返程投资外汇管理有关问题的通知"), 4 July 2014. Under Circular No. 37, certain Chinese-controlled overseas companies raising funds overseas to make "round-trip" investments in assets and businesses in China are, in certain circumstances, subject to registration requirements.

        3 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.

        4 If the relevant university or college is not accredited by competent bodies, this information should be specifically disclosed.

        5 See Paragraphs 49(1) and 50 of the respective Part A of Appendix 1 to the Main Board Rules and the GEM Rules which require disclosure of details of any property acquisition or proposed acquisition which consideration has not been completed at the date of the listing document, including the names and addresses of the vendor, the consideration (including amounts to be accounted as goodwill).

      • GL85-16

        View Current PDF

        HKEx GUIDANCE LETTER
        HKEX-GL85-16 (January 2016) (Updated in February 2018)

        Subject Placing to connected clients, and existing shareholders or their close associates, under the Rules
        Listing Rules and Regulations Main Board Rules 2.03(2) and (4), 10.03, 10.04 and 19A.04
        Paragraphs 5(1) and (2), and 13 Appendix 6 to the Main Board Rules
        GEM Rules 2.06(2) and (4), 10.12(1A)(a) and (b), 13.02(1), 25.04 and note 2 of GEM Rule 10.12(4)
        Guidance Letter HKEX-GL51-13
        Listing Decision HKEX-LD44-2


        Guidance Letter HKEX-GL75-14 and Listing Decision HKEX-LD90-1 (superseded by this letter)
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose

        1.1 This letter provides guidance in cases where prior written consent ("Consent") under paragraphs 5(1) and (2) of Appendix 6 to the Rules (the "Main Board Placing Guidelines")(GEM Rule 10.12(1A)(a) and (b)) is sought when (a) a lead broker or any distributors (as defined in the Main Board Placing Guidelines and with the same meaning under the GEM Rules) place securities of an applicant to their connected clients (as defined in paragraph 13 of the Main Board Placing Guidelines and note 2 of GEM Rule 10.12(4)) who in turn will hold such securities (i) on behalf of independent third parties; or (ii) for their proprietary accounts; and (b) an applicant's existing shareholders or their close associates participate either as cornerstone investors1 or as placees in initial public offerings ("IPOs"). It supersedes Guidance Letter HKEX-GL75-14 and Listing Decision HKEX-LD90-1. (Updated in February 2018)

        2. Summary

        2.1 Connected clients, whether or not holding securities on behalf of independent parties, and existing shareholders or their close associates cannot participate both as a cornerstone investor and as a placee.
        2.2 Connected clients and an applicant's existing shareholders or their close associates are permitted to participate either as cornerstone investors or as placees in IPOs subject to certain conditions set out in this letter. The connected clients addressed in this letter are connected clients holding securities on a discretionary or a non-discretionary basis on behalf of independent third parties. No Consent will be given for allocation of securities to a connected client for its proprietary account unless under exceptional circumstances which will be considered on a case-by-case basis.
        2.3 To address any actual or perceived preferential treatment given to:
        (a) connected clients holding securities on a non-discretionary basis on behalf of independent third parties, the Non-discretionary Basis Conditions should be complied with (see paragraph 4.9);
        (b) connected clients holding securities on a discretionary basis on behalf of independent third parties, the Discretionary Basis Conditions should be complied with (see paragraph 4.11); and
        (c) an applicant's existing shareholders or their close associates, the Existing Shareholders Conditions should be complied with (see paragraph 4.20). However, the Existing Shareholders Conditions are not applicable to close associates of existing shareholders who are PRC governmental bodies under Main Board Rule 19A.04 (GEM Rule 25.04) under the circumstances set out in paragraph 4.27. (Updated in February 2018)
        2.4 You can refer to paragraph 4.28 of this letter for a summary of the parties and confirmations to be provided to the Exchange under the Non-discretionary Basis Conditions, Discretionary Basis Conditions and Existing Shareholders Conditions when seeking Consent.
        2.5 Where securities are allocated to independent third parties but the asset manager of such independent third parties is a member of the lead broker or of any distributor, the Exchange considers that the Discretionary Basis Conditions should also be met to address the actual or perceived preferential treatment given to such independent third parties by virtue of the relationship between the asset manager and the connected broker/distributor. (Updated in February 2018)
        2.6 Requests for Consent should be made in a timely manner so as to avoid any unnecessary delay in an applicant's listing timetable.

        3. Relevant Rules or Principles

        3.1 Main Board Rules 2.03(2) and (4) (GEM Rules 2.06(2) and (4)) require the issue and marketing of securities to be conducted in a fair and orderly manner, and that all holders of listed securities be treated fairly and equally. (Updated in February 2018)
        3.2 Paragraphs 5(1) and (2) of the Main Board Placing Guidelines (GEM Rules 10.12(1A)(a) and (b)) state that no allocations will be permitted to "connected clients" of the lead broker or of any distributors, and applicants' existing shareholders or their close associates, unless the conditions set out in Main Board Rules 10.03 and 10.04 (GEM Rule 13.02(1)) are fulfilled, without Consent. (Updated in February 2018)
        3.3 Paragraph 13(7) of the Main Board Placing Guidelines (Note 2(g) of GEM Rule 10.12) states that "connected clients" in relation to an exchange participant include any client of such member who is a company which is a member of the same group of companies as such exchange participant. (Updated in February 2018)
        3.4 Main Board Rule 10.04 (GEM Rule 13.02(1)) provides that a person who is an existing shareholder of an issuer may only subscribe for or purchase any securities for which listing is sought which are being marketed by or on behalf of an applicant if the conditions in Main Board Rules 10.03(1) and (2) (GEM Rules 13.02(1)(a) and (b)) are fulfilled:
        (a) that no securities are offered to the existing shareholder on a preferential basis and no preferential treatment is given to the existing shareholder in the allocation of the securities; and
        (b) that the minimum prescribed percentage of public shareholders required by Main Board Rule 8.08(1) (GEM Rules 11.23(7) and (9)) is achieved. (Updated in February 2018)
        3.5 The Main Board Placing Guidelines (GEM Rule 10.12(1A)) and Main Board Rules 10.03 and 10.04 (GEM Rule 13.02(1)) are to ensure that:
        (a) the placing tranche distribution is as wide as possible to independent and genuine investors who represent genuine demand for securities in an applicant; and
        (b) the distribution is not frustrated by the allocation of securities to exchange participants or their associates, and that persons cannot take advantage of their position to allocate or withhold a material amount of securities for their own benefit at the expense of other placees and the public. (Updated in February 2018)
        3.6 Main Board Rule 19A.04 (GEM Rule 25.04) states that PRC governmental body includes PRC central government, PRC provincial-level governments and PRC local governments immediately under the PRC provincial-level governments. However, PRC governmental body excludes any entities which are engaging in commercial business or operating another commercial entity. (Updated in February 2018)

        4. Guidance

            Connected Clients
            Connected Clients Participating as Cornerstone Investors or Placees
        4.1 Connected clients, whether or not holding securities on behalf of independent parties, cannot participate both as a cornerstone investor and as a placee.
        4.2 No Consent will be given for allocation of securities to a connected client for its proprietary account unless under exceptional circumstances which will be considered on a case-by-case basis.
            Connected Clients holding securities on behalf of Independent Third Parties who are Cornerstone Investors or Placees
        4.3 The lead broker or any distributors may, from time to time, allocate securities to their connected clients engaging in asset management business who may hold the securities on a discretionary or non-discretionary basis on behalf of independent third parties.
        4.4 Although the connected clients only hold the securities on behalf of independent third parties, such proposed allocations are technically allocations to connected clients under the Main Board Placing Guidelines (GEM Rule 10.12(1A)(a)) and therefore require Consent. (Updated in February 2018)
        4.5 Each application will be considered on a case-by-case basis having regard to all relevant facts and circumstances. However, the Exchange will ordinarily give its Consent to connected clients if it is satisfied that: (a) the allocation to connected clients represents genuine demand for securities in an applicant; and (b) the connected clients have not taken/will not take advantage of their position to receive an allocation for their own benefit at the expense of other placees or the public – i.e. that no actual or perceived preferential treatment has been given to such connected clients.
        4.6 Notwithstanding that cornerstone investors are assured of receiving an allocation of securities and that the assured allocation for cornerstone investments gives preferential treatment to cornerstone investors vis-a-vis other IPO investors, the Exchange considers that such preferential treatment will not violate the fair and equal treatment requirement under Main Board Rules 2.03(2) and (4) (GEM Rules 2.06(2) and (4)) if cornerstone investments by connected clients follow the principles set out in Guidance Letter HKEX-GL51-13 and the conditions set out in sections A or B, depending on the nature of the connected client. (Updated in February 2018)
        A. Connected Clients holding securities on a Non-discretionary Basis on behalf of Independent Third Parties who are Cornerstone Investors or Placees
        4.7 Non-discretionary asset managers hold securities on behalf of independent third parties but only act on instructions from these investors.
        4.8 If such asset manager is a connected client, the risk of it leveraging its relationship with connected brokers/distributors to obtain actual or perceived preferential treatment is considered to be low. This is because the asset manager is acting only as a pass through, simply aggregating orders placed by its clients, and not exercising any decision-making authority over the size of the order or its distribution among its client accounts. In such cases, the Exchange is prepared to look through the asset manager and treat the underlying investors as the persons receiving the allocation.
        4.9 Although each application will be considered on a case-by-case basis having regard to all relevant facts and circumstances, the Exchange considers that any actual or perceived preferential treatment given to the connected client holding securities on a non-discretionary basis on behalf of independent third parties by virtue of its relationship with the connected broker/distributor can be addressed, and will ordinarily give its Consent for allocation of securities to such connected client subject to the conditions below which may be modified if the Exchange considers necessary:
        (a) the securities are held on behalf of independent third parties;
        (b) the applicant shall confirm2 to the Exchange in writing that the connected client's cornerstone investment agreement does not contain any material terms which are more favourable to the connected client than those in other cornerstone investment agreements;
        (c) the applicant, connected broker/distributor and, to the best of the bookrunners' knowledge and belief, the bookrunners shall confirm2 to the Exchange in writing that:
        (i) in the case of participation as a cornerstone investor, no preferential treatment has been, nor will be, given to the connected client by virtue of its relationship with the connected broker/distributor other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13, and details of the allocation3 will be disclosed in the listing document and the allotment results announcement; or
        (ii) in the case of participation as a placee, no preferential treatment has been, nor will be, given to the connected client by virtue of its relationship with the connected broker/distributor in any allocation in the placing tranche, and details of the allocation3 will be disclosed in the allotment results announcement;
        (d) the connected client shall confirm2 to the Exchange in writing that, to the best of its knowledge and belief, it has not received and will not receive preferential treatment in the IPO allocation either as a cornerstone investor or as a placee by virtue of its relationship with the connected broker/distributor, other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13; and
        (e) the sponsor shall confirm to the Exchange in writing that based on (i) its discussions with the applicant, the connected broker/distributor and the bookrunners; and (ii) the confirmations provided to the Exchange by the applicant, connected broker/distributor, the bookrunners and the connected client (confirmations (c) and (d) mentioned above), and to the best of its knowledge and belief, it has no reason to believe that the connected client received any preferential treatment in the IPO allocation either as a cornerstone investor or as a placee by virtue of its relationship with the connected broker/distributor other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13, and details of the allocation3 will be disclosed in the listing document and/or the allotment results announcement, as the case may be (together, the "Non-discretionary Basis Conditions").
        B. Connected Clients holding securities on a Discretionary Basis on behalf of Independent Third Parties who are Cornerstone Investors or Placees
        4.10 Connected clients holding securities on a discretionary basis on behalf of independent third parties are authorized to make the investment decisions for the independent third parties. Discretionary asset managers usually charge performance-based management fees which may incentivize them to use their relationship with the connected broker/distributor to receive allocations. This heightened risk of preferential treatment warrants a higher level of scrutiny on whether the connected clients will receive any actual or perceived preferential treatment. The Exchange considers that this can be addressed by removing the connected broker/distributor from the decision-making process or relevant discussions (see paragraph 4.11(c)(i)).
        4.11 Although each application will be considered on a case-by-case basis having regard to all relevant facts and circumstances, the Exchange considers that any actual or perceived preferential treatment given to the connected client holding securities on a discretionary basis on behalf of independent third parties by virtue of its relationship with the connected broker/distributor can be addressed, and will ordinarily give its Consent for allocation of securities to such connected client subject to the conditions below which may be modified if the Exchange considers necessary:
        (a) the securities are held on behalf of independent third parties;
        (b) the applicant shall confirm2 to the Exchange in writing that the connected client's cornerstone investment agreement does not contain any material terms which are more favourable to the connected client than those in other cornerstone investment agreements;
        (c) the applicant, connected broker/distributor and, to the best of the bookrunners' knowledge and belief, the bookrunners shall confirm2 to the Exchange in writing that:
        (i) the connected broker/distributor has not participated, and will not participate, in the decision-making process or relevant discussions among the applicant, the bookrunners and the underwriters as to whether the connected client will be selected as a cornerstone investor or a placee4;
        and
        (ii) in the case of participation as a cornerstone investor, no preferential treatment has been, nor will be, given to the connected client by virtue of its relationship with the connected broker/distributor other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13, and details of the allocation3 will be disclosed in the listing document and the allotment results announcement; or
        (iii) in the case of participation as a placee, no preferential treatment has been, nor will be, given to the connected client by virtue of its relationship with the connected broker/distributor in any allocation in the placing tranche, and details of the allocation3 will be disclosed in the allotment results announcement;
        (d) the connected client shall confirm2 to the Exchange in writing that, to the best of its knowledge and belief, it has not received and will not receive preferential treatment in the IPO allocation either as a cornerstone investor or as a placee by virtue of its relationship with the connected broker/distributor, other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13; and
        (e) the sponsor shall confirm to the Exchange in writing that based on (i) its discussions with the applicant, the connected broker/distributor and the bookrunners; and (ii) the confirmations provided to the Exchange by the applicant, connected broker/distributor, the bookrunners and the connected client (confirmations (c) and (d) mentioned above), and to the best of its knowledge and belief, it has no reason to believe that the connected client received any preferential treatment in the IPO allocation either as a cornerstone investor or as a placee by virtue of its relationship with the connected broker/distributor other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13, and details of the allocation3 will be disclosed in the listing document and/or the allotment results announcement, as the case may be (together, the "Discretionary Basis Conditions").
        4.12 As compared with the Non-discretionary Basis Conditions, the Discretionary Basis Conditions require the applicant, connected broker/distributor and bookrunners to confirm that the connected broker/distributor has not participated, and will not participate, in the decision-making process or relevant discussions among the applicant, the bookrunners and the underwriters as to whether the connected client will be selected as a cornerstone investor or a placee (see paragraph 4.11(c)(i)).
        4.13 This arrangement takes the connected broker/distributor out of the decision-making process or relevant discussions so far as it applied to the connected client in order to remove any perception of preferential treatment which the connected client may be able to leverage from its connected broker/distributor.
        4.14 Where securities are allocated to independent third parties but the asset manager of such independent third parties is a member of the lead broker or of any distributor (as defined in the Placing Guidelines), the Exchange considers that the Discretionary Basis Conditions should also be met to address the actual or perceived preferential treatment given to such independent third parties by virtue of the relationship between the asset manager and the connected broker/distributor.
        4.15 For the avoidance of doubt:
        (a) Consent is not required where a connected client acts as a distributor and all securities allocated to such connected client are fully distributed to independent placees such that it does not hold any securities upon completion of the IPO and all relevant provisions of the Main Board Placing Guidelines (GEM Rule 10.12(1A)) are followed (including submission to the Exchange a list of all placees and a confirmation of independence of the placees); and (Updated in February 2018)
        (b) the Non-discretionary Basis Conditions and the Discretionary Basis Conditions are not required if the securities are under-subscribed at the low end of the IPO price.
        C. Connected Clients holding securities for their Proprietary Accounts
        4.16 No Consent will be given for allocation of securities to a connected client for its proprietary account unless under exceptional circumstances which will be considered on a case-by-case basis.

        Existing Shareholders or their Close Associates

        Existing Shareholders or their Close Associates Participating as Cornerstone Investors or Placees
        4.17 An existing shareholder's ability to influence an applicant depends on the existing shareholder's interest, whether it is also a core connected person under Main Board Rule 1.01 (GEM Rule 1.01), and whether it has any ability to appoint directors of the applicant5. The greater the existing shareholder's interest, the greater the risk of the existing shareholder having and using its influence over the applicant to obtain actual or perceived preferential treatment in the allocation process. Similarly, an existing shareholder who has a right to appoint directors will have an even higher risk of actual or perceived preferential treatment. (Updated in February 2018)
        4.18 Existing shareholders or their close associates cannot participate both as a cornerstone investor and as a placee. Similar to the rationale in paragraph 4.6 for connected clients, the Exchange considers that preferential treatment given to existing shareholders or their close associates will not violate the fair and equal treatment requirement under Main Board Rules 2.03(2) and (4) (GEM Rules 2.06(2) and (4)) if the cornerstone investments follow the principles set out in HKEX-GL51-13 and relevant conditions set out in paragraph 4.20. (Updated in February 2018)

        Conditions to address Actual or Perceived Preferential Treatment
        4.19 The Exchange will consider giving Consent and granting waiver from Main Board Rule 10.04 (GEM Rule 13.02(1)) to an applicant's existing shareholders or their close associates to participate in an IPO if any actual or perceived preferential treatment arising from their ability to influence the applicant during the allocation process can be addressed. (Updated in February 2018)
        4.20 Although each application will be considered on a case-by-case basis having regard to all relevant facts and circumstances, the Exchange considers that any actual or perceived preferential treatment given to an applicant's existing shareholders or their close associates by virtue of their relationship with the applicant can be addressed, and will ordinarily give its Consent for allocation of securities to such existing shareholders or their close associates subject to the conditions below which may be modified if the Exchange considers necessary:
        (a) the existing shareholder is interested in less than 5% of an applicant's voting rights before listing on the Exchange;
        (b) the existing shareholder is not a core connected person or its close associate;
        (c) the existing shareholder does not have the power to appoint directors or any other special rights;
        (d) allocation to the existing shareholder or its close associates will not affect the applicant's ability to satisfy the public float requirement;
        (e) the sponsor shall confirm to the Exchange in writing that based on (i) its discussions with the applicant and the bookrunners; and (ii) the confirmations provided to the Exchange by the applicant and the bookrunners (confirmation (f) and/or (g) mentioned below), and to the best of its knowledge and belief, it has no reason to believe that the existing shareholder or its close associates received any preferential treatment in the IPO allocation either as a cornerstone investor or as a placee by virtue of their relationship with the applicant other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13, and details of the allocation3 will be disclosed in the listing document and/or the allotment results announcement, as the case may be;
        (f) the applicant shall confirm2 to the Exchange in writing that:
        (i) in the case of participation as a cornerstone investor, no preferential treatment has been, nor will be, given to the existing shareholder or its close associates by virtue of their relationship with the applicant other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13, that the existing shareholder or its close associates' cornerstone investment agreement does not contain any material terms which are more favourable to the existing shareholder or its close associates than those in other cornerstone investment agreements, and details of the allocation3 will be disclosed in the listing document and the allotment results announcement; or
        (ii) in the case of participation as a placee, no preferential treatment has been, nor will be, given to the existing shareholder or its close associates by virtue of their relationship with the applicant in any allocation in the placing tranche, and details of the allocation3 will be disclosed in the allotment results announcement; and
        (g) in the case of participation as a placee, the bookrunners shall confirm2, to the best of their knowledge and belief, to the Exchange in writing that no preferential treatment has been, nor will be, given to the existing shareholder or its close associates by virtue of their relationship with the applicant in any allocation in the placing tranche, and details of the allocation3 will be disclosed in the allotment results announcement (together, the "Existing Shareholders Conditions").
        4.21 The rationale is that these shareholders will be subject to the same book building and share allocation process under the placing tranche as other placees. No preference will be given to these investors in the allocation process because they are existing shareholders.
        4.22 If a request to waive Main Board Rule 10.04 (GEM Rule 13.02(1)) involves pre-IPO investors or cornerstone investors subscribing for further securities under the placing tranche, the Exchange will presume preferential treatment has been given to these investors due to their special status in an applicant. Unless a clear case can be demonstrated to the Exchange to dispel this presumption, no waiver will be granted. (Updated in February 2018)
        4.23 Applicants may issue convertible instruments before listing on the Exchange and these instruments may be convertible into the applicant's securities upon listing. It is the Exchange's practice to regard the holders of such instruments as "existing shareholders" because conversion is subject to the discretion of the holders of such instruments and to err on the side of caution, we will assume that they will convert the instruments and become shareholders upon listing. As such, the holders of such instruments should satisfy the Existing Shareholders Conditions if they would like to participate as placees or cornerstone investors in an IPO. For the purpose of the condition set out in paragraph 4.20(a), their shareholding will be calculated as if the instruments were converted in full before the IPO.
        4.24 If securities are placed to existing shareholders or their close associates through connected clients, both (a) Discretionary Basis Conditions/Non-discretionary Basis Conditions; and (b) the Existing Shareholders Conditions have to be satisfied.
        4.25 The Existing Shareholders Conditions are not required if the securities are under-subscribed at the low end of the IPO price. In addition, the Existing Shareholders Conditions and Discretionary Basis Conditions/Non-discretionary Basis Conditions do not apply if existing shareholders purchase securities pursuant to an anti-dilution provision (see Listing Decision HKEX-LD44-2).
        4.26 Notwithstanding the condition set out in paragraph 4.20(a) that an existing shareholder is interested in less than 5% of an applicant's voting rights, the Exchange may consider granting Consent for the existing shareholder interested in 5% or more of an applicant's voting rights if it can, on a case-by-case basis, be demonstrated that the existing shareholder is a genuine, independent and public investor6.

        Existing Shareholders who are PRC Governmental Bodies
        4.27 The Existing Shareholders Conditions are not applicable to close associates of existing shareholders who are PRC governmental bodies under Main Board Rule 19A.04 (GEM Rule 25.04) if the existing shareholders have no direct influence over the allocation process, and the close associates (a) are genuine investors who operate independently of the PRC governmental bodies; and (b) have no access to material non-public information regarding an IPO and no influence over the allocation process of the IPO. The Exchange will look into the relationship between the close associates and the applicant, and will assess whether to recommend Consent to them on a case-by-case basis. (Updated in February 2018)
        4.28 A summary of the parties and confirmations to be provided to the Exchange is set out below:

        Particulars of the confirmations

        Parties to provide
        the relevant confirmations with

        Non-
        discretionary
        Basis
        Conditions

        Discretionary
        Basis
        Conditions

        Existing
        Shareholders
        Conditions

        (Paragraph 4.9)

        (Paragraph 4.11)

        (Paragraph 4.20)

        1. Securities are held on behalf of independent third parties


        2. Cornerstone investment agreement does not contain any material terms which are more favourable to the connected client/existing shareholder or its close associates
          - applicant

        3. No preferential treatment
          - applicant

          - connected broker/distributor


          - bookrunners

          - connected client


          - sponsor

        4. Connected broker/distributor not participating in decision-making process/discussion relating to connected client
          - applicant


          - connected broker/distributor


          - bookrunners


        5. Existing shareholder
          - is interested in less than 5% of an applicant's voting rights


          - is not a core connected person or its close associate


          - does not have the power to appoint directors or any other special rights


        6. Allocation to the existing shareholder or its close associates will not affect the applicant's ability to satisfy the public float requirement




        Other matters
        4.29 Allocation of securities is usually determined after the public offering is closed. The Exchange reminds the sponsors and lead brokers that the relevant Rules must be complied with and requests for Consent to allocate securities to connected clients, and existing shareholders or their close associates, should be made in a timely manner, bearing in mind that Consent may be required from the Listing Committee, so as to avoid any unnecessary delay in an applicant's listing timetable.

        ****


        1 A cornerstone investor generally refers to an investor who is allocated IPO shares under the placing tranche on an assured basis and who usually agrees to restrictions on share disposal.

        2 All syndicate members are required to identify to the applicant, each sponsor and bookrunner who their connected clients are (if any) with orders placed by that syndicate member in the book prior to the placement to cornerstone investors or allocation to placees to facilitate the process of seeking Consent. Confirmations by the applicant, connected broker/distributor, bookrunners and connected client (as the case may be) must be copied to the sponsor. This confirmation does not preclude the broker/distributor from having access/to have access to information about the orders placed by the connected client, proposed allocations to the connected client, and the final allocations to the connected client in the ordinary course of order-book exchanges and circulation of draft allocation proposals among the syndicate and to the applicant. Confirmations by the applicant, connected broker/distributor and connected client (as the case may be) must be copied to the bookrunners.

        3 Details of the allocation include (a) the name of, the number of securities allocated to, and the percentage of offer shares and/or total issued share capital taken up by the connected client/existing shareholder or its close associates; (b) if a cornerstone investor/placee is a connected client, the basis for it being regarded as a connected client under the Main Board Placing Guidelines (GEM Rule 10.12(1A)) and the name of the connected broker/distributor; and (c) lock-up arrangement, where applicable. (Updated in February 2018)

        4 For the avoidance of doubt, connected brokers/distributors may participate in all other discussions on unconflicted allocations.

        5 Whilst not permissible after listing, it is possible for existing shareholders to have director appointment rights which are exercisable before listing.

        6 Public investor refers to an independent investor who is not connected with an applicant within the meaning of the Rules and the applicant has a listing elsewhere.

      • GL82-15

        View Current PDF

        HKEx GUIDANCE LETTER
        HKEx-GL82-15 (August 2015)

        Subject Disclosure of unaudited quarterly/ interim financial information in the listing document where the new listing applicant or any of its subsidiaries is listed on another exchange
        Listing Rules and Regulations Main Board Rules 2.13, 4.11, 8.06, 19.14 and 19.39
        GEM Rules 7.12, 7.13, 11.11 and 17.56
        Author IPO Transactions Department

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose

        1.1 This letter provides guidance on disclosure of financial information in a listing document where the new Main Board/ GEM listing applicant or any of its subsidiaries is listed on another exchange. It supersedes Guidance Letter HKEx-GL1-06, Listing Decision HKEx-LD54-4 and Listing Decision HKEx-LD54-5.
        1.2 The Exchange expects listing applicants to follow this letter when preparing their listing applications.

        2. Relevant Rules

        2.1 Main Board Rule 2.13/ GEM Rule 17.56 requires that:
        (a) the information contained in the listing document must be clearly presented and in the plain language format specified or recommended by the Exchange and/ or the Commission from time to time; and
        (b) the information contained in the listing document must be accurate and complete in all material respects and not be misleading or deceptive.
        2.2 The Listing Rules require the accountants' report to be prepared and drawn up in conformity with:-
        (a) Hong Kong Financial Reporting Standards (HKFRS) (see Main Board Rule 4.11/ GEM Rule 7.12);
        (b) International Financial Reporting Standards (IFRS) (see Main Board Rule 4.11/ GEM Rule 7.12);
        (c) China Accounting Standards for Business Enterprises (CASBE) in the case of a PRC issuer that has adopted CASBE for the preparation of its annual financial statements (see Main Board Rule 4.11/ GEM Rule 7.12);
        (d) generally accepted accounting principles in the United States of America (US GAAP) where the overseas Main Board listing applicant has a secondary listing on the Exchange (see Main Board Rule 19.39); or
        (e) US GAAP where the overseas GEM listing applicant's principal activity does not consist of property development and/ or investment, and it has adopted US GAAP and is listed, or to be simultaneously listed on the New York Stock Exchange or the Nasdaq National Market of the United States of America (see GEM Rule 7.13).
        2.3 Except for a case where US GAAP is allowed (see paragraphs 2.2(d) and 2.2(e) above), financial statements adopting financial reporting standards other than HKFRS, IFRS and CASBE1 must include a statement showing the financial effect of any material differences between the financial statements and financial statements prepared using HKFRS, IFRS or CASBE1 (see Main Board Rules 19.14 and 19.39/ GEM Rule 7.14).
        2.4 Main Board 8.06/ GEM Rule 11.11 requires the latest audited financial period reported on by the reporting accountants in all cases to have ended not more than six months before the date of the listing document.

        3. Guidance

        3.1 For the purpose of giving meaningful information to investors, audited financial information should be included in the listing document to the greatest extent possible. Selective disclosure of unaudited financial information prepared under the applicable accounting standards is not acceptable to the Exchange. However, the inclusion of the management discussion is not objectionable.
        3.2 Where a new listing applicant or any of its subsidiaries is listed on another exchange and has published unaudited quarterly/ interim financial statements in accordance with the other exchange's rules and regulations that covers a period more recent than that required under the Listing Rules (see Main Board Rule 8.06/ GEM Rule 11.11), the listing applicant's Hong Kong listing document must include such unaudited information in the manner provided below:

        Contents of unaudited financial statement
        (a) at a minimum, the listing applicant's (or its subsidiary's) revenue and income information, even if that information is not published as part of a complete set of the listing applicant's (or its subsidiary's) financial statements;
        (b) at a minimum, in a condensed form with major line items from the listing applicant's (or its subsidiary's) latest audited financial statements, including major components of its assets, liabilities, and equity (in the case of the balance sheet); income and expenses (in the case of the income statement); and the major subtotals of cash flows (in the case of the cash flow statement);
        (c) comparative statements for the listing applicant's (or its subsidiary's) corresponding prior financial period, except that the requirement for comparative balance sheet information may be satisfied by presenting the year-end balance sheet;
        (d) selected note disclosure that will provide an explanation of events and changes that are significant to an understanding of the changes in financial position and performance of the listing applicant (or its subsidiary) since the reporting date of the last audited financial information;
        Reconciliation statement
        (e) there must be:
        (i) description of the ways, if any, in which the listing applicant's (or its subsidiary's) accounting principles, practices and methods used in preparing such unaudited quarterly/ interim financial information vary materially from those prepared using HKFRS, IFRS, CASBE1, as the case may be; and
        (ii) quantification of any material variations;
        Level of assurance of the unaudited financial information
        (f) an auditor's report on the unaudited quarterly/ interim financial information prepared in the manner provided below:
        (i) at least reviewed by an independent auditor in accordance with the standards established by:
        •  the Hong Kong Institute of Certified Public Accountants
        ◦  Hong Kong Standard on Review Engagements 2400 "Engagement to Review Historical Financial Statements"; or
        ◦  Hong Kong Standards on Review Engagements 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity"; or
        •  the International Auditing and Assurance Standards Board
        ◦  International Standard on Review Engagements 2400 "Engagement to Review Historical Financial Statements"; or
        ◦  International Standards on Review Engagements 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity"
        as amended from time to time; and
        (ii) in any of the above cases, include as part of the review, the financial effect of the material differences between the unaudited quarterly/ interim financial information and financial statements prepared using HKFRS, IFRS or CASBE1, as the case may be.

        ****


        1 Applicable to a PRC issuer that has adopted CASBE for the preparation of its annual financial statements. See paragraph 2.2(c) above.

      • GL81-15

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL81-15 (June 2015) (Updated in July 2018)

        Subject Guidance on Mixed Media Offer
        Listing Rules Main Board Rules 12.11A, 20.19A and 25.19B
        GEM Rules 16.04D and 29.21B
        Related Publications Guidelines for Electronic Public Offerings issued by the Securities and Futures Commission ("SFC") in April 2003 (ePO Guidelines)
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules, or this letter.

        I. Purpose
        1.1 This letter provides an overview of a Mixed Media Offer ("MMO"); template documents on MMO; and guidance on compliance with the MMO conditions and related frequently asked questions. (Updated in July 2018)
        II. Background
        2.1 Sections 38(3) and 342(3) of the Companies (Winding Up & Miscellaneous Provisions) Ordinance (Cap. 32) ("CWUMPO") prohibit the issue of an application form unless it is issued together with a prospectus. The Code on Unit Trusts and Mutual Funds and the Code on Real Estate Investment Trusts have similar requirements for SFC-authorised collective investment schemes ("CIS") seeking to list interests in CISs on the Exchange. (Updated in July 2018)
        2.2 As most retail investors only take the printed application forms but not the printed prospectuses, the above requirements resulted in large wastage of paper.
        2.3 A class exemption under section 9A of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Cap. 32L) ("Class Exemption Notice") was enacted in February 2011 to allow, subject to conditions ("MMO Conditions"), the dispatch of electronic prospectuses where printed prospectuses are issued. A public offer that proceeds under this class exemption is known as "Mixed Media Offer" or "MMO". The SFC will impose similar MMO Conditions on CIS offerors who intend to adopt a MMO in its letter of authorisation. The MMO is complemented by ancillary Listing Rule amendments.1 (Updated in July 2018)
        2.4 The MMO conditions include making available an electronic copy of the prospectus on the issuer's website and the Exchange's website; and making printed prospectuses publicly available free of charge upon request at specified locations (which do not have to be the same locations as where the printed application forms are distributed). (Updated in July 2018)
        2.5 For CIS offerors who intend to adopt an MMO, the SFC will impose similar conditions in its letter of authorisation similar to those in the Class Exemption Notice for Companies Ordinance offerors who intend to adopt an MMO (with necessary changes)2. (Updated in July 2018)
        III. Listing Rules and the Relevant Laws

        Listing Rules
        3.1 Main Board Rules 12.11A, 20.19A and 25.19B (GEM Rules 16.04D and 29.21B) set out the main provisions for MMOs in relation to public offers of equity securities, CIS and public offers of debt securities, respectively. (Updated in July 2018)
        3.2 (Deleted in July 2018)
        Class Exemption Notice
        3.3 Please refer to http://www.legislation.gov.hk/blis/eng/index.html for the complete Class Exemption Notice. (Updated in July 2018)
        IV. Our Guidance

        Benefits of MMO
        4.1 (Deleted in July 2018)
        4.2 (Deleted in July 2018)
        4.3 MMOs are available for public offers of equity securities, CIS, and debt securities.
        4.4 To assist issuers in meeting their obligations under the Listing Rules, the appendices below set forth the Exchange's guidance on MMO disclosure in:
        •   announcement for adoption of an MMO (Appendix 2);
        •   prospectus (Appendix 3); and
        •   application forms (Appendix 4). (Updated in July 2018)
        4.5 Appendix 5 sets forth a list of frequently asked questions (FAQs) to assist issuers in meeting their obligations in relation to an MMO. These FAQs are also posted on the SFC's website (www.sfc.hk). (Added in July 2018)
        4.6 One of the MMO Conditions imposed by the Class Exemption Notice is that, throughout the offer period, copies of the printed prospectus are available for collection at specified locations, free of charge, upon request by any member of the public ("Printed Copies Condition")3. Issuers and sponsors should make a reasonable estimate of the number of printed prospectuses required to satisfy requests by members of the public. (Updated in July 2018)
        4.7 An MMO issuer is not held to a higher standard than a non-MMO issuer4. If an MMO issuer and its sponsor are able to demonstrate that there is a reasonable basis for the estimate number of printed prospectuses to satisfy requests by members of the public, a temporary shortfall will not be considered as a breach of the Printed Copies Condition. (Updated in July 2018)
        4.8 The Printed Copies Condition is met if an MMO issuer is able to provide a printed prospectus within four business hours upon request. The printed prospectus may be a stapled copy from a photocopy machine and in black and white, grey-scale or colour. If it is a black-and-white or grey-scale prospectus, the sponsor must be satisfied that such prospectus provides equivalent information to investors as a colour prospectus. (Updated in July 2018)
        4.9 In satisfying the Printed Copies Condition, an MMO issuer is entitled to specify at which receiving bank branches the printed prospectuses are available for collection, but at least three printed prospectuses should be available "for inspection" at every location where printed application forms are available. (Updated in July 2018)
        4.10 Issuers and sponsors may consult the Listing Department staff on the use of MMO if they have any questions. CIS issuers who wish to use MMO in their public offers of CIS are encouraged to consult the Product Investments unit of the SFC for advice on the necessary waivers.

        ***


        1 See Update No. 97 in January 2011. The relevant amendments to the Listing Rules became effective on 1 February 2011.

        2 Source: https://www.sfc.hk/web/EN/faqs/listings-and-takeovers/rule-amendments-relating-to-mixed-mediaoffer.html #26

        3 See Class Exemption Notice section 9A(3)(b).

        4 See Main Board Rule 12.07 (GEM Rule 16.12).


        Appendix 1

        (Deleted in July 2018)

        *****


        Appendix 2

        Guidance on announcement for adoption of an MMO

        MIXED MEDIA OFFER

        The Company will be issuing the Prospectus on or around [date] in connection with the proposed [Global Offering]. An application has been made to the Listing Committee of the Stock Exchange for the granting of the listing of, and permission to deal in, the [Shares/ Share Stapled Units] in issue and to be issued pursuant to the [Reorganisation] and the proposed [Global Offering]. Dealings in the [Shares/ Share Stapled Units] on the Stock Exchange are expected to commence at 9:00 a.m. on [date].

        The Company will be relying on Section 9A of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong) and will be issuing (a) the WHITE and YELLOW Application Forms without them being accompanied by a printed Prospectus and [(b) the [color of application form] Application Forms to the [nature of potential shareholders] without them being accompanied by a printed Prospectus, unless [exceptional cases]]. From [time, date] until [time, date], an electronic form Prospectus which contents are identical to the printed Prospectus can be accessed and downloaded from the websites of the Company at [Company's website] and the Stock Exchange at www.hkexnews.hk, under the "HKEXnews > Listed Company Information > Latest Listed Company Information" section, respectively.

        Members of the public may obtain a copy of the printed Prospectus, free of charge, upon request during normal business hours from [time, date] until [time, date] at the following locations:

        1. any of the following branches of the receiving banks for the Hong Kong Public Offering:

        [Name of the receiving banks]

        Branch Name Address
        Hong Kong Island [Branch Name] [address]
        Kowloon [Branch Name] [address]
        New Territories [Branch Name] [address]
        2. any of the following addresses of the [Joint] Sponsor[s]:

        [Name of the [Joint] Sponsor[s]], at [addresses]
        3. the Depository Counter of Hong Kong Securities Clearing Company Limited at 1/F, One & Two Exchange Square, 8 Connaught Place, Central, Hong Kong.

        During normal business hours from [time, date] until [time, date], at least three copies of the printed Prospectus will be available for inspection at every location where the WHITE and YELLOW Application Forms [and the [color of application form] Application Forms] are distributed as set out in the section headed "How to Apply for Hong Kong Offer [Shares/ Share Stapled Units and Reserved Share Stapled Units] — Applying for Hong Kong Offer [Shares/ Share Stapled Units and Reserved Share Stapled Units] — Where to Collect the Application Forms" in the Prospectus.


        Appendix 3

        Guidance on disclosure on the first page of the Prospectus


        IMPORTANT

        [The Company] will be relying on Section 9A of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong) and will be issuing (a) the WHITE and YELLOW Application Forms without them being accompanied by a printed prospectus and [(b) the [color of Application Form] Application Forms to the [nature of potential shareholders] without them being accompanied by a printed Prospectus, unless [exceptional cases]]. The contents of the printed prospectus are identical to the electronic form prospectus which can be accessed and downloaded from the websites of the Company at [Company's website] and the Stock Exchange at www.hkexnews.hk under the "HKEXnews > Listed Company Information > Latest Listed Company Information" section, respectively.

        Members of the public may obtain a copy of the printed prospectus, free of charge, upon request during normal business hours from [time, date] until [time, date] at the following locations:

        1. any of the following branches of the receiving banks for the Hong Kong Public Offering:

        [Name of the receiving banks]

        Branch Name Address
        Hong Kong Island [Branch Name] [address]
        Kowloon [Branch Name] [address]
        New Territories [Branch Name] [address]
        2. any of the following addresses of the [Joint] Sponsor[s]:

        [Name of the [Joint] Sponsor[s]], at [addresses]
        3. the Depository Counter of Hong Kong Securities Clearing Company Limited at 1/F, One & Two Exchange Square, 8 Connaught Place, Central, Hong Kong.

        During normal business hours from [time, date] until [time, date], at least three copies of the printed prospectus will be available for inspection at every location where the WHITE and YELLOW Application Forms [and the [color of application form] Application Forms] are distributed as set out in "How to Apply for Hong Kong Offer Shares" in this prospectus.

        Guidance on disclosure in the "How to Apply" section of the Prospectus

        IMPORTANT

        [The Company] will be relying on Section 9A of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong) and will be issuing (a) the WHITE and YELLOW Application Forms and [(b) the [color of Application Form] Application Forms to the [nature of potential shareholders] without them being accompanied by a printed Prospectus, unless [exceptional cases]]. The contents of the printed prospectus are identical to the electronic form prospectus which can be accessed and downloaded from the websites of the Company at [Company's website] and the Stock Exchange at www.hkexnews.hk under the "HKEXnews > Listed Company Information > Latest Listed Company Information" section, respectively.

        Members of the public may obtain a copy of the printed prospectus, free of charge, upon request during normal business hours from [time, date] until [time, date] at the following locations:

        1. any of the following branches of the receiving banks for the Hong Kong Public Offering:

        [Name of the receiving banks]

        Branch Name Address
        Hong Kong Island [Branch Name] [address]
        Kowloon [Branch Name] [address]
        New Territories [Branch Name] [address]
        2. any of the following addresses of the [Joint] Sponsor[s]:

        [Name of the [Joint] Sponsor[s]], at [addresses]
        3. the Depository Counter of Hong Kong Securities Clearing Company Limited at 1/F, One & Two Exchange Square, 8 Connaught Place, Central, Hong Kong.

        During normal business hours from [time, date] until [time, date], at least three copies of the printed prospectus will be available for inspection at every location where the WHITE and YELLOW Application Forms [and the [color of application form] Application Forms] are distributed as set out below.


        Appendix 4

        Guidance on disclosure in the Application Forms

        [The Company] will be relying on Section 9A of the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong) and will be issuing (a) the WHITE and YELLOW Application Forms without them being accompanied by a printed prospectus and [(b) the [color of Application Form] Application Forms to the [nature of potential shareholders] without them being accompanied by a printed Prospectus, unless [exceptional cases]]. The contents of the printed prospectus are identical to the electronic form prospectus which can be accessed and downloaded from the websites of the Company at [Company's website] and the Stock Exchange at www.hkexnews.hk under the "HKEXnews > Listed Company Information > Latest Listed Company Information" section, respectively.

        Members of the public may obtain a copy of the printed prospectus, free of charge, upon request during normal business hours from [time, date] until [time, date] at the following locations:

        1. any of the following branches of the receiving banks for the Hong Kong Public Offering:

        [Name of the receiving banks]

        Branch Name Address
        Hong Kong Island [Branch Name] [address]
        Kowloon [Branch Name] [address]
        New Territories [Branch Name] [address]
        2. any of the following addresses of the [Joint] Sponsor[s]:

        [Name of the [Joint] Sponsor[s]], at [addresses]
        3. the Depository Counter of Hong Kong Securities Clearing Company Limited at 1/F, One & Two Exchange Square, 8 Connaught Place, Central, Hong Kong.

        During normal business hours from [time, date] until [time, date], at least three copies of the printed prospectus will be available for inspection at every location where the WHITE and YELLOW Application Forms [and the [color of application form] Application Forms] are distributed as set out in "How to Apply for Hong Kong Offer Shares" in this prospectus.


        Appendix 5

        Frequently Asked Questions (FAQs) relating to an MMO (Added in July 2018)

        The following FAQs are intended to assist issuers in meeting their obligations in relation to an MMO particularly in situations not explicitly specified or where further clarification may be desirable. These FAQs are not a substitute for the Class Exemption Notice or the Listing Rules or such advice, and readers should refer to the Class Exemption Notice and the Listing Rules to understand the primary obligations and, where necessary, seek qualified professional advice. This FAQ should not be construed as being definitive and applicable to all cases where the scenario may at first appear similar. In any given case, regard must be had to all the relevant facts and circumstances.

        The Class Exemption Notice is set out as Appendix B to the Joint Consultation Conclusions on the Proposal to allow a Companies Ordinance (CO) Offeror to issue a CO Paper Application Form for Shares in or Debentures of a Company to be listed on the SEHK, and a CIS Offeror to supply a CIS Paper Application Form for Interests in an SFC-authorised CIS to be listed on the SEHK, with a Listing Document Displayed on Certain Websites ("Consultation Conclusion Paper").

        I. INVESTORS

        No Query Response
        1 What is a Mixed Media Offer or MMO? Mixed Media Offer or MMO is an offer process where an issuer or a CIS issuer distributes paper application forms for public offers of certain securities* so long as the prospectus is available on the HKEX website or the issuer/ CIS issuer's websites.

        The Class Exemption Notice sets out the conditions an offeror must comply with in a Mixed Media Offer. The SFC will impose similar conditions on CIS issuers who intend to conduct a Mixed Media Offer with regards to interests in SFC-authorised CISs that are/ or will be listed on the Exchange.

        *"Securities" refer to shares of or debentures in a company and SFC-authorised CISs
        2 Who may conduct an MMO? Any offeror intending to conduct a public offer of:
        (a) shares of a company (including an investment company under Chapter 21 of the Main Board Rules) listed or to be listed on the Exchange;
        (b) debentures of a company listed or to be listed on the Exchange, and
        (c) interests in CISs listed or to be listed on the Exchange and authorised by the SFC under section 104 of the SFO.
        3 What existing practice does the MMO aim to change? The market has developed a practice of printing large quantities of printed prospectuses copies for distribution at points where printed application forms are distributed, even though e-prospectuses are available online. Many of these copies are not taken up and end up as trash.

        Under an MMO option, an offeror who complies with the conditions of the Class Exemption Notice (see section B below), or obtains a waiver from the SFC, may distribute printed application forms even though each application form is not accompanied by a printed application forms even though each application form is not accompanied by a printed prospectus.
        4 How to ensure investors who have no access to the internet can access the prospectus before they apply for subscription under an MMO? Question 7 below sets out where investors can get a copy of the printed prospectus.

        Investors will continue to obtain a free copy of the printed prospectus from specified locations (e.g. at designated branches of receiving banks or the principal place of business of the sponsors) upon request. Also, at least three copies of the printed prospectus will be available for inspection at every location where the paper application forms are distributed.
        5 What is the difference between MMO and ePO? Both the MMO and ePO Guidelines aim to facilitate wider use and acceptance of electronic listing documents. The MMO proposal aims to facilitate distribution of electronic listing documents whilst applications continue to be accepted in paper form. The ePO Guidelines published by the SFC in April 2003 aim to facilitate electronic submission of applications during a public offer but do not deal with whether the prospectus is otherwise required to be distributed in printed or electronic form.

        Under the ePO Guidelines, the internet (or other electronic means) is used to display or provide access to prospectuses, application forms and/ or to collect applications or application instructions from the public (applicants) during an initial public offering or a follow-on public offering.

        The MMO involves allowing a printed application form for the relevant securities to be issued without being accompanied by printed prospectus if certain conditions are met.

        MMO and ePO complement each other and are not mutually exclusive.
        6
        (a) How and when an investor may request a printed prospectus?
        (b) How quickly will a printed prospectus be made available to an investor upon request?
        (c) What is the quality of such printed prospectus?
        (a) Any member of the public may, during the offer period during normal business hours, obtain a printed prospectus, free of charge, at any location specified in the announcements notifying the public of the adoption of an MMO.
        (b) A printed prospectus must be made available to a member of the public upon request within four business hours.
        (c) The printed prospectus that is provided may be a stapled copy from a photocopy machine which is in black and white, grey-scale or colour. Where it is a black and white or grey-scale prospectus, the sponsor must be satisfied that it provides equivalent information to investors as a colour prospectus.
        7 Can investors still get a copy of printed prospectus? Yes, investors can collect a copy of printed prospectus free of charge upon request. Copies will be available at:
        (a) the depository counter of Hong Kong Securities Clearing Company Limited;
        (b) the offices of the company's Hong Kong share registrar, sponsor or co-ordinator offices; and
        (c) certain designated branches of the receiving or placing banks. Further, at least three printed prospectuses will be available "for inspection" at every location where printed application forms are available.


        These locations will be stated in the prospectus and announcements to inform the market of the proposed Mixed Media Offer as well as the application forms.

        We expect issuers and their sponsors/ listing agents to assess the possible demand for printed prospectuses, including locations at which they are most frequently and likely to be collected. Companies should put in place appropriate procedures to enable them to gauge demand, for instance, a pre-order or booking system where investors can register their request for a copy of the printed prospectus.

        Consistent with existing practice, it is the responsibility of the companies' sponsors to comply with the Exchange Listing Rules and the CFA Code of Conduct by ensuring that there are sufficient copies of prospectuses available to the public to satisfy public demand.
        8 Where can the investors find out about the website addresses where they can get access to a copy of electronic prospectus? The application form and the issuer's announcement (made during the five-business day period before the start of the offer period) will set out details of where investors can access the electronic prospectus on the HKEX website and another website (usually its own website).
        9 Can investors rely on information on the company's (issuer's) website when deciding whether to invest in the company's shares? No, investors should ensure they only rely on information contained in the prospectus.

        The issuer's website may contain information outside prospectus. However, we would expect companies to clearly delineate between prospectus information and non-prospectus information. Web pages containing the electronic prospectus must not contain any promotional information about the issuer and the offer.
        10 Is the printed prospectus identical to the electronic prospectus? Yes, the electronic prospectus must be identical to the printed prospectus other than colour (see Question 6(c) on production of black and white, grey-scale or colour copies). It should not be password protected and should be reasonably tamper-resistant.
        11 Why does the MMO not provide for a mechanism by which a request for obtaining printed prospectuses should be made? It is the offeror's responsibility, after taking appropriate advice from its sponsor/ listing agent to assess the possible demand for printed prospectuses, including locations at which they are most frequently and likely to be collected.

        It is up to the offerors and their sponsors how or what procedures/ mechanism they wish to implement to best determine the likely demand for their printed prospectuses.

        Please see responses to Question 7.

        We do not consider it appropriate for the regulators to impose any requirements on how an investor must make a request for a printed prospectus, say by setting requirements for the time and mode for making such request, as this will only increase the barrier for obtaining a printed prospectus. This may not work to the benefit of prospective investors.

        Accordingly, the MMO envisages that an investor who wishes to get a printed prospectus is only required to go to the specified locations, e.g. designated branches of receiving banks, for a printed prospectus.
        12 Since the rule provides for the posting on the HKEX website and the issuer's website of the e-application form together with the e-prospectus, can an applicant simply complete the e-application form downloaded from those websites for subscription purposes? This is not recommended. Using application forms downloaded from websites for subscription purpose increases the risk of invalid applications as irregularities during downloading and reproduction may occur.

        Generally speaking, issuers tend to accept only public subscriptions that are made on completion of the standard printed applications forms provided by issuers.

        Alternatively, applicants applying under the public offer tranche may subscribe for securities under the ePO services provided by the issuers which normally involve completion of an online application form

        II. FOR ISSUERS

        A. Overview


        No Query Response
        13 If the electronic prospectus is not available on the issuer's website but is still available on HKEX's website, must the MMO be suspended? The offeror need not suspend the MMO if the electronic prospectus is only available on the HKEX website but not the issuer's website. It need only suspend the MMO if the prospectus is not available on both the HKEX website and the issuer's website for 4 consecutive hours or more.

        If during the offer period, the electronic prospectus is not available on the issuer's website, the offeror need not suspend the Mixed Media Offer if,
        (a) the electronic prospectus is available on the HKEX website between 6:00 am to 12:00 midnight from Monday to Friday, except public holidays; and
        (b) if the prospectus is also not available on the HKEX website, the period of the electronic prospectus being unavailable on both the websites is less than 4 hours.


        In the event the electronic prospectus is not available on both the HKEX and the company's websites for 4 consecutive hours or more between the hours of 6 am to 12 midnight Mondays to Fridays (except public holidays), the offeror can continue the offer process provided that it can comply with the requirement under CWUMPO that when an offeror issues a printed application form, it must issue the application form with a printed prospectus.
        14 How should the offeror deal with the suspension of Mixed Media Offer during the offer period? When an offeror need to suspend a Mixed Media Offer during the offer period, it must publish a suspension announcement on the HKEX website as soon as possible. The offeror is encouraged to consult the SEHK and/ or the SFC as soon as possible on how best to conduct the remaining offer process. The offer can only carry on if it can comply with the CWUMPO requirement that when an offeror issues a printed application form, it must issue the application form with a printed prospectus.

        B. Class Exemption Notice


        No Section Query Response
        15 Cap. 32L Where are the conditions set out in the Class Exemption Notice? The class exemption is effected by the Class Exemption Notice which came into effect on 1 February 2011. A copy of the Class Exemption Notice is set out in Appendix B to the Consultation Conclusion Paper.
        16 9A Does an offeror need to apply to the SFC or the Exchange to conduct an MMO? An issuer's website may contain information other than prospectus information, including promotional information about the issuer or the public offer. The issuer's website should clearly delineate in its website what information on its website is contained in the prospectus and what is not.

        A CIS offeror may inform the SFC of its intent to conduct an MMO and conduct the MMO by complying with similar conditions imposed by the SFC in its letter of authorisation.
        17 9A(3)(f) & (g) Can the issuer's website contain information other than prospectus information? No, but a CO offeror must comply with the conditions in the Class Exemption Notice.

        Please refer to the responses to Question 9.
        18 9A(3)(h) How is the notice requirement satisfied when the e-prospectus is accessed from the company's (issuer's) website? The notice should be given just before access to the prospectus is granted. For instance, a plain clear "pop up" notice on a separate webpage of the issuer's website stating that the relevant securities are offered solely on the information in the e-prospectus accessible by a click on the webpage satisfies this requirement.

        There are other ways to display the notice. In case of doubt, early consultation with the SFC or the Exchange is recommended.
        19 9A(3)(b) How many printed prospectus copies must be made available to the public to satisfy the public demand requirement? The SFC and the Exchange do not set any the minimum number of copies of printed prospectus that must be made available to satisfy public demand.

        The CO and CIS offerors and their sponsors or listing agent should make a best estimate of the demand for printed form prospectus based on the facts and circumstances of the case.

        As a best practice recommendation, issuers and sponsors can consider stating in the notification announcement (made during the five-business day period before the start of the offer period) of an MMO details about how a member of the public may pre-register with the sponsor to obtain a printed prospectus during the offer period (e.g. by way of a hotline service) and where a copy may be obtained.

        C. Listing Rules

        No Section Query Response
        20 MB Rule 2.07C(3) and Appendix 24

        GEM Rule 16.18(2) and Appendix 17
        What headline category should be used for announcements in relation to MMO? For announcements in relation to MMO, the issuer must select the headline category "Mixed Media Offer" under "New Listing (Listed Issuers/ New Applicants)".
        21 MB Rules 12.11A(1), 25.19B(1)

        GEM Rules 16.04D, 29.21B(1)
        Must announcements relating to the implementation and/ or suspension of an MMO be vetted by the Exchange? No.
        22 MB Rule 2.07C(6)

        GEM Rule 16.19(1)
        What operational standards must an issuer adhere to for posting announcements relating to MMO on its own website? In addition to the requirements in the Class Exemption Notice requiring how access to the e- prospectus must be provided from the issuer's website (e.g. 9A(3)(f),(g),(h) and 9A(10)), reference is made to No. 36 of the FAQ Series 3 document for electronic disclosure regarding certain guiding principles for layout of the issuer's website.
        23 MB Rule 11.13

        GEM Rule 14.24
        Is it necessary to revise the printed application forms for shares/ debentures/ authorised CISs upon issue of an addendum or replacement e-prospectus? If there is a change to the prospectus warranting the issue of an addendum or replacing e- prospectus, it is a question of law whether the original printed application forms for the relevant securities accompanying the original prospectus would continue to be valid.

        In this connection, Offerors are advised to seek to professional advice as to:
        (a) the need to revise the original application forms and/ or;
        (b) how to deal with completed application forms submitted to the Offerors under the terms of the prospectus. This may include considerations of extending the offer period and/ or granting a right of withdraw to applicants who have submitted in applications based on the information in the original prospectus; and
        (c) the need for putting in place appropriate arrangements to ensure that the issue and marketing of securities is conducted in a fair and orderly manner.
        24 MB Rule 2.07C(2)

        GEM Rule 16.18(1)
        How to check whether a document is downloadable for display and printing? MB Rule 2.07C(2) and GEM Rule 16.18(1) provide that all electronic copies of documents submitted by an issuer through HKEX-EDP to the Exchange for publication must be displayable on and printable from the HKEX website. The issuers must ensure compliance with the Rules in this respect. HKEX also operates a hotline if any member of the public detects any malfunctioning on the HKEX website.

        Enquires can be sent to the Exchange's IPO Vetting Team by post, phone, fax or email.

        D. CIS Offering Document

        No Section Query Response
        25 MB Rule 2.07C(4)(a) How does the MMO apply to CIS offerors? For CIS offerors who intend to adopt an MMO, the SFC will impose conditions in its letter of authorization similar to those in the Class Exemption Notice for CO offerors who intend to adopt an MMO (with necessary changes).

      • GL79-14

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL79-14 (September 2014) (Updated in November 2014, July and November 2015, June 2016 and March 2017) Effective for CIS applications made on or after 10 November 2014

        Subject Guidance on Documentary Requirements and Administrative Matters for Collective Investment Schemes ("CIS") Applications
        Listing Rules and Regulations Chapter 20 of Main Board Rules
        Author IPO Vetting Team & C&M Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose
        1.1 This letter provides guidance on the documentary requirements and administrative matters effective from 10 November 2014 for:
        (a) new listing applicants of Collective Investment Scheme ("CIS Applicants"); and
        (b) listed CIS issuers ("Listed CIS Issuers").
        1.2 This letter also provides guidance to CIS Applicants who are applying to the Exchange to list interests in CIS constituted in the form of an entity incorporated outside of Hong Kong, or a trust organised under any law other than Hong Kong law or other contractual form the terms and conditions of which are governed by any law other than Hong Kong law ("applications involving foreign elements") (see paragraphs 4.11 to 4.12). (Added in June 2016)
        2. Regulatory Overview
        2.1 The Securities and Futures Commission ("SFC") is the primary regulator for authorised CIS listed under Chapter 20 of the Listing Rules including authorisation of CIS and their offering documents in accordance with the requirements of the applicable laws and regulations from time to time. The SFC is also the authority for monitoring compliance with these authorisation conditions and applicable SFC requirements.
        2.2 The Exchange's role in CIS regulation is primarily to maintain a fair, orderly and efficient market in the trading of CIS in accordance with the Listing Rules and the applicable trading rules of the Exchange.
        3. Amendments to the Listing Rules Effective from 10 November 2014
        3.1 The Exchange amended the relevant Main Board Listing Rules ("Rules"), namely Chapter 20 and Appendix 5, to streamline the documentary requirements and administrative matters for CIS listing applications on 12 September 2014. These amendments take effect for listing applications submitted on and after 10 November 2014.
        3.2 The amended Rule 20.06 sets out the requirement to appoint a listing agent for CIS Applicants. The amended Rules 20.14, 20.16 and 20.17 set out the documentary requirements for CIS Applicants.
        3.3 The amended Rule 20.15 sets out the documentary requirements for close-ended Listed CIS Issuers regarding applications for the listing of additional interests.
        4. Guidance For CIS Applicants

        Appointment of a Listing Agent
        4.1 A CIS Applicant must appoint an agent for the listing of interests in any CIS (Rule 20.06).
        4.2 The listing agent must demonstrate that it has the relevant experience in handling a CIS listing application. Except for circumstances mentioned in paragraph 4.3 below, the CIS Operator, or other suitably qualified persons (for example, lawyers or financial advisers) with the relevant experience and who are authorised by the CIS Operator to handle the authorisation and listing process are normally acceptable to the Exchange to act as a listing agent1 (Note 1 to Rule 20.06). (Updated in November 2014)
        4.3 Where there is an initial public offering of CIS interests ("IPO") by the CIS Applicant, or in other circumstances as the Exchange or the SFC may otherwise determine, the Exchange will require a listing agent to have all the necessary licences and qualifications to oversee the management of the matters in Rule 20.06(2)(a) to (e) (Note 2 to Rule 20.06). Accordingly, where the new CIS applicant is a REIT2 or where the Exchange or the SFC may otherwise require, the listing agent must have the requisite licences and qualifications to act as a sponsor.
        Publication of Application Proof and PHIP of some CIS Applicants
        4.4 Where a CIS Applicant's listing agent is required to discharge the functions equivalent to those of a sponsor (whether or not the application involves an IPO, see paragraph 4.3 above), it is required to publish an Application Proof and a Post Hearing Information Pack ("PHIP") in accordance with Rules 20.25 and 20.26 respectively.
        Application Process and Streamlined Documentary Requirements
        4.5 We have eliminated the requirement that a CIS listing application must be submitted not less than 10 clear business days prior to the issue of an in-principle approval letter ("AIP") to allow CIS Applicants more flexibility when designing their timetable. To facilitate CIS Applicants and their listing agents in preparing information required for a new listing application, we have set out in Attachment 1 some administrative matters and the documents required to be submitted to us at different stages of the application process. An AIP should be issued within five clear business days if all documentation is in order and there are no material comments.
        4.6 The application process has been streamlined to require the majority of the documents to be submitted together with the listing application (i.e. Form 5A2 in Appendix 5 of the Rules). We have also reduced the number of copies of relevant documents to be submitted. Please see Attachment 2 for details of amendments.
        4.7 We will send comments to the listing agent by email and by post. No fax copies of our comments will be sent unless requested.
        4.8 Following acceptance of a new listing application, we will issue a letter to notify the CIS Applicant of the stock code allocation arrangements. The drawing of the stock code can take place prior to the issue of the AIP and a confirmation of the stock code will be issued when we issue the AIP for efficiency.
        4.9 Where there is an IPO of CIS interests and the CIS Applicant and its listing agent outsource the process of reviewing the IPO application forms for subscription of CIS interests to a third party service provider (e.g. a share registrar), the CIS Applicant and its listing agent must discuss with the service provider the reasonable steps that are needed to identify and reject multiple or suspected multiple applications. Outsourcing to a third party service provider would not exonerate the CIS Applicant or the listing agent from their responsibilities to identify and reject multiple or suspected multiple applications.
        Stamp Duty Remission for ETFs
        4.10 With effect from February 2015, stamp duty is waived for the transfer of units of all ETFs, regardless of their underlying portfolios, dates of listings or whether stamp duty has been remitted in respect of them. Procedures to facilitate CIS Applicants to obtain the stamp duty remission are no longer necessary (Updated in July 2015).
        Early consultation with HKSCC for applications involving foreign elements
        4.11 Any CIS Applicant who is applying to the Exchange to list interests in CIS constituted in the form of an entity incorporated outside of Hong Kong, or a trust organised under any law other than Hong Kong law or other contractual form the terms and conditions of which are governed by any law other than Hong Kong law is encouraged to consult Hong Kong Securities Clearing Company Limited ("HKSCC") in advance when it contemplates any application for SFC's authorisation of the CIS and the issue of a CIS Disclosure Document with a view to applying to the Exchange for the listing of the interests in such CIS on the Exchange. This is to ensure that the CIS Applicant has sufficient time to satisfy HKSCC that:
        (a) the laws of the relevant jurisdiction to which such securities/interests/instruments are subject (which govern the creation of such securities/interests/instruments) recognise the concept of beneficial ownership under the existing custody structure operated by HKSCC and the transfer of such beneficial interests as envisaged under the CCASS Rules such that CCASS clearing participants transacting in and custodying such securities/interests/instruments on behalf of their clients are able to acquire proprietary interests in such securities/interests/instruments;
        (b) all perfection requirements in the relevant jurisdictions (if any) can be complied with by CCASS clearing participants as the CCASS Rules envisage that clearing participants may provide such securities/interests/instruments as collateral for their exchange transactions in satisfaction of their margin requirements;
        (c) there are no other legal or regulatory implications arising from the clearing and custody of such securities/interests/instruments by or on behalf of HKSCC which may impact on the performance of HKSCC's role as a central clearing counterparty and central securities depository in accordance with the CCASS Rules; and
        (d) there are no other issues which may have a legal or regulatory impact on The Stock Exchange of Hong Kong Limited as a legal entity.
        4.12 The Exchange expects that CIS Applicants provide a formal legal opinion addressed to and may be relied upon by HKSCC which addresses the issues set out in paragraph 4.11 (a) and (b). Relevant CIS Applicants should be aware that the process for review by HKSCC will take time depending on the complexity of the issues raised and as such are encouraged to engage HKSCC early.

        (Added in June 2016)
        5. Guidance For Listed CIS Issuers

        Listing of additional interests after listing
        5.1 The amended Rule 20.15 clarifies the documentary requirements for listing additional interests in Listed CIS Issuers.
        5.2 A Listed CIS Issuer may issue additional interests after listing. Where it is a close-ended Listed CIS Issuer (e.g. REIT), it must submit a formal listing application (i.e. Form 5C3 in Appendix 5 of the Rules), together with a certified copy of its and its CIS Operator's board resolutions authorising filing of the listing application, to the Exchange as required under Rule 20.15. These requirements do not apply to open-ended Listed CIS Issuer (e.g. ETF)3.
        Change in trading arrangements
        5.3 A Listed CIS Issuer (whether it is open-ended or close-ended) should consult us on any proposal to change its arrangements for trading in its interests on the Exchange (e.g. a consolidation or subdivision of the CIS interests in the form of units). It should agree its proposed change and timetable with us before it announces the proposal.

        *****

        Attachment 1

        FOR CIS APPLICANTS ONLY

        The Exchange requires the following documents to be submitted and administrative matters to be followed at different stages of the application process. Please refer to the Rules for the actual content

        Documentation and Administrative Requirements Relevant rule or guideline reference means the relevant procedures apply
        For CIS where Rules 20.25 & 20.26 do not apply For CIS where Rules 20.25 & 20.26 apply, but with no IPO of interests4 For CIS where Rules 20.25 & 20.26 apply, and there is an IPO of interests
        Before Form 5A2 submission
        1A Early consultation with HKSCC where the application involves foreign elements (see paragraphs 4.11 to 4.12)

        Consultation should be addressed to:
        Manager, Stock Admission, 30/F, One Exchange Square, 8 Connaught Place, Central, Hong Kong, and with a copy to Joint Heads of IPO Vetting Team, 11th Floor, One IFC (Updated in March 2017)
         
        1 A listing agent, if not a registered user of the Exchange's e-submission system ("HKEx-ESS"), must register as a HKEX-ESS user as soon as possible but at least three business days before any intended submission and publication of listing-related documents through HKEX-ESS or HKEX-EPS Please visit the "ESS Registration" webpage on the Exchange's website for relevant procedures and registration forms—Home>Listing Matters>Electronic Disclosure >ESS Registration
        2 A listing agent which is required to discharge the functions of those of a sponsor must submit a sponsor engagement letter to the Exchange Rule 3A.02B

        FAQ Series 24, No.5
         
        3 A listing agent to obtain a company case number from the Listing Department — IPO Transactions Team, using a specified form, at least one business day before filing the authorisation application with the SFC Enclosure 4 to HKEX-GL57-13  
        4 A listing agent's confirmation in a specified form that an Application Proof for publication on the Exchange's website has been submitted at the same time it submits an authorisation application of the CIS to the SFC Rule 20.25, Rule 2.07C, Practice Note 22

        Enclosure 5 to HKEX-GL57-13

        Checklists and Forms for New Applicants-Form CIS001
         
        At the time of Form 5A2 submission
        5
        •   Form 5A2
        •   Five copies of the advanced proof of the listing document printed on double-sided paper and a CD-ROM
        •   SFC's no comment letter on CIS Disclosure Document
        (* For ETF, the no comment letter is the conditional authorisation letter.)
        (* For REIT, the no comment letter is the approval-in principle letter.)
        Rule 20.14
         
        •   Two copies of the Listing Agreement signed by the Covenantors5
        •   Where available, board resolutions on the execution of Form 5A2, listing document and Listing Agreement
        •   A copy of the most recent annual report and accounts of the CIS Applicant (unless newly formed), CIS Operator, trustee or custodian of its functional equivalent, and (if applicable) the investment adviser to the CIS Applicant
        Checklists and Forms for New Applicants-Form CIS002; and Form CIS003
        •   a final copy of any application form for the subscription of CIS interests
           
        6 (Deleted in June 2016)        
        7 (Deleted in July 2015)



        8 A listing agent's confirmation in a specified form that a PHIP for publication on the Exchange's website has been submitted at the same time it submits a Form 5A2 Rule 20.26, Rule 2.07C, Practice Note 22

        Enclosure 5 to HKEX-GL57-13

        Checklists and Forms for New Applicants-Form CIS001
         
        On or before the issue of the listing document
        9
        •   A copy of the listing document signed by each director or officer of the governing body of the CIS or the functional equivalent in discharging the officer's duties or by his agent authorised in writing and by or on behalf of the CIS Operator
        •   Where the listing document is signed by an agent, a certified copy of the authorisation of such signature
        Rule 20.16
        •   A copy of any application form for the subscription of CIS interests
           
        10 A listing agent's confirmation in a specified form confirming SFC's conditional authorisation of the CIS Disclosure Document and attaching a copy of SFC's authorisation6 (Amended in November 2015) Checklists and Forms for New Applicants-Form CIS004
        11 Where applicable, a listing agent's letter or email notifying the Exchange if the CIS Applicant will not adopt the standard transfer form  
        12 A draft Formal Notice for vetting      
        13 (Deleted in June 2016)        
        After the issue of the listing document but before dealings commence
        14
        •   A certified copy of the board resolutions on the execution of Form 5A2, listing document; and Listing Agreement (if not previously submitted under item 5 above)
        •   A certified copy of the trust deed or memorandum and articles of association or other documents constituting the CIS
        •   Any outstanding annual listing fee
        Rule 20.17
        15 Submission of a "ready-to-publish" electronic copy of the CIS Disclosure Document for publication through HKEX-EPS Rule 2.07C(1)(b)(ii)
        16 Submission of a "ready-to-publish" electronic copy of any application form for the subscription of CIS interests (in sample format) that is referred to in the CIS Disclosure Document for publication through HKEX-EPS. Please ensure that a "SAMPLE" watermark (i.e. ghost text) or text to like effect is printed on each page of the electronic copy of the application form Rule 2.07C(1)(b)(ii)

        Q 12 of FAQ Series 13
           
        17 A listing agent's letter or email, in a specified form, enclosing a cheque to settle transaction levy, trading fee and/or brokerage, as the case may be, or notifying the Exchange that such payments have been settled through electronic transfer by crediting the Exchange's designated bank accounts as shown in the form Checklists and Forms for New Applicants-Form CIS005    
        18 A draft allotment results for vetting according to the ESS User Manual which should include "Search by Identity Card" function if the CIS Applicant proposes to raise HKD1.5 billion or more in the Hong Kong offering Appendix F to e-Submission System User Manual    
        19 Relevant placee information and marketing statement in specified forms Checklists and Forms for New Applicants-Form CIS006 and Form CIS007    
        20 Receiving banks' staffs should be made aware that potential investors are permitted to obtain both English and Chinese versions of the CIS Disclosure Document during the offer period      

        Attachment 2

        Streamlined Documentation for New CIS Application (referred to in paragraph 4.6 above)

        Rule Before Rule Amendments Signatory of document After Rule Amendments Signatory of document
        20.14 At the time of making an application
        Form 5A2 CIS Applicant Form 5A2 CIS Applicant; CIS Operator
        An advanced proof of the listing document (in practice, five copies were requested by Exchange staff) - Five copies of the advanced proof of the listing document and a CD-ROM -
        SFC's no comment letter on CIS Disclosure Document SFC SFC's no comment letter on CIS Disclosure Document SFC
        A draft Listing Agreement - Two copies of the Listing Agreement signed by the Covenantors CIS Applicant; CIS Operator; trustee or custodian or its functional equivalent
        - - Where available, board resolutions on the execution of Form 5A2, listing document; and Listing Agreement CIS Applicant; CIS Operator; trustee or custodian or its functional equivalent
        - - A final copy of any application form for the subscription of CIS interests in an IPO -
        - - A copy of the most recent annual report and accounts of the CIS Applicant (unless newly formed), CIS Operator, trustee or custodian of its functional equivalent and (if applicable) the investment adviser to the CIS Applicant -
        20.15 Five days before the expected date of issuing an AIP
        Form 5C3 CIS Applicant; CIS Operator; Trustee or Custodian or its functional equivalent Removed for CIS Applicant -
        Four copies of the final proof of the listing document - Removed for CIS Applicants -
        Four copies of the final proof of any application form to subscribe the CIS interests in an IPO - Removed for CIS Applicants -
        Two copies of the most recent annual report and accounts of the CIS Applicant (unless newly formed), CIS Operator, trustee or custodian of its functional equivalent and (if applicable) the investment adviser to the CIS Applicant - Removed for CIS Applicants -
        Where available, board resolutions on the execution of Form 5C3; listing document; Listing Agreement CIS Applicant; CIS Operator; trustee or custodian or its functional equivalent Removed for CIS Applicants -
        SFC's no comment letter on the CIS Disclosure Document SFC Removed for CIS Applicants -
        A signed Listing Agreement CIS Applicant; CIS Operator; trustee or custodian or its functional equivalent Removed for CIS Applicants -
        Two specimens of definitive certificate or document of title - Removed for CIS Applicants -
        20.16 After approval of the listing document but before issue of listing document
        Four copies of the listing document, one of which must be signed CIS Applicant; CIS Operator; trustee or custodian or its functional equivalent A signed copy of the listing document CIS Applicant; CIS Operator
        Four copies of any application form to subscribe the CIS interests in an IPO - A copy of any application form for the subscription of CIS interests in an IPO -

        1 The qualification required of the listing agent depends on the nature of the work it undertakes which may require appropriate licences under the Securities and Futures Ordinance.

        2 Means Real Estate Investment Trusts. According to the Code on Real Estate Investment Trusts, the listing agent for a REIT applicant is in effect assuming the responsibilities of, and discharging a function no different from, the sponsor of an initial public offering.

        3 Given the nature of open-ended CIS, listing approval granted to the CIS at the time of new listing covers any additional interests it may issue after listing. Open-ended Listed CIS Issuers are not required to file listing application for further issues after listing.

        4 Rules 20.25 and 20.26 require the publication of an Application Proof and a Post Hearing Information Pack ("PHIP") respectively where the listing agent appointed is required to discharge the functions equivalent to those of a sponsor. Such appointment is irrespective of whether there is an IPO of CIS interests at initial listing.

        5 Convenantors are (1) the CIS Operator and (2) the trustee or the custodian or its functional equivalent. If the CIS is an incorporated entity, then the CIS must be included as the Convenantor.

        6 Not required in the case of ETF as the conditional authorisation is submitted when the listing application is submitted.

      • GL73-14

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        HKEx GUIDANCE LETTER
        HKEx-GL73-14 (Published in March 2014) (Rule reference updated in July 2014)

        Subject Guidance on pricing policies for continuing connected transactions and their disclosure
        Listing Rules Main Board Rules 14A.51 to 14A.59 and 14A.71 to 14A.72

        GEM Rules 20.49 to 20.57 and 20.69 to 20.70

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Division on a confidential basis for an interpretation of the Listing Rules, or this letter.

        A. Purpose
        1. This letter gives guidance on the pricing policies in agreements for continuing connected transactions and their disclosure. Continuing connected transactions are transactions with connected persons carried out on a continuing or recurring basis and are expected to extend over a period of time.
        B. Relevant Rules and Requirements
        2. Rules 14A.51 to 14A.59 set out the requirements that apply to continuing connected transactions, including, among others:
        (i) issuers must enter into a written agreement that sets out the terms of the transactions, which must contain the basis for calculating the payments to be made and reflect normal commercial terms;
        (ii) the period of the agreement must be fixed and reflect normal commercial terms. It must not exceed 3 years, except in special circumstances;
        (iii) there must be an annual cap which is determined by reference to previous transactions, the basis of which must be disclosed;
        (iv) where the annual cap exceeds the relevant de minimis threshold, the agreement and the annual cap must be approved by independent shareholders;
        (v) the transactions should be in the issuer's ordinary and usual course of business, on normal commercial terms (or terms no less favourable to the issuer than terms available to or from independent third parties), the terms must be fair and reasonable and in the interest of shareholders as a whole; and
        (vi) the transactions must be carried out in accordance with the issuer's pricing policies, in accordance with the agreement, and approved by the board of directors.
        3. Rules 14A.55, 14A.56, 14A.71 and 14A.72 set out the annual reporting and review requirements, including:
        (i) disclosure in the annual report details of the transactions, including the total consideration and terms, a brief description of the transactions and their purposes, the parties to the transactions and descriptions of their relationships;
        (ii) annual review of the continuing connected transactions by the independent non-executive directors (INEDs) and confirmation in the annual report that the transactions have been conducted in accordance with paragraph 2(v) above; and
        (iii) annual negative confirmation by the auditors of matters set out in paragraph 2(vi) above and that the transactions did not exceed the annual cap.
        4. The Rules provide a framework for the conduct of continuing connecting transactions, recognizing the practical difficulty if issuers have to comply with the connected transaction Rules each time a transaction is proposed. It provides safeguards against potential abuse through the following:
        •   the terms of the agreement, including the basis for calculating the payments, should provide a framework for the negotiation of individual transactions under the agreement. This information is disclosed to shareholders for their assessment whether to approve the agreement;
        •   imposing an annual cap on the aggregate size of the transaction, set by reference to historical transactions and adjusted by the issuer's projections; and
        •   annual review by the INEDs and auditors, and confirmation in the issuer's annual report, which provides a check and balance to ensure that the transactions under the agreement were conducted in accordance with the criteria set out in paragraphs 2(v) and (vi) above.
        C. Guidance
        5. Under the current Rules, the shareholders in effect give an issuer a mandate to conduct transactions with connected persons, subject to i) the terms of the agreement which provide a framework for negotiating each transaction, and ii) the annual cap which limits the aggregate size of the transactions. It is important that the terms of the agreement are specific and measurable, and that there are adequate internal controls in place to ensure that the individual transactions are indeed conducted within the framework of the agreement.
        a) Pricing Policies
        6. The Exchange notes that market practice regarding disclosure about the terms of the agreements vary significantly. In many instances, pricing policy is set out in general terms with no indication of the expected quantum or percentage1. Without a specific pricing mechanism shareholders cannot properly assess whether to approve the framework agreement, and INEDs and auditors do not have a framework to review the transactions.
        7. When entering into agreement with connected persons, issuers should agree on specific pricing terms, such as fixed monetary consideration, a pre-determined formula, or fixed per unit consideration. Examples include:
        •   provision of management services charged at a fixed sum or a percentage of the issuer's sales or asset value;
        •   interest rate to be charged on a revolving loan facility and the maximum loan amount; and
        •   sales or purchase of goods at a fixed unit price, or some reference price published from time to time (e.g. government prescribed price, or commodity prices quoted on an exchange). If the pricing of the goods is determined based on a reference price, the issuer should disclose the relevant details, for example, the name of government authority or organization publishing the price, and how and where the price is disclosed or determined, and the frequency of update to the reference price.
        8. If the agreement covers transactions of different nature, the issuer should clearly set out the pricing policy for each type of transactions. It should avoid using generic "boilerplate" pricing mechanism where some of the pricing methods are not applicable to certain categories of transactions (see 3rd point of the example in footnote 1).
        9. There may be situations where it is not commercially practical for the issuer to agree with the connected person on specific unit price or contract sum, as it is normal in that industry for the individual transactions to be subject to the pricing conditions at the time each transaction is conducted. In these cases, the issuer would normally conduct the transactions in accordance with its pricing policy and guidelines, which apply to transactions with independent customers as well as connected persons. The following guidelines should be observed when negotiating the terms of the agreement:
        (i) It would not be sufficient to describe pricing policies in generic terms, such as "prevailing market price" or "prices based on arm's length negotiations" or "prices on normal commercial terms".
        (ii) The Rules require that the transactions must be conducted on normal commercial terms, or on terms no less favourable than terms available to independent parties. To demonstrate this, the issuer should disclose the methods and procedures the management will follow to determine the price and terms of the transactions. Examples include:
        •   For sales of off-the-shelf products or standard services, an indicative range of prices for goods/services, or the minimum/maximum mark-up rate for transactions that are charged on a cost-plus basis, and the procedures for reviewing and approving these price lists or guidelines from time to time;
        •   For sales of proprietary goods or services, the process for estimating and approving the selling prices for the goods or services, and the procedures to ensure that these prices are no less favourable to the issuer than those offered to, or quoted by, independent customers; and
        •   For purchases of goods or services, the procedures for obtaining quotations or tenders from the connected persons and a sufficient number of independent suppliers, the assessment criteria and the approval process. For example, the management would solicit at least two other contemporaneous transactions with unrelated third parties for products in similar quantities to determine if the price and terms offered by a connected person are fair and reasonable and comparable to those offered by unrelated third parties.
        (iii) The issuer should explain why its directors consider that the methods and procedures can ensure that the transactions will be conducted on normal commercial terms and not prejudicial to the interests of the issuer and its minority shareholders.
        b) Disclosure of Information
        10. The issuer should disclose in its announcement and circular (if any) the specific pricing terms or formula set out in the agreement and material information about pricing policies and guidelines (see paragraphs 7 to 9 above).
        11. The issuer should also disclose in its annual report whether it has followed these policies and guidelines when determining the price and terms of the transactions conducted during the year.
        c) Internal Controls
        12. As explained, an important safeguard involves the annual review by auditors and INEDs, and the annual confirmations that the individual transactions are indeed conducted in accordance with the terms of the agreement, on normal commercial terms (or terms more favourable than terms available to independent parties), and in accordance with the pricing policy of the issuer. It is important for the issuer to ensure that it has an adequate system of controls to safeguard the transactions, and to provide information for the INEDs and auditors to properly review the transactions annually.
        d) INED Role
        13. Under the Rules, the INEDs are obliged to confirm that the terms of the agreement are fair and reasonable at the time the agreement is announced, and make annual confirmations about the transactions entered under the agreement as set out in paragraph 2(v).
        14. The INEDs should ensure that:
        (i) the pricing mechanism and the terms of the transactions set out in the agreement are clear and specific;
        (ii) the annual caps are reasonable taking into account historical transactions and management projections;
        (iii) the methods and procedures established by the issuer are sufficient to ensure that the transactions will be conducted on normal commercial terms and not prejudicial to the interests of the issuer and its minority shareholders;
        (iv) appropriate internal control procedures are in place, and its internal audit would need to review these transactions; and
        (v) they are provided by the management with sufficient information for the discharge of their duties.
        e) Annual Review by Auditors
        15. Under the Rules, the issuer must engage its auditors to report on the continuing connected transactions every year. The auditors may refer to Practice Note 740 "Auditor's Letter on Continuing Connected Transactions under the Hong Kong Listing Rules" issued by the Hong Kong Institute of Certified Public Accountants for guidance as to their responsibilities and procedures when undertaking the annual review.

        ****


        1 Examples of such disclosure include:

        •   the transactions will be conducted on normal commercial terms. The consideration will be based on arms' length negotiation with reference to the prevailing market prices. There is no explanation on how to define/ determine "normal commercial terms" or "prevailing market prices".
        •   The transaction will be agreed between the issuer and the connected person on a "cost plus" mechanism. There is no indication of the "plus" in percentage or fixed amount.
        •   The transaction shall be priced in accordance with the following terms: (i) government-prescribed price; (ii) where there is no government-prescribed price, the government-guidance price; (iii) where there is neither a government-prescribed price nor a government-guidance price, the relevant market price; (iv) where none of the above is available or applicable, the price to be agreed between the parties which shall be determined on the basis of reasonable cost plus reasonable profit margin and by reference to the historical price. Some of the above pricing methods (e.g. the government-prescribed price) do not apply to the subject transactions in practice.

      • GL71-14

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        HKEx GUIDANCE LETTER
        HKEx-GL71-14 (January 2014)

        Subject Gambling Activities Undertaken by Listing Applicants and/ or Listed Issuers
        Listing Rules Main Board Rules 2.13(2) and 11.07

        GEM Rules 14.08(7) and 17.56(2)
        Related Publication HKEx News Release (11/3/2003)
        Author IPO Transactions Department

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Division on a confidential basis for an interpretation of the Listing Rules, or this letter.

        1. Purpose
        1.1. This is a reproduction of the HKEx News Release dated 11 March 2003 regarding Gambling Activities Undertaken by Listing Applicants and/ or Listed Issuers.
        2. The Announcement
        2.1 The Stock Exchange of Hong Kong Limited (the Exchange) has received enquiries as to whether a listing applicant involved in the operation of gambling activities is suitable for listing and whether a listed issuer can invest in a company involved in the operation of gambling activities.
        2.2 As an internal guideline, the Exchange has been mindful of ensuring that such activities undertaken by a listing applicant or listed issuer are not contrary to public policy. In view of the amendments to the Gambling Ordinance, which came into effect on 31 May 2002, the Exchange has updated its guideline. It would not be contrary to public interest if a listing applicant or listed issuer is involved in the operation of a gambling activity that is not unlawful under the Gambling Ordinance. Such gambling activity has the following features:
        •   the gambling activity takes place outside Hong Kong; and
        •   the bookmaking transactions and the parties to the transactions are outside Hong Kong.
        2.3 In addition, the gambling activity should not violate any applicable laws in the areas where such activity operates.
        2.4 The Exchange also notes that other major exchanges permit the listing of companies involved in the gambling business, and acquisitions of or investments in gambling business by listed issuers.
        2.5 Additional relevant disclosure, however, would be required in the prospectus, announcement or circular concerned if a listing applicant or listed issuer is involved in the operation of a gambling activity that is not unlawful under the Gambling Ordinance. The Exchange would determine, based on the specific circumstances of the case, the extent of disclosure required with a view to ensuring transparency of the operation of the specific gambling activity and the associated risks. Such disclosure would include the type(s) of gambling activities involved, the applicable regulatory or licensing requirements and the specific risks in relation to operation of such activities. For listed issuers acquiring or investing in the gambling business, such additional relevant disclosure would be required on top of the disclosure required by Chapter 14 or Paragraph 2 of the Listing Agreement (in respect of the Main Board Listing Rules) or Chapters 19 and/ or 20 or Rule 17.10 (in respect of the GEM Listing Rules). The extent of additional relevant disclosure would depend on the materiality of the transaction to the issuer concerned.
        2.6 The following requirements apply where the company concerned is found to engage in activities contrary to the Gambling Ordinance after it is permitted to be listed or after its shares are acquired by a listed issuer.
        A. Listing Applicants
        2.6.1 Where a listing applicant invests in gambling activities, it would be a condition to listing that the issuer must use its best endeavours to ensure that the operation of the gambling activities, throughout its listing, (i) comply with the applicable laws in the areas where such activities operate; and/or (ii) not contravene the Gambling Ordinance.
        2.6.2 Should the operation of such gambling activities (i) fail to comply with the applicable laws in the areas where such activities operate; and/ or (ii) contravene the Gambling Ordinance, the issuer or its business may be considered unsuitable for listing under Rule 8.04 of the Main Board Listing Rules or Rule 11.06 of the GEM Listing Rules. Depending on the circumstances of the case, the Exchange may direct the issuer to take remedial action, and/or may suspend dealings in, or may cancel the listing of, its securities pursuant to Rule 6.01 of the Main Board Listing Rules or Rule 9.01 of the GEM Listing Rules.
        2.6.3 The prospectus must highlight in the Risk Factors section the risk of revocation of listing should the operation of such gambling activities fail to fulfill the above condition to listing in relation to legality.
        B. Listed Issuers
        2.6.4 Where a listed issuer invests directly or indirectly in gambling activities, it would be required to use its best endeavours to ensure that the operation of the gambling activities must, after the investment and throughout the holding of such investment, (i) comply with the applicable laws in the areas where such activities operate; and/or (ii) not contravene the Gambling Ordinance.
        2.6.5 Should the operation of such gambling activities (i) fail to comply with the applicable laws in the areas where such activities operate; and/ or (ii) contravene the Gambling Ordinance, the issuer or its business may be considered unsuitable for listing under Rule 8.04 of the Main Board Listing Rules or Rule 11.06 of the GEM Listing Rules. Depending on the circumstances of the case, the Exchange may direct the issuer to take remedial action, and/or may suspend dealings in, or may cancel the listing of, its securities pursuant to Rule 6.01 of the Main Board Listing Rules or Rule 9.01 of the GEM Listing Rules.
        2.6.6 The announcement and, where applicable, circular of the issuer on any investment in relation to the operation of gambling activities must confirm that the gambling activities are lawful and highlight the risk of suspension and cancellation of listing should the operation of the gambling activities fail to fulfill the above legality requirement.

        ****

      • GL68-13A

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        HKEX GUIDANCE LETTER
        HKEX-GL68-13A (June 2016) (Updated in April 2018)

        Subject Guidance on IPO vetting and suitability for listing
        Listing Rules and Regulations Main Board Rules 8.04, 2.06
        GEM Rules 11.06, 2.09
        Related Publications HKEX-GL68-13 — Guidance on suitability for listing

        HKEX-GL56-13 — Guidance on (i) disclosure requirements for substantially complete Application Proofs; and (ii) publication of Application Proofs and Post Hearing Information Packs on the Exchange's website
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules shall prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or specific issues raised in this guidance letter.

        1. Background
        1.1 The Exchange notes that there have been a number of listed issuers where their controlling shareholders either changed or have gradually sold down their interests shortly after the regulatory lock-up period following listing. One explanation for this phenomenon is the perceived premium attached to the listing status of such issuers rather than the development of the underlying business or assets.
        1.2 The Exchange believes that such companies (often referred to as "shell companies") will invite speculative trading activities when identified by potential buyers. This can lead to opportunities for market manipulation, insider trading and unnecessary volatility in the market post-listing, none of which is in the interest of the investing public. Furthermore, activities by such companies may be structured so that they are not subject to regulatory scrutiny under Rule 14.06, our Guidance Letters HKEX-GL78-14 on reverse takeovers, and HKEX-GL84-15 on cash companies.
        1.3 The Exchange has concerns in respect of listing applicants whose size and prospects do not appear to justify the costs or purpose associated with a public listing. This raises questions regarding the reasons and justification for their listing, and therefore raises concerns regarding the suitability for such listings.
        Review of Past Listings and Observations
        1.4 The Exchange's concerns have led to a review of all new listings on the Main Board and GEM between 2012 and 2014 together with selected companies in 2015. We focused on companies in which the initial controlling shareholder had sold down to below 30% or appeared to be in the process of selling down its controlling stake of the company and identified characteristics shared by such companies ("Target Companies"). Based on the empirical data, it is observed that Target Companies have one or more of following characteristics:—
        (i) small market capitalisation;
        (ii) only marginally meet the listing eligibility requirements;
        (iii) involve fund raising disproportionate to listing expenses (i.e. a high proportion of the listing proceeds were used to pay listing expenses);
        (iv) involve a pure trading business with a high concentration of customers;
        (v) are asset-light businesses where a majority of the assets are liquid and/or current assets;
        (vi) involve a superficial delineation of business from the parent whereby the applicant's business is artificially delineated from the parent by geographical area, product mix or different stages of development; and/or
        (vii) have little or no external funding at the pre-listing stage.
        This brings into question the suitability for listing of such Target Companies and whether they should be subject to a more focused review by the Exchange.
        2. Relevant Listing Rules
        2.1 Main Board Rule 8.04 (GEM Rule 11.06) states that both the applicant and its business must, in the opinion of the Exchange, be suitable for listing.
        2.2 Main Board Rule 2.06 (GEM Rule 2.09) states that suitability for listing depends on many factors. Applicants for listing should appreciate that compliance with the Listing Rules may not itself ensure an applicant's suitability for listing.
        2.3 Guidance Letter HKEX-GL68-13 provides guidance on the factors which may be relevant that the Exchange would take into consideration when assessing whether an applicant and its business are suitable for listing under Main Board Rule 8.04 (GEM Rule 11.06).
        3. Guidance
        3.1 The Exchange considers that suitability is a fundamental listing requirement and conducts appropriate review of all applications to maintain the quality and reputation of the Hong Kong market. Applicants should note that there is no prescribed bright-line test in determining suitability and the Exchange will take into account facts and circumstances of each case.
        3.2 In this regard, the Exchange expects that the applicant and sponsors should provide a robust analysis in the listing document to substantiate that the applicant is suitable for listing including, among other things, in the following areas:—
        (i) Use of proceeds — we would expect that the applicant to disclose specific uses for proceeds commensurate with the applicant's past and future business strategy and observed industry trends and explain the commercial rationale for listing. We would not be satisfied with generic descriptions such as (a) using listing proceeds to increase reputation and brand awareness, (b) for potential acquisitions without identified target and specific selection criteria, and/or (c) for expansion through increase in headcount;
        (ii) Future objectives and strategies — we would expect a comprehensive analysis to be provided to demonstrate that the applicant has a detailed strategic plan for its business operations and growth;
        (iii) Profit and revenue growth — where an applicant (a) has experienced decreasing or low profit and revenue growth; and/or (b) is expected to record decreasing or low profit and revenue growth after listing, a comprehensive analysis is required to substantiate that the applicant's business is sustainable;
        (iv) Potential sunset industries — where an applicant is in a potential sunset industry or in an industry that has declining market prospects, the applicant must be able to demonstrate that it is feasible and it has both the ability and resources to modify its business to respond to the changing demands of the market; and
        (v) Cost of listing — if a significant portion of the listing proceeds will be applied to listing expenses, the applicant should explain how the advantages of listing outweigh the cost of listing.
        3.3 Sponsors are therefore reminded that before submitting an application to the Exchange for listing on behalf of an applicant, they should ensure they are aware of all material issues which, in their reasonable opinion, are necessary for consideration of whether the applicant is suitable for listing.
        3.4 The Exchange may impose additional requirements or conditions on applicants or exercise its discretion to reject the applicant's listing on the grounds of suitability. We would like to emphasize that this Guidance Letter is only part of the suitability assessment by the Exchange, and there may be other issues which could render an applicant not suitable or eligible for listing. Please refer to our Guidance Letter HKEX-GL-68-13 "Guidance on Suitability for Listing".
        3.5 You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or specific issues raised in this Guidance Letter. However, the Exchange will not give specific guidance on the suitability of applicant as a whole for the purpose of this Guidance Letter as an assessment of suitability can only be made when a substantially complete application proof is provided.
        4. Recent Development (Updated in April 2018)
        4.1 Since the publication of this guidance letter, we have observed that certain listing applicants and their sponsors have treated the characteristics we listed in paragraph 1.4 as a checklist. We emphasise that our focus is a qualitative review on the applicant's suitability such as whether a listing of the applicant is consistent with its business strategy, including the proposed use of proceeds and whether the applicant has genuine funding needs (please refer to paragraph 3.2).
        4.2 The Exchange will continue to use its broad discretion in determining suitability. If the applicant is unable to demonstrate the commercial rationale for listing, we may find that the applicant is not suitable for listing irrespective of the nature and financial standing of the business operated by the applicant. In addition, if we are aware of specific facts and circumstances which give us a reasonable basis to believe that an applicant is likely to invite speculative trading upon listing or to be acquired for its listing status, we may find the applicant to be not suitable for listing.
        4.3 Some controlling shareholders or major shareholders have voluntarily provided lock-up undertakings to the applicant that extend beyond the requirements under the Listing Rules to demonstrate their commitment to develop the businesses after listing. These longer lock-up undertakings do not in and of themselves address our concerns.
        4.4 Once listed, an issuer must ensure that it and its business continues to be suitable for listing. Failing to meet this requirement may lead to the Exchange canceling the issuer's listing under Main Board Rule 6.01(4) (GEM Rule 9.04(4). The Exchange closely monitors the developments of listed issuers. It may have a concern about the suitability of an issuer or its business for continued listing if, for example, the issuer's activities are found to deviate significantly from its original business model or strategy or the commercial rationale for its listing set out in its listing application.

        ****

      • GL68-13

        View Current PDF

        HKEx GUIDANCE LETTER
        HKEx-GL68-13 (December 2013) (Updated in June 2015)

        Subject Guidance on suitability for listing
        Listing Rules and Regulations Main Board Rules 8.04, 2.06

        GEM Rules 11.06, 2.09
        Related Publications HKEx-LD8-2; HKEx-LD43-3; HKEx-LD46-1;
        HKEx-LD46-2; HKEx-LD50-5; HKEx-LD51-1;
        HKEx-LD51-3; HKEx-LD69-1; HKEx-LD92-1;
        HKEx-LD96-1; HKEx-LD97-1; HKEx-LD107-1;
        HKEx-LD19-2011; HKEx-LD30-2012; HKEx-LD37-2012;
        HKEx-LD73-2013; HKEx-LD92-2015;
        HKEx-RL12-06; HKEx-RL19-07; HKEx-RL20-07;
        HKEx-RL21-07; and HKEx-RL25-09.
        Author IPO Transactions Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose
        1.1 This letter provides guidance on the factors that the Exchange would take into consideration when assessing whether an applicant and its business are suitable for listing under Main Board Rule 8.04 (GEM Rule 11.06).
        1.2 The Exchange considers a number of factors when assessing an applicant's suitability for listing. We have published various listing decisions and rejection letters, as referred to above, to provide transparency to the market. This letter is intended to assist applicants and their advisers by consolidating the factors included in these listing decisions and rejection letters. (Updated in June 2015)
        1.3 This letter sets out examples of factors that have been considered by the Exchange in the past and published as guidance on the Exchange's website, and they are not exhaustive. (Added in June 2015)
        2. Relevant Listing Rules
        2.1 Main Board Rule 8.04 (GEM Rule 11.06) states that both the applicant and its business must, in the opinion of the Exchange, be suitable for listing.
        2.2 Main Board Rule 2.06 (GEM Rule 2.09) states that suitability for listing depends on many factors. Applicants for listing should appreciate that compliance with Listing Rules may not itself ensure an applicant's suitability for listing.
        2.3 GEM Rule 11.06 also states, by way of example, that an applicant whose assets consists wholly or substantially of cash or short-dated securities (i.e. securities such as bonds, bills or notes which have less than one year to maturity) would not normally be regarded as suitable for listing, except where the applicant or group is solely or mainly engaged in the securities brokerage business.
        3. Guidance on suitability
        3.1 When vetting a listing application, the Listing Department focuses on an applicant's eligibility for listing (e.g. whether the financial requirements are met; compliance with law, rules and regulations), suitability for listing (e.g. whether matters on sustainability of the business; reliance on a parent company; suitability of directors, including potential persons of substantial influence are satisfactorily addressed), and whether there are any material disclosure deficiencies. (Updated in June 2015)
        3.2 There is no hard and fast rule in determining what would render an applicant and its business not suitable for listing. Each case is determined on its own individual factual circumstances.
        (1) suitability of director and controlling shareholders

        Having a past non-compliance or conviction record does not necessarily mean that a person cannot be accepted as a director of a listed company.

        However, in the case where the past record or conviction raises serious concern on an individual's integrity, and the individual is likely to exert substantial influence on the applicant after listing (e.g. a controlling shareholder and director), there may be concern as to the applicant's suitability for listing and the suitability of the individual to act as a director under Main Board Rules 3.08, 3.09 and 8.15 (GEM Rules 5.01, 5.02 and 11.07(1)). (Updated in June 2015)

        Where a person is a controlling shareholder, his majority vote as a controlling shareholder is likely to be decisive in the appointment of the directors of the applicant. It will accordingly be highly likely that he will be able to exert substantial influence over the operation and management of the applicant even if he is not formally appointed as a director, or has previously resigned as a director. The issue of the applicant's suitability therefore may not be solved by that person refraining from acting as the applicant's director. (Updated in June 2015)

        Relevant listing decision: HKEx-LD96-1
        (2) non-compliances

        The Exchange considers that systematic, intentional, and/or repeated breaches of laws and regulations by an applicant may affect its suitability for listing. The Exchange will take into account the following factors in determining the impact of non-compliance on an applicant's listing:
        (i) the nature, the extent and the seriousness of the breaches;
        (ii) the reasons for the breaches, whether they were intentional, fraudulent, due to negligence or recklessness;
        (iii) impact of the breaches on the applicant's operation and financial performance;
        (iv) rectification measures adopted; and
        (v) precautionary measures put in place to avoid future breaches.
        In cases such as non-compliant bill financing arrangements, the Exchange will expect the applicant to have demonstrated for a reasonable period (normally 12 months) that (a) it would be financially sound and could operate without reliance on the non-compliant bill financing arrangements; and (b) it has effective internal control to avoid future non-compliance of a similar nature.

        In other cases where the non-compliances do not have a direct impact on the financial position of the applicant (e.g. failure to obtain the necessary licence, approval or complete the necessary registration required by law), where the non-compliances had been serious, listing was only approved after the applicants had demonstrated continued compliance for a reasonable period of time.

        Where it is determined that the material non-compliance incidents can be resolved by way of disclosure, the Exchange expects the applicant to follow Guidance Letter HKEx-GL63-13.

        Relevant listing decisions : HKEx-LD50-5; HKEx-LD97-1; and HKEx-LD19-2011
        (3) deteriorating financial performance

        The Exchange is of the view that the assessment of suitability is a continuous process and that the applicant must remain suitable for listing at the time of listing, taking into account the actual performance after the latest audited period, profit forecast and such other projected information submitted by the applicant in relation to its business and financial position after listing.

        Examples of deteriorating financial performance that may give rise to a concern as to suitability include:
        (i) deteriorating financial performance subsequent to the track record period

        Even if the applicant can meet the relevant requirements of Main Board Rule 8.05 during the track record period, any deteriorating financial performance subsequent to the track record period may be a strong indicator of a fundamental deterioration of commercial or operational viability, which goes to the heart of sustainability and suitability for listing.

        Relevant listing decision : HKEx-LD73-2013
        (ii) track record results are not indicative of future performance in light of significant profit drop in its profit forecast

        A significant decline in the applicant group's forecast profit together with an engagement in new business through acquisition may also render the applicant not suitable for listing, as the track record results may not be indicative of the applicant's business going forward.

        Relevant rejection letter : HKEx-RL19-07
        (Updated in June 2015)
        (4) reliance on parent group / connected persons / major customer

        When reviewing a reliance issue, the Exchange will take into account the degree of dependence. Where the degree of dependence is excessive, this would translate into a concern on suitability for listing.

        Examples of reliance that may give rise to a concern as to suitability include :
        (i) reliance on a parent group for certain important functions such as sales and procurement functions; or financial and operational reliance on the applicant's parent.

        Paragraph 27A of Appendix 1A to the Main Board Rules (Paragraph 27A of Appendix 1A to the GEM Rules) provides that the listing document should include a statement explaining how the applicant is satisfied that it is capable of carrying on its business independently of the controlling shareholder after listing, and particulars of the matters that it relied on in making such statement.

        When reviewing whether an applicant can carry on its business independently of its controlling shareholder, the Exchange ordinarily considers the applicant's specific circumstances, including financial independence, operational independence and management independence;

        Relevant listing decisions / rejection letter : HKEx-LD46-1; HKEx-LD46-2; HKEx-LD51-1; HKEx-LD69-1; HKEx-LD30-2012; and HKEx-RL12-06
        (ii) dependence on the parent when there are overlapping directors, the applicant and its parent are in the same industry sector, and there are inadequate arrangements to manage conflicts of interest and delineation of businesses.

        Main Board Rule 8.10(a)(iii) requires that where the controlling shareholder has a business which is likely to compete with the applicant's business, the listing document must disclose the facts demonstrating that the applicant is capable of carrying on its business independently of, and at arm's length from the competing business of the controlling shareholder.

        In contrast, GEM Rule 11.03 provides that an applicant would not be rendered unsuitable for listing on the grounds that any director or shareholder has an interest in a competing business;

        Relevant listing decision / rejection letter : HKEx-LD51-3 and HKEx-RL21-07
        (iii) the applicant derives a significant portion of its turnover and net profit from transactions with closely related parties and connected persons.

        Although profits from transactions with connected persons or closely related parties do not necessarily have to be disregarded in assessing whether the requirements of Main Board Rule 8.05 are met, when these transactions are excessive, this may raise a concern as to whether the applicant is suitable for listing.

        Firstly, the risk involved in connected transactions is substantially different from transactions with independent third parties, and hence it will be uncertain whether the applicant's business is relying on the connected person and is sustainable without these connected transactions.

        Secondly, significant connected transactions will also give rise to a concern as to whether they are designed to enable the applicant to meet the requirements of Main Board Rule 8.05;

        Relevant listing decision : HKEx-LD8-2 and HKEx-LD92-1
        (iv) heavy reliance on a major customer.

        When the applicant's reliance on a single major customer is extreme, the applicant may suffer a material and adverse financial impact if it loses that customer or there is a change in the business relationship.

        In assessing whether a case of reliance on single customer is an extreme case which impacts on suitability for listing for an applicant, the Exchange will take into account the applicant's ability to find substitute customers, the likelihood for the level of reliance to decrease in the future, the industry landscape, whether reliance is mutual and complimentary, the existence of any long-term contractual arrangements and whether the applicant is capable of maintaining its revenue and profitability in the future in light of the reliance;

        Relevant listing decision: HKEx-LD107-1
        (v) a captive business model, i.e. the sourcing of the applicant's principal raw materials and its principal customer channel are dominated by the same party.

        When the applicant's supply and sales are dominated by the same party, the applicant's relationship with this party will be fundamental to its business. If the applicant is unable to demonstrate that it is capable of carrying on its business independently of this party, it will translate into a concern about the suitability of the applicant for listing.

        Relevant rejection letter: HKEx-RL20-07
        (5) gambling

        Applicants which engage in gambling business will be considered not suitable for listing unless they satisfy the requirements in the Exchange's announcement on "Gambling Activities Undertaken by Listing Applicants and/or Listed Issuers" and Listing Committee Report 2006.

        Relevant rejection letter: HKEx-RL25-09
        (6) contractual arrangements (VIEs)

        Applicants adopting contractual arrangements of the nature described in Listing Decision HKEx-LD43-3 may be considered not suitable for listing unless they satisfy the conditions set out in that Listing Decision, including closely tailoring the use of such arrangement to the applicant's needs.

        Relevant listing decision: HKEx-LD43-3.
        (7) reliance on unrealized fair value gains to meet profit requirement

        The Exchange is of the view that even if an applicant is able to satisfy the profit test under Main Board Rule 8.05(1)(a) by relying on the unrealized fair value gains of its investment properties, if the applicant is loss making after such gains are excluded and it did not have a substantive business during its track record period, the applicant would have to demonstrate that it has a sustainable business before the Exchange considers it suitable for listing.

        The demonstration of a sustainable business can include the existence of property projects under development as at the date of the listing document, or significant recurring income (e.g. rental income) generated in the applicant's ordinary and usual course of business during the track record period which is expected to continue after listing.
        (8) Unsustainable business model

        Where a company's business model is believed to be unsustainable, the Exchange will consider it unsuitable for listing. A business model may be considered unsustainable due to a combination of factors, e.g. significant and recent changes in the revenue model such that its trade record is not representative of its past performance; changing regulatory environment and industry outlook; deteriorating financial performance during the track record period and no sign of improvement in the forecast period and beyond; one-off windfall profits unlikely to be recurring. While none of the factors alone may necessarily be detrimental, the Exchange will consider the combined impact of such factors on the applicant's business.

        Relevant listing decisions: HKEx-LD37-2012, Company D, Company L, Company N, Company O and Company P of HKEx-LD92-2015

        (Added in June 2015)
        3.5 (Deleted in June 2015)

        ***

      • GL63-13

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL63-13 (July 2013) (Updated in September 2013, May 2014 and May 2016)—effective for applications submitted on or after 1 October 2013

        (Updated due to withdrawal of guidance letter superseded by HKEX-GL86-16)

        Subject Guidance on disclosure of material non-compliance incidents in listing documents
        Listing Rules and Regulations Main Board Rules 2.03(2), 2.13(2), 3.08, 3.09 and 8.04

        GEM Rules 2.06(2), 5.01, 5.02, 11.06 and 17.56(2)
        Related Publications Listing Decisions HKEX-LD96-1, HKEX-LD97-1, HKEX-LD19-2011, HKEX-LD33-2012 and HKEX-LD73-2013

        Section C of Appendix 1 in Guidance Letter HKEX-GL86-16 (Updated in May 2016)
        Author IPO Transactions Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose
        1.1 This letter provides guidance on the disclosure of material non-compliance incidents in listing documents.
        1.2 The Exchange expects applicants to follow this letter when preparing their listing applications. A listing document that does not follow this guidance may be considered not substantially complete as required under the Listing Rules.
        2. Relevant Listing Rules
        2.1 Main Board Rule 2.03(2) (GEM Rule 2.06(2)) requires that potential investors are given sufficient information to enable them to make a properly informed assessment of an applicant.
        2.2 Main Board Rule 2.13(2) (GEM Rule 17.56(2)) requires the information contained in a listing document to be accurate and complete in all material respects and not be misleading or deceptive. In complying with this requirement, an applicant must not, among other things, omit material facts of an unfavourable nature or fail to accord them with appropriate significance.
        2.3 Main Board Rule 3.08 (GEM Rule 5.01) states that the Exchange expects the directors to fulfil fiduciary duties and to have duties of skill, care and diligence to a standard at least commensurate with the standard under Hong Kong law.
        2.4 Main Board Rule 3.09 (GEM Rule 5.02) provides that every director of a listed issuer must satisfy the Exchange that he has the character, experience and integrity and is able to demonstrate a standard of competence commensurate with his position as a director of a listed issuer.
        2.5 Main Board Rule 8.04 (GEM Rule 11.06) requires both the applicant and its business, in the opinion of the Exchange, to be suitable for listing.
        3. Guidance

        Categorisation of non-compliances (Added in May 2014)
        3.1 This Guidance Letter divides non-compliance incidents into three categories:
        (a) Material Impact Non-compliances: Non-compliance incidents which, individually or in the aggregate, have had or may have in the future, a material financial or operational impact on the listing applicant. For example, non-compliances giving rise to significant financial penalties or which may result in the closure of material operating facilities.
        (b) Systemic Non-compliances: Non-compliance incidents which are not Material Impact Non-compliances, but which reflect negatively on the listing applicant's or its directors'/ senior management's ability or tendency to operate in a compliant manner. For example, repeated and/ or continuous breaches of laws1.
        (c) Immaterial Non-compliances: Non-compliance incidents which are neither Material Impact Non-compliances nor Systemic Non-compliances.
        Suitability (Updated in May 2014)
        3.2 If non-compliance incidents are of a serious nature (for example, involving fraud or deceit by directors or senior management, systematic failure of an applicant's internal controls and/ or matters with significant financial impact on an applicant), this can translate into an issue of suitability of the directors and/ or suitability for listing of an applicant. This may result in an application being rejected or the Exchange requesting a demonstration period of compliance from the cessation of the non-compliance incident(s) to demonstrate that the rectification measures and enhanced internal control measures adopted are effective, and there is no financial impact on the applicant. The demonstration period would generally be required to be an audited period.
        Disclosure and rectification (Updated in May 2014)
        3.3 Where it is determined that the non-compliance incidents do not give rise to a suitability issue, the expected level of disclosure in the listing document on the non-compliance incidents and the need for their rectification is based on their category.

        Material Impact Non-compliances
        3.4 The Exchange expects the following to be disclosed in the listing document, either in the form of a table or plain text (whichever presents the issue in a more comprehensible manner):
        (a) reasons for the non-compliance incidents, nature and extent of the breaches, corresponding risk factors, and the identity and position of the director(s)/ senior management involved in the non-compliance incidents;
        (b) whether the applicant has been or will be charged or penalised for the non-compliance incidents during the track record period and up to the latest practicable date with confirmation from the competent authorities (and legal opinions confirming the competence of the relevant authorities). If so, disclose actual or maximum penalty (including the amounts), whether the applicant has made any provision (if not, reasons for not making provision), and the potential operational and financial impact on the applicant;
        (c) enhanced internal controls to prevent their recurrence (including the identity, position, qualification and experience of the personnel who are responsible for ensuring the compliances). In the event an independent internal control expert has been separately engaged to review the internal controls2, include the identity of and the salient terms of engagement of an internal control expert and its findings and recommendations, and the applicant's timing of implementation of any of the internal control expert's recommendations (and the internal control expert's follow-up review, if any) (Updated in September 2013);
        (d) how and when the rectification actions were taken/ will be taken; and
        (e) the views of the directors and the sponsor(s), with basis, on whether the applicant's enhanced internal control measures are adequate and effective under Main Board Rule 3A.15(5) (GEM Rule 6A.15(5)), the suitability of the directors under Main Board Rules 3.08 and 3.09 (GEM Rules 5.01and 5.02), and the applicant's suitability for listing under Main Board Rule 8.04 (GEM Rule 11.06).
        3.5 Material Impact Non-compliances should also be highlighted in the "Summary and Highlights" section of the applicant's listing document.
        3.6 The Exchange normally expects the rectification of all Material Impact Non-compliances to be completed before a listing. Where the Exchange accepts that certain non-compliance incidents can only be rectified within a short period after listing, the listing document should disclose a legal adviser's view, with basis, whether there is any impediment to rectify the non-compliances, and a statement that the applicant will disclose the progress of the rectification in the interim/ annual reports and detailed explanation for any delay in the rectification.
        Systemic Non-compliances
        3.7 The Exchange expects the following to be disclosed in the listing document, either in the form of a table or plain text (whichever presents the issue in a more comprehensible manner):
        (a) the views of the directors and the sponsor(s), with basis, on whether the applicant's internal control measures are adequate and effective under Main Board Rule 3A.15(5) (GEM Rule 6A.15(5)), the suitability of the directors under Main Board Rules 3.08 and 3.09 (GEM Rules 5.01and 5.02), and the applicant's suitability for listing under Main Board Rule 8.04 (GEM Rule 11.06); and
        (b) the disclosure set out in paragraphs 3.4(a) to (c) above, to the extent necessary to enable investors to make an informed assessment of the applicant (i.e. where, based on the nature and circumstances of the non-compliance incidents, a disclosure set out in paragraphs 3.4(a) to (c) above would not be material to such an assessment, it does not need to be included).
        3.8 Systemic Non-compliances should also be highlighted in the "Summary and Highlights" section of the applicant's listing document.
        3.9 The Exchange does not require the rectification of any Systemic Non-compliances. The decision to rectify Systemic Non-compliances rests with an applicant's directors and its sponsor(s).
        Immaterial Non-compliances
        3.10 The Exchange does not require the disclosure of Immaterial Non-compliances nor does it require the rectification of any of such non-compliances. The decision to rectify an Immaterial Non-compliance, whether or not disclosed in the listing document, rests with an applicant's directors and its sponsor(s).

        Listing Decisions relating to specific material non-compliance incidents and Guidance Letter on suitability (Updated in May 2016)
        3.11 In addition to the guidance on general disclosure of material non-compliance incidents in this Guidance Letter, please also refer to Listing Decisions HKEX-LD96-1 (directors with past SFC disciplinary records), HKEX-LD97-1 (regulatory non-compliance record), HKEX-LD19-2011 (non-compliant bill financing), HKEX-LD33-2012 (compliance with laws applicable to pawn loan industry in the PRC) and HKEX-LD73-2013 (non-compliance with building laws) which relate to specific cases of non-compliance incidents, and Section C of Appendix 1 in Guidance Letter HKEX-GL86-16 (disclosure in the "Industry Overview" section) which relates to suitability for listing, for further guidance.

        ****


        1 For the avoidance of doubt, non-compliance incidents which satisfy the test for being Material Impact Non-compliances and which also reflect negatively on the listing applicant's or its directors'/ senior management's ability or tendency to operate in a compliant manner, should be categorised as Material Impact Non-compliances.

        2 If the internal control expert is the reporting accountants or another accounting firm, the relevant guidelines and practices of the accounting profession position an internal controls review as private advice to the directors of the applicant (and if they are party to the engagement, the sponsors). Accordingly, in such circumstances the name of the reporting accountants or other accounting firm and details of their work and findings may be prevented from being quoted or referenced in the listing document. One circumstance in which internal controls work may be referenced in the listing document is where it is practicable for the applicant and the sponsor to additionally and separately engage the reporting accountants or other accounting firm to also perform an assurance engagement in relation to internal controls.

      • GL61-13

        View Current PDF

        HKEx GUIDANCE LETTER
        HKEx-GL61-13 (July 2013) (Updated in September 2014) — effective for applications submitted on or after 1 October 2013

        Subject Guidance on accelerated procedures for reviewing a Listing Department and Listing Committee's decision to return a listing application
        Listing Rules and Regulations Chapter 2B of Main Board Rules, Rule 9.03(3)

        Chapter 4 of GEM Rules, GEM Rule 12.09(1)
        Related Publications HKEx-GL56-13Guidance on (i) disclosure requirements for substantially complete Application Proofs; and (ii) publication of Application Proofs and Post Hearing Information Packs on the Exchange's website
        Author IPO Transactions

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose
        1.1 To complement the Securities and Futures Commission's ("SFC") new sponsor regulation effective on 1 October 2013, the Exchange will amend the Listing Rules to provide for accelerated procedures ("Accelerated Review Procedures") for reviewing (a) a Listing Department's decision to return a listing application ("Return Decision1"); and (b) a Listing Committee's decision that endorses a Return Decision, on the ground that the information in the listing application form, Application Proof, or related documents is not substantially complete under Main Board Rule 9.03(3) (GEM Rule 12.09(1)).
        1.2 This letter supplements the relevant Listing Rules and sets out a sample timetable for the Accelerated Review Procedures with an example set out in Appendix 1 and a flowchart2 (see Appendix 2) on the IPO vetting procedures and the publication of an Application Proof ("AP") and a Post Hearing Information Pack ("PHIP") to assist applicants and/or their sponsors prepare for review hearings relating to a Return Decision.
        1.3 Each of the applicant and the sponsor has the right to have a Return Decision and the Listing Committee's decision that endorses the Return Decision reviewed. (Main Board Rule 2B.05(2), GEM Rule 4.05(2))
        2. Timetable
        2.1 This timetable sets out each stage of the Accelerated Review Procedures, where applicable, and any required actions (Updated in September 2014).

        Listing Division's Action Applicant and/or Sponsor's Action
        Review of the Return Decision
        Submission of the listing application (Form A1/Form 5A)
         
        •   The applicant submits a listing application together with an AP and the required documents to the Listing Department
        After receipt of the listing application (Updated in September 2014)
        •   The Listing Department sends a letter informing the relevant parties of the Return Decision
         
        •   The Return Decision letter will contain reasons for the return (MB Rule 2B.13(2), GEM Rule 4.13(2))
         
        Within five business days after receipt of the Return Decision
         
        •   The applicant and/or sponsor submit(s) a written review request (the "First Review Request") to the Secretary to the Main Board or GEM Listing Committee (the "Secretary to LC") (see definition of Review Request in MB Rule 2B.01A, GEM Rule 4.01A)
        •   The First Review Request must include grounds for the review together with reasons (MB Rule 2B.08(2), GEM Rule 4.08(2)) and the review fee (MB Rule 2B.14, GEM Rule 4.14)
        •   The First Review Request must be based on the original materials submitted to the Listing Department when the applicant first filed its listing application (MB Rule 2B.11(5)(d), GEM Rule 4.11(5)(d))
        The next business day after receipt of the First Review Request
        The Secretary to LC sends a letter to the applicant and/or sponsor specifying the date and time for the review hearing (the "First Review Hearing"), which will be the immediate Thursday after receipt of the First Review Request, provided it is not less than three business days. If such date falls on a public holiday, then the First Review Hearing will be scheduled to the following Tuesday (subject to the availability of the Listing Committee members) or the Thursday thereafter that is not a public holiday  
        At least two business days before the First Review Hearing
        •   The Listing Department submits a report to the Secretary to LC
        •   The Listing Department's report shall comprise:
        (a) the Return Decision; and
        (b) the AP and/or other documents submitted together with the application form to support the Return Decision
         
        At least one business day before the First Review Hearing
        •   The Secretary to LC circulates the First Review Request, Listing Department's report and agenda to the Main Board or GEM Listing Committee (the "Listing Committee")
         
        The day the First Review Hearing is held
        •   Quorum: 5 (including the chairman of the Listing Committee and excluding conflicted members) (MB Rule 2B.11(2), GEM Rule 4.11(2))
        •   Attendees who may attend: Listing Department IPO Transactions Team; the applicant's directors, one representative of each of the applicant's legal adviser, financial adviser and auditors, one representative from each sponsor, each sponsor's legal adviser (MB Rule 2B.11(9), GEM Rule 4.11(9))
        •   If all the parties seeking a review decide not to attend the hearing, the hearing will proceed based on the documents submitted for hearing. If a party seeking a review decides not to attend the hearing, the hearing will proceed in his absence
        The next business day after the First Review Hearing
        •   The Secretary to LC sends the Listing Committee's decision letter to the applicant and/or sponsor and the Listing Department (the "LC Decision")
        •   A LC Decision which endorses the Return Decision will contain reasons for the return (MB Rule 2B.13(2), GEM Rule 4.13(2))
         
        Review of the LC Decision
        Within five business days after issue of the LC Decision
         
        •   The applicant and/or sponsor submit(s) a second written review request (the "Second Review Request") to the Secretary to the Main Board or GEM Listing (Review) Committee (the "Secretary to LRC") (see definition of Review Request in MB Rule 2B.01A, GEM Rule 4.01A)
         
        •   The Second Review Request must include the grounds for seeking a second review together with reasons (MB Rule 2B.08(2), GEM Rule 4.08(2)) and the review fee (MB Rule 2B.14, GEM Rule 4.14)
        •   The Second Review Request must be based on the original materials submitted to the Listing Department when the applicant first filed its listing application (MB Rule 2B.11(5)(d), GEM Rule 4.11(5)(d))
        The next business day after receipt of the Second Review Request
        The Secretary to LRC sends a letter to the applicant and/or sponsor specifying the date and time for the second review hearing (the "Second Review Hearing") which will be the immediate Tuesday (subject to the availability of the Listing (Review) Committee members) or Thursday, provided it is not less than three business days after receipt of the Second Review Request. If such date falls on a public holiday, then the Second Review Hearing will be scheduled to the following Tuesday (subject to the availability of the Listing (Review) Committee members) or the Thursday that is not a public holiday  
        At least two business days before the Second Review Hearing
        •   The Listing Department submits its Listing Department's report to the Secretary to LRC
        •   The Listing Department's report shall comprise:
        (a) the Return Decision;
        (b) LC Decision; and
        (c) the AP and/or other documents submitted together with the application form to support the Return Decision
         
        At least one business day before the Second Review Hearing
        •   The Secretary to LRC circulates the Second Review Request, Listing Department's report and agenda to the Main Board or GEM Listing (Review) Committee ("Listing (Review) Committee")
         
        The day the Second Review Hearing is held
        •   Quorum: 5 (including the chairman of the Listing (Review) Committee and excluding conflicted members) (MB Rule 2B.11(2), GEM Rule 4.11(2))
        •   Attendees who may attend: Listing Department IPO Transactions Team; the applicant's directors, one representative of each of the applicant's legal adviser, financial adviser and auditors; one representative from each sponsor, each sponsor's legal adviser (MB Rule 2B.11(9), GEM Rule 4.11(9))
        •   If all the parties seeking a review decide not to attend the hearing, the hearing will proceed based on the documents submitted for hearing. If a party seeking a review decides not to attend the hearing, the hearing will proceed in his absence
        The next business day after the Second Review Hearing
        •   The Secretary to LRC sends the Listing (Review) Committee's decision letter to the applicant and/or sponsor and the Listing Department which is conclusive and binding (MB Rule 2B.05(2)(b), GEM Rule 4.05(2)(b))
         

        Appendix 1: An example of the First Review Hearing Timetable

        Monday Tuesday Wednesday Thursday Friday
          1/10 2/10 3/10 4/10
          The applicant submits a listing application      
        7/10 8/10 9/10 10/10 11/10
        The Listing Department sends a Return Decision letter        
        14/10 15/10 16/10 17/10 18/10
        The applicant/ sponsor submits the First Review Request within five business days after receipt of the Return Decision Secretary to LC sent letter to the applicant and/or sponsor specifying the date and time for the First Review Hearing      
        21/10 22/10 23/10 24/10 25/10
              Scenario A1  
        28/10 29/10 30/10 31/10  
          Scenario B2   Scenario C3  


        1. The immediate Thursday which is not less than three business days after receipt of the First Review Request
        2. Assuming 24/10 was a public holiday and there were sufficient number of Listing Committee members to form a quorum for the First Review Hearing
        3. Assuming 24/10 was a public holiday and there were insufficient number of Listing Committee members to form a quorum for the First Review Hearing on 29/10

        Appendix 2: Flowchart on IPO vetting procedures and publication of an AP/ PHIP on or after 1 October 2014* (Main Board & GEM applicants)

        (*This flowchart neither forms part of the Listing Rules nor varies the text of any guidance issued by the Exchange) (Updated in September 2014)


        1 The Accelerated Review Procedures do not apply to a Listing Department's or SFC's decision to return a new CIS applicant's Application Proof required to be submitted under Main Board Rule 20.25.

        2 This flowchart does not form part of the Listing Rules and therefore does not override, amend or vary the Listing Rules or the text of any guidance; nor does it have the status of guidance or practice notes to the Listing Rules or this guidance.

      • GL60-13

        View Current PDF

        HKEx GUIDANCE LETTER
        HKEx-GL60-13 (July 2013) (Updated in September 2014) — effective for applications submitted on or after 1 October 2013

        Subject Guidance on confirmations required on Expert Opinions in Application Proofs and subsequent draft listing documents (excluding any report, opinion or statement issued by the Reporting Accountant which is covered by Guidance Letter HKEx-GL58-13)
        Listing Rules and Regulations Main Board Rules 3A.01(3), 5.07, 9.03(3), 18.24(2)

        GEM Rules 6A.01(3), 8.30, 12.09, 18A.24(2)
        Related Publications HKEx-GL56-13-Guidance on (i) disclosure requirements for substantially complete Application Proofs; and (ii) publication of Application Proofs and Post Hearing Information Packs on the Exchange's website
        Author IPO Transactions

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose
        1.1 This letter provides guidance on the confirmation required in relation to any opinion, statement or report purported to be made by an expert who is named as an expert in a listing document (the "Expert Opinion") which forms part of the expert section (as that term is defined in Main Board Rule 3A.01(3) (GEM Rule 6A.01(3)). For the avoidance of doubt, an Expert Opinion can be in the form of a report, opinion or statement which is included in a listing document.
        1.2 The Exchange expects applicants to follow this guidance letter when preparing their listing applications. An applicant that does not follow this guidance may render the listing application not considered substantially complete as required under the Listing Rules.
        1.3 This letter does not apply to any report, opinion or statement issued by the Reporting Accountants as it is covered by Guidance Letter HKEx-GL58-13.
        2. Relevant Listing Rules
        2.1 Main Board Rule 3A.01(3) (GEM Rule 6A.01(3)) defines expert section as any part of the listing document purporting to be made on the authority of an expert or purporting to be a copy of or extract from a report, opinion, statement or valuation of an expert where the expert gives consent for the inclusion in the listing document of the copy or extract and the listing document includes a statement that he has given and has not withdrawn such consent. Examples of an expert include a Competent Person, Competent Evaluator, property valuer, legal advisor, internal control consultant, financial advisor and any person whose profession gives authority to a statement made by such person who is named as an expert in a listing document.
        2.2 Main Board Rule 5.07 (GEM Rule 8.30) requires that the effective date which a property was valued must not be more than three months before the date of the listing document.
        2.3 Main Board Rule 18.24(2) (GEM Rule 18A.24(2)) requires that a Competent Person's Report or Valuation Report must have an effective date less than six months before the date of the listing document (meaning the date at which resources and reserves under Chapter 18 of Main Board Rules (Chapter 18A of GEM Rules) are estimated or valued must be less than six months before the expected date of issue of the listing document based on the applicant's listing timetable submitted with the Application Proof).
        2.4 The new Main Board Rule 9.03(3) (GEM Rule 12.09), effective on 1 October 2013, provides that an applicant must submit an Application Proof to the Exchange with its listing application form. The information prescribed in the listing application and the Application Proof must be substantially complete except for information that by its nature can only be finalized and incorporated at a later date. If the Exchange decides the information is not substantially complete, the Exchange will not continue to review any documents relating to the application. All documents, including the Form A1/5A will be returned to the sponsor.
        3. Guidance
        3.1 In the case of a report as opposed to a statement or opinion, a signed copy of the Expert Opinion such as a property valuation report, Competent Person's Report or Valuation Report will not be required to be issued when the Application Proof is submitted. However, whether the Expert Opinion is in the form of a report or just an opinion or statement, the relevant expert will be required to provide a confirmation to the applicant and a copy to the sponsor, the Exchange and the Securities and Futures Commission at the same time when the Application Proof is submitted that no material change is expected to the relevant Expert Opinion in the Application Proof based on the work done as of the date of confirmation.
        3.2 If the Expert Opinion needs to be updated to comply with the validity period requirement under Main Board Rule 5.07 (GEM Rule 8.30) or Main Board Rule 18.24(2) (GEM Rule 18A.24(2)), the expert is required to provide a new confirmation to the applicant and a copy to the sponsor, the Exchange and the Securities and Futures Commission at the same time the new Expert Opinion is included in the listing document.
        3.3 It is acceptable for the expert's confirmation to be made subject to unforeseen events occurring after submission of the Application Proof which are outside the control of the expert.

        Examples of these events are :
        •   Change in valuation due to a new policy or law announced by the relevant authority from time to time;
        •   Epidemic of infectious disease (such as the outbreak of SARS) that will significantly impact the valuation;
        •   Change in portfolio which is the subject matter of the Expert Opinion due to an acquisition and/or a disposal made after submission of the Application Proof; and
        •   Update of the Expert Opinion to comply with the validity period requirement under Main Board Rule 5.07 (GEM Rule 8.30) or Main Board Rule 18.24(2) (GEM Rule 18A.24(2)), as the case may be.
        3.4 A suggested template of the expert's confirmation is set out in the Appendix.

        Effective Date
        3.5 This Guidance Letter will be effective from 1 October 2013.

        ***

        Appendix

        Suggested template of an expert's confirmation is as follows :

        Letterhead of the Expert

        1. This confirmation is made in respect of the draft [name of the report / opinion or statement made by us] (the "draft Expert Opinion") which is included in the Application Proof / listing document of [XYZ] (the "Company") dated [date].
        2. This confirmation is subject to unforeseen events occurring after submission of the Application Proof / listing document which is outside our control.
        3. Subject to the events referred to in paragraph 2 above, we confirm that no material change is expected to be made to the draft Expert Opinion included in the Application Proof / listing document.

        Signed by : _______________________
        (Name of the expert)

        Date : ___________________________

      • GL58-13

        View Current PDF

        HKEx GUIDANCE LETTER
        HKEx-GL58-13 (July 2013) (Updated in September and October 2014)—effective for applications submitted on or after 1 October 2013

        Subject Guidance on confirmations required on the accountants' report, pro forma financial information and profit forecast in Application Proofs and subsequent draft listing documents
        Listing Rules and Regulations Main Board Rules 4.04(1), 8.06, 9.03(3)

        GEM Rules 7.03(1), 11.11, 12.09
        Related Publications HKEx-GL6-09A—Guidance on the financial information for the trading record period expected in the first draft listing document for listing applications

        HKEx-GL56-13—Guidance on (i) disclosure requirements for substantially complete Application Proofs; and (ii) publication of Application Proofs and Post Hearing Information Packs on the Exchange's website
        Author IPO Transactions

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose
        1.1 This letter provides guidance on confirmations required on the accountants' report, pro forma financial information and profit forecast in Application Proofs and subsequent draft listing documents.
        1.2 The Exchange expects applicants to follow this guidance letter when preparing their listing applications. An applicant that does not follow this guidance may render the listing application not considered substantially complete as required under the Listing Rules.
        2. Relevant Listing Rules
        2.1 Main Board Rule 4.04(1) (GEM Rule 7.03(1)) requires the accountants' report to include the results of the issuer or, if the issuer is a holding company, the consolidated results of the issuer and its subsidiaries in respect of each of the three financial years (at least 2 financial years for GEM applicants) immediately preceding the issue of the listing document or such shorter period as may be acceptable to the Exchange.
        2.2 Main Board Rule 8.06 (GEM Rule 11.11) requires the latest financial period reported on by the reporting accountants must not have ended more than six months before the date of the listing document.

        For example, for a listing applicant expected to issue its listing document in December 2012, the latest financial period reported on in the Accountants' Report must have ended on or after 30 June 2012.
        2.3 Main Board Rule 9.03(3) (GEM Rule 12.09) provides, among others, that a new applicant must submit a listing application form, an Application Proof and all other relevant documents under Main Board Rule 9.10A(1) (GEM Rules 12.22 and 12.23), 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. If the Exchange decides that this information is not substantially complete, the Exchange will not continue to review any documents relating to the listing application.
        3. Guidance
        3.1 Subject to the relief under Guidance Letter HKEx-GL6-09A, an Application Proof must comply with the following to fulfill the new listing rules requirements:-
        a) a signed copy of each of (1) the accountants' report on historical financial information, (2) the reporting accountants' report on the pro forma financial information and (3) the reporting accountants' report on profit forecast (if any) (the "Reports") are required when the Application Proof is submitted; or
        b) where the financial information is not in a final form, it must be in an advanced form. The reporting accountants must provide a confirmation to the applicant with a copy of it be made to the sponsor, the Exchange and the Securities and Futures Commission that no significant adjustment is expected to be made to the draft Reports based on the work done as of the date of the confirmation. A template of the reporting accountants' confirmation is in the Appendix.
        3.2 Where there is a delay in the listing timetable that results in the historical financial information, pro forma financial information or profit forecast (if any) being updated, the reporting accountants must also provide a confirmation similar to that in paragraph 3.1(b) on the updated financial information at the same time the information is submitted to the Exchange. The Exchange may raise comments on the updated financial information.

        ****

        Appendix

        Suggested template of the reporting accountants' confirmation is as follows:

        1. This confirmation is made in respect of the [draft accountants' report on historical financial information/ draft accountants' report on pro forma financial information/ draft accountants' report on the profit forecast (collectively, the "draft Reports")*][and the financial information for the [nine] months ended X*] in the draft prospectus of [XYZ] (the "Company") dated [date] (the "Draft Prospectus").
        2. This confirmation is subject to the following procedures which have not been completed as of [date]:
        •   [Subsequent event review;
        •   Resolution of items identified by "[ ]" and " • " in the draft Reports;
        •   Obtaining the underlying financial statements, pro forma financial information and profit forecast memorandum in final form, each having been approved by the directors of the Company;
        •   Obtaining outstanding external expert reports and confirmations;
        •   Reviewing the completion of the re-organization described on page [x] of the Draft Prospectus; and
        •   Reading the final Prospectus]

        Note: The Exchange expects any outstanding procedures to be minimal. If there are other outstanding procedures, an applicant should consult the Exchange before submission of its listing application.
        Accountants' report on historical financial information
        3. For the financial information of the Company and its subsidiaries (the "Group") for the [three] years ended [31 December 2010, 2011 and 2012] and [three] months ended [31 March 2013] as set out on pages [x] to [x] of the Draft Prospectus (the "Financial Information"), subject to the completion of the procedures highlighted in paragraph 2 above, we have performed procedures in accordance with Auditing Guideline 3.340 "Prospectuses and the Reporting Accountant" issued by the Hong Kong Institute of Certified Public Accountants. The draft accountants' report on the Financial Information is set out in Appendix [x] to the Draft Prospectus.
        4. Subject to the completion of the procedures highlighted in paragraph 2 above, as of the date of this confirmation, we confirm that no significant adjustment is expected to be made to the draft accountants' report on the Financial Information included in the Draft Prospectus.
        5. We have also reviewed the Group's financial information for the [nine] months ended [x] and the comparative information (the "Interim Financial Information") in accordance with the Hong Kong Standards on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", subject to completion of the procedures highlighted in paragraph 2 above. The Interim Financial Information and our draft report are in Appendix [x] to the Draft Prospectus.

        Pro forma financial information
        6. For the Group's pro forma financial information ("Pro Forma Financial Information") on pages [x] of the Draft Prospectus, subject to the completion of the procedures highlighted in paragraph 2 above, we have performed procedures in accordance with Hong Kong Standard on Assurance Engagements (HKSAE) 3420 "Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus" issued by the HKICPA. The draft accountants' report on Pro Forma Financial Information is in Appendix [x] of the Draft Prospectus. Subject to the completion of the procedures highlighted in paragraph 2 above and based upon the Directors' assumptions in Appendix [x] to the Draft Prospectus, as of the date of this confirmation, we are not aware of any significant modification that would need to be made to the draft accountants' report on Pro Forma Financial Information in the Draft Prospectus.

        Profit forecast [to be inserted where appropriate]
        7. For the Group's profit forecast for the year ending [31 December 2013] prepared by the Directors (the "Profit Forecast") in Appendix [x] of the Draft Prospectus, subject to the completion of the procedures highlighted in paragraph 2 above, we have reviewed the calculations of and the accounting policies adopted in arriving at the Profit Forecast in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 500 "Reporting on Profit Forecasts, Statements of Sufficiency of Working Capital and Statements of Indebtedness" issued by the HKICPA. The draft accountants' report on the Profit Forecast is in Appendix [x] of the Draft Prospectus. Subject to the completion of the procedures highlighted in paragraph 2 above and based upon the Directors' assumptions in Appendix [x] of the Draft Prospectus, as of the date of this confirmation, we are not aware of any significant modification that would need to be made to the draft accountants' report on the Profit Forecast in the Draft Prospectus (Updated in October 2014).

        Use of information
        8. This confirmation is for your information only and a copy of it will be provided to the sponsor, the Exchange and the Securities and Futures Commission in connection with the Company's listing application. Except as otherwise expressly authorised, no copying, reproduction, or distribution of the information in this confirmation is permitted without the prior written permission of [name of the reporting accountants], save as required by applicable laws or regulations.

        Signed by: _______________________________
        (Name of the reporting accountants)

        Date: _______________________________

        * Delete where appropriate

      • GL57-13

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL57-13 (July 2013) (Updated in February, March, June and September 2014, November 2016 and February 2018)

        Subject Guidance on logistical arrangements for publication of Application Proofs, Post Hearing Information Packs ("PHIPs") and related materials on the Exchange's website for listing applicants
        Listing Rules and Regulations Main Board Rules 9.08(2)(c), 12.01A, 12.01B, 20.25, 20.26, and Practice Note 22

        GEM Rules 12.10(2)(c), 16.01A, 16.01B and Practice Note 5
        Related Publications HKEX-GL56-13—Guidance on (i) disclosure requirements for substantially complete Application Proofs; and (ii) publication of Application Proofs and Post Hearing Information Packs on the Exchange's website
        Author IPO Vetting Team

        Important notes:

        (1) This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.
        (2) The Securities and Futures Commission ("Commission") is of the view that so long as an Application Proof or a PHIP submitted for publication on the Exchange's website adheres to the guidance set out in paragraphs A.7 (Warning and Disclaimer Statements) and A.8 (Redactions in Application Proof for Publication and PHIP) below, then neither the Application Proof nor the PHIP would constitute a prospectus under section 2(1) of the Companies Ordinance1 as amended from time to time (Cap. 32) ("Companies Ordinance"); or an advertisement under section 38B(1) of the Companies Ordinance1; or an invitation to the public in breach of section 103(1) of the Securities and Futures Ordinance as amended from time to time (Cap. 571) ("Securities and Futures Ordinance") (Updated in March 2014).

        Table of Contents

        A. Preliminary
        B. File Specifications and Submission Procedures
        C. Display of Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements on the Exchange's Website
        D. Searching for an Application Proof, PHIP and MB Rule 9.08/ GEM Rule 12.10 Statements on the Exchange's Website

        Enclosures

        1. Part A—Minimum Warning Statement in a Dedicated Section of the Exchange's Website
        Part B—Minimum Disclaimer Statement in an Application Proof and a PHIP
        2. (Deleted in November 2016)
        3. Recommended Template for MB Rule 9.08/ GEM Rule 12.10 Statements
        4. Recommended Template for a Request for a Company Case number for a New Application
        5. Recommended Template for a Confirmation Letter from Each Sponsor
        6. Recommended Content Layout of an Application Proof and a PHIP
        A. Preliminary

        Purpose and Effective Date
        A.1 We have revised the Main Board Rules and the GEM Rules (collectively the "Listing Rules") to require the publication of Application Proofs2, PHIPs3 and statements under Main Board Rule 9.08(2)(c) or GEM Rule 12.10(2)(c) ("MB Rule 9.08/ GEM Rule 12.10 Statements") on the Exchange's website.
        A.2 This guidance is on the logistical arrangements for the submission and publication of Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statement for Main Board and GEM applications on the Exchange's website. Applicants and their sponsors must follow these arrangements and such others as may from time to time be prescribed by the Exchange.
        A.3 (Deleted in November 2016)
        Reference to the Listing Rules
        A.4 Unless the context requires otherwise:
        (i) the reference to a "new applicant" or "applicant" includes a CIS applicant which is required to publish an Application Proof and a PHIP under Main Board Rules 20.25 and 20.26; and
        (ii) the reference to a "sponsor" includes a "listing agent" or a person under whatever description appointed by a CIS applicant which is required to discharge the functions equivalent to those of a sponsor for the purpose of a listing of interests in a CIS under Chapter 20 of the Main Board Rules.
        A.5 An applicant should refer to Practice Note 22 to the Main Board Rules and Practice Note 5 to the GEM Rules for details on the publication requirements for Application Proofs and PHIPs, including:
        (i) language requirements;
        (ii) content requirements;
        (iii) legal compliance matters;
        (iv) prescribed timing for publication;
        (v) confidential filings; and
        (vi) publication of subsequent PHIPs with mark-ups against the previous proofs.
        Application
        A.6 The publication requirements for Application Proofs and PHIPs4 apply to any application for the new listing of:
        (i) securities under Chapter 9 of the Main Board Rules and Chapter 12 of the GEM Rules; and
        (ii) interests in a CIS under Chapter 20 of the Main Board Rules with a listing agent appointed to discharge the functions equivalent to those of a sponsor.
        Warning and Disclaimer Statements
        A.7 Minimum warning and disclaimer statements are set out in Part A and Part B respectively of Enclosure 1. These warning and disclaimer statements are for reference only and are not intended to be prescriptive. An applicant can adopt warning and disclaimer statements that contain elements additional to but not detracting from those set out in Enclosure 1.
        Redactions in Application Proof for Publication and PHIP
        A.8
        (i) Extent of redactions:
        For the purpose of publication on the Exchange's website, unless consent is obtained for further redactions, an applicant must redact an Application Proof and a PHIP only to the extent necessary for these documents not to constitute a prospectus under section 2(1) of the Companies Ordinance1; or an advertisement under section 38B(1) of the Companies Ordinance1; or an invitation to the public in breach of section 103 of the Securities and Futures Ordinance (the "Relevant Laws"). Please refer to Table A of Guidance Letter HKEX-GL56-13 on what information must be redacted in an Application Proof for publication purpose which also applies to a PHIP.
        (ii) Consequence of inadequate redaction of information:
        Inadequate redaction of information in an Application Proof or a PHIP for publication purpose is a breach of the Relevant Laws. The publication of unauthorised materials as a result of inadequate redaction of information in an Application Proof or a PHIP is likely to condition the market ahead of a properly authorised prospectus and affect market perceptions of an upcoming offer. We will take strict measures against such unauthorised published materials in order to "cool off" any undesirable impact on the market. These include requiring the immediate withdrawal of the unauthorised published materials, suspension of the vetting of the application for up to a month from the date of withdrawal of the unauthorised published materials. The listing timetable will be delayed as a result. (Updated in November 2016)
        Obligation to Update Information in PHIP
        A.9 Guidance Letter HKEX-GL56-13 provides guidance on what information may be bracketed (i.e. information which will be updated in subsequent drafts of a listing document), omitted and redacted in an Application Proof. For the avoidance of doubt, if the information is permitted to be omitted from the Application Proof for vetting, it should not be disclosed in the Application Proof for publication. To the extent practicable and except for offer-related information, bracketed or omitted information in an Application Proof should be updated or included upon the publication of the PHIP.
        Confidential Filing of Application Proof
        A.10 The Listing Rules provide for confidential filing of an Application Proof where, at the time of filing a listing application, an applicant has already been listed on a recognised overseas exchange for not less than five years and has a market capitalisation of not less than US$400,000,000 or such higher value the Exchange as may determine from time to time (paragraph 18 of Practice Note 22 to the Main Board Rules and paragraph 17 of Practice Note 5 to GEM Rules). A recognised overseas exchange for this purpose means the main market5 on any one of the exchanges listed below (which is subject to change as the Exchange considers appropriate):
        (i) The Amsterdam Stock Exchange (NYSE Euronext—Amsterdam);
        (ii) The Australian Securities Exchange (ASX);
        (iii) The Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA);
        (iv) The Frankfurt Stock Exchange (Deutsche Börse);
        (v) The Italian Stock Exchange (Borsa Italiana);
        (vi) The London Stock Exchange (premium segment, LSE);
        (vii) The Madrid Stock Exchange (Bolsa de Madrid);
        (viii) NASDAQ OMX (US);
        (ix) The New York Stock Exchange (NYSE Euronext (US));
        (x) The Paris Stock Exchange (NYSE Euronext—Paris);
        (xi) The Singapore Exchange (SGX);
        (xii) The Stockholm Stock Exchange (NASDAQ OMX—Stockholm);
        (xiii) The Swiss Exchange (SIX Swiss Exchange);
        (xiv) The Tokyo Stock Exchange (TSE); and
        (xv) The Toronto Stock Exchange (TMX).
        Waivers from Publication of Application Proof
        A.11 The Exchange or the Commission (as the case may be) may waive or modify the publication requirements for an Application Proof. An applicant is encouraged to consult the Exchange or the Commission (as the case may be) at an early stage if it envisages any difficulties in complying with the publication requirements (e.g. where the publication of an Application Proof will conflict with the laws of the foreign jurisdiction which the applicant is subject to or unduly prejudice an applicant's continuing listing status on an overseas exchange).
        A.12 In the case of a spin-off from an overseas listed parent, the Exchange or the Commission (as the case may be) will only consider a waiver from the publication requirements on a case by case basis taking into account whether an applicant can generally satisfy (i), (ii) or (iii) below:
        (i)
        (a) the applicant's application for listing in Hong Kong is price sensitive to its overseas listed parent under the applicable rules of its primary listing venue;
        (b) the overseas listed parent is not required under the applicable rules of its primary listing venue to disclose the applicant's listing in Hong Kong (e.g. a safe harbour provisions are available under the rules of its primary listing venue); and
        (c) the overseas listed parent keeps and undertakes to keep the applicant's application for listing in Hong Kong confidential before the issue of the PHIP; or
        (ii)
        (a) the Application Proof contains price-sensitive information to the overseas listed parent under the applicable rules of its primary listing venue;
        (b) the overseas listed parent is entitled to keep the price-sensitive information confidential under the applicable rules of its primary listing venue by redacting such information in the Application Proof; and
        (c) the extent of the proposed redactions will make the content of the Application Proof and its publication meaningless; or
        (iii) the overseas listed parent's jurisdiction or the relevant exchange it is listed on has requirements or regulations that prevent the overseas listed parent or the applicant from publishing a draft listing document relating to the spin-off.
        A.13 In the case of a spin-off from a parent listed on the Exchange, the Exchange or the Commission (as the case may be) will only consider a waiver from the publication requirements on a case by case basis in the light of the relevant application of the inside information6 requirement as applicable to that case.
        Publication of MB Rule 9.08/ GEM Rule 12.10 Statements
        A.14 The publication of MB Rule 9.08/ GEM Rule 12.10 Statements must be in English and Chinese and submitted to the Exchange through HKEX-ESS. The Exchange will not review the statement, but applicants must submit a copy to the Exchange for its record prior to any publication. Applicants must ensure that these statements do not include information that (i) constitutes a prospectus under section 2(1) of the Companies Ordinance1; or an advertisement under section 38B(1) of the Companies Ordinance1; or an invitation to the public in breach of section 103 of the Securities and Futures Ordinance; (ii) discusses its proposed issue of securities; or (iii) promotes its securities to be issued or its listing. The statement will be published on a designated webpage for publication of Application Proofs, PHIPs, and MB Rule 9.08/ GEM Rule 12.10 Statements ("Designated Webpage") (see webpage layout in paragraph C1.1 and webpage contents in paragraph A.18). A recommended template for the publication of MB Rule 9.08/ GEM Rule 12.10 Statements is set out in Enclosure 3 (Updated in March 2014).
        A.15 (Deleted in September 2014)
        A.16 (Deleted in September 2014)
        A.17 (Deleted in September 2014)
        Status Marks and Information on the Exchange's Website7
        A.18 The Exchange will publish the following status marks and information on the Exchange's website to indicate the status of each listing application:
        Status Mark Status of Listing Application Information on the Exchange's Website under the Designated Webpage
        "Active" Any valid listing or authorisation application and includes an application of which the review of a decision to return or reject the application is pending
        •   The contents of the latest submitted Application Proof, and any PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements submitted thereafter

        "Inactive"
        comprising:

           • "Lapsed"

           • "Withdrawn"

           • "Rejected"

         
         

        Any lapsed application

        Any withdrawn application

        Any rejected application

        •   The name of the applicant
        •   A record of the date and description of the documents previously published
        Note: The contents of all previously published documents will no longer be accessible
        "Listed" Any application of which the applicant is subsequently listed on the Exchange
        •   The name and the stock code of the applicant
        •   The contents of the latest submitted Application Proof, and any PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements submitted thereafter can be viewed and downloaded under "Listed Company Information" on HKEXnews website
        Note: The contents of all previously published documents which have been categorised as "Inactive" will no longer be accessible, but there will be a record of these documents
        "Returned" Any application returned by the Exchange or the Commission (as the case may be) where all related review procedures on the decision to return the application have been completed or the time for invoking them has lapsed
        •   The name of the applicant
        •   The name of the sponsor or listing agent
        •   The date of the Exchange's or the Commission's return decision
        Note: All other information previously categorised as "Active" will be removed


        B. File Specifications and Submission Procedures

        Submission through the e-Submission System ("HKEX-ESS")
        B.1 HKEX-ESS is the Exchange's system to enable registered users to submit documents electronically to the Exchange. The e-Submission System User Manual for Listing Related Matters ("User Manual (Listing)") has been updated to include procedures on Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements. Please access this document through the link at the bottom of the HKEX-ESS website at: https://www.esubmission.hkex.com.hk.
        Publication of Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements
        B.2 An applicant's sponsor must arrange for publication on the applicant's behalf of all Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements on the Exchange's website in accordance with the prescribed time limit in paragraph B.5 below.
        B.3 For publication of Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements on the Exchange's website, a sponsor must first:
        (i) register with the Exchange's Primary Market Information Team of the Exchange as a HKEX-ESS user at least three business days before any submission. We will assign a User ID and Password to each applying sponsor. If a sponsor is already a HKEX-ESS user, no re-registration is required and the previously allocated User ID and Password can be used for submission of Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements through the HKEX-ESS; and
        (ii) obtain a company case number from the Listing Department—IPO Vetting Team for the applicant by filing a request form as set out in Enclosure 4 at least one business day before the filing of the listing or authorisation application. This case number is specific to an applicant and it must be used for submissions of all Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements under the same application.
        B.4 Every Application Proof, PHIP and MB Rule 9.08/ GEM Rule 12.10 Statements must be:
        (i) in a ready-to-publish electronic version in both English and Chinese when submitted through HKEX-ESS for publication (see paragraph B.9 below for large files); and
        (ii) accompanied by a written confirmation from each sponsor by facsimile, mail or hand to the Listing Department—IPO Vetting Team confirming that the submission of the Application Proof, PHIP or MB Rule 9.08/ GEM Rule 12.10 Statements is under the applicant's authority (see sample at Enclosure 5).
        B.5 The Exchange requires processing time to upload any submitted Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements on the Exchange's website. Applicants should early consult the Exchange on the estimated publication time to avoid delays. Priority will be given to PHIPs as it is not anticipated that Application Proofs and MB Rule 9.08/ GEM Rule 12.10 Statements will have the same time pressure for publication. Application Proofs are expected to be submitted on a business day during office hours between 9:00 a.m. and 6:00 p.m. Barring unforeseen circumstances, the publication time of Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements is:
        (i) when submitted through HKEX-ESS during the HKEX-ESS Operational Hours:
        HKEX-ESS Operational Hours Time of submitting the Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements Publication time on the Exchange's website
        6:00 a.m. to 11:00 p.m. on Mondays to Fridays (business days only) Before 6:00 p.m. Before 11:00 p.m. on the same day
        After 6:00 p.m. where the next day is a business day Before 12:00 noon on the next day

        After 6:00 p.m. where the next day is a non-business day

        For example:

        (i) a submission after 6:00 p.m. on Friday where the next business day is Monday

        (ii) a submission after 6:00 p.m. on Wednesday where the next business day is Friday

        6:00 p.m. to 8:00 p.m. on a non-business day immediately before a business day


        6:00 p.m. to 8:00 p.m. on Sunday


        6:00 p.m. to 8:00 p.m. on Thursday

        6:00 p.m. to 8:00 p.m. on a non-business day immediately before a business day (Saturdays are usually closed for maintenance) Between 6:00 p.m. and 8:00 p.m. Before 12:00 midnight on the same day
        (ii) if a PHIP is intended to be submitted on a day where no HKEX-ESS service is available, the following special arrangements can be made:
        Special Submission Arrangements Submission Method Publication time on the Exchange's website
        Notify the Listing Department—IPO Vetting Team not later than 2:00 p.m. on a business day immediately before the day special arrangements are to be made, and agree with the Listing Department—IPO Vetting Team to arrange for a special window for submission of the PHIP within a one-hour session between 9:00 a.m. and 6:00 p.m. on the day with no HKEX-ESS service Within the pre-agreed one-hour session, deliver the following to the Exchange:
        (i) the relevant files set out in paragraph B.8 through
        •   email if the aggregate file size does not exceed 7MB; or
        •   in other cases, through CD ROM; and
        (ii) Enclosure 5
        confirmation
        The CD ROM, where applicable and Enclosure 5 must be hand delivered to the relevant IPO Team staff
        Before 12:00 midnight on the same day
        File Specifications
        B.6 Every file comprising an Application Proof, PHIP or MB Rule 9.08/ GEM Rule 12.10 Statements (except for the file referred to in paragraph B.8(iii) below which is in Excel format) submitted for publication on the Exchange's website must be in a read-only PDF format. The copying and editing functions in the file must be disabled.
        B.7 A warning statement as set out in Part A of Enclosure 1 in English and Chinese contained in separate files must be submitted to the Exchange through HKEX-ESS at the same time as the applicant submits its Application Proof. Only one submission of the warning statement is required for all related Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements of an applicant. The warning statement may be revised from time to time as the applicant considers appropriate.
        B.8 Every English and Chinese version of an Application Proof and a PHIP submitted through HKEX-ESS (or on CD ROM for large files, see paragraph B.9 below) must contain the following:
        (i) a single file containing an Application Proof or a PHIP with bookmarks to enable readers to navigate easily between chapters of the document; and
        (ii) a multi-file of the same Application Proof or PHIP divided into different chapters as in the recommended contents layout in Enclosure 6 in an Excel file as an index for each individual file.
        MB Rule 9.08/ GEM Rule 12.10 Statements are required to be in a single file for each English and Chinese version (Updated in February 2014).
        B.9 Each Application Proof, PHIP or MB Rule 9.08/ GEM Rule 12.10 Statements file submitted through HKEX-ESS must NOT be larger than 20MB and must not be in a compressed format (e.g. a "zip" file). If any file exceeds 20 MB, the applicant must submit the file on a CD ROM (together with Enclosure 5). The applicant must send the CD ROM to the collection box located at the following address during the operational hours of HKEX-ESS (see paragraph B11) as soon as other files (e.g. warning statements) where applicable are submitted through HKEX-ESS:

        Primary Market Information Team,
        Listing Department,
        Hong Kong Exchanges and Clearing Limited,
        10th Floor, One International Finance Centre
        1 Harbour View Street,
        Central,
        Hong Kong

        (Please write clearly "Application Proof or PHIP for Publication-[company case number]" on the envelope for identification purpose.) Failure to do so may delay the acceptance of an Application Proof or publication of a PHIP
        B.10 Please refer to the e-Submission System User Manual For Publication Related Matters ("User Manual (Publication)") for the file specifications of Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements. You can access the document through the link shown at the bottom of the HKEX-ESS website at: https://www.esubmission.hkex.com.hk. In particular, please refer to the following headings:
        (i) "File Name Convention and Recommended File Size" section of Appendix G of the User Manual (Publication) for filename convention;
        (ii) "Excel Spreadsheet" section of Appendix G of the User Manual (Publication) for guidelines on preparing the excel spreadsheet; and
        (iii) Guidelines on how to create bookmarks within a document (in PDF format) in Appendix H of the User Manual (Publication).
        Submission Steps
        B.11 Step 1: Log in.

        When submitting an Application Proof/PHIP, the sponsor is required to log in to HKEX-ESS (using the User ID and Password previously issued by the Exchange) at: https://www.esubmission.hkex.com.hk during:
        •   6:00 a.m. to 11:00 p.m. on Mondays to Fridays (business days only)
        •   6:00 p.m. to 8:00 p.m. on a non-business day immediately before a business day (i.e. Saturdays are excluded)

        Step 2 Select "Submit Document" under "Document Submission" after logging in.

        In the "Document Submission" pull down box.

        Step 3 Click the "Existing Case Number" button. Then input the case number assigned to the new listing application. Use the same case number for all Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements submitted by the same applicant under the same application.

        Step 4 Click the "Next" button to view the next screen.



        Step 5 Click the "Browse" button to select the file to be submitted from original location.



        Step 6 Select Document Type from the draw-down box (see Table below with corresponding user guide) (Updated in June 2014):



        Table
        Document Type User Guide
        Warning Statements (for Application Proof/ PHIP/ related materials) See paragraph A.7 above
        Application Proof—Contents Layout See Enclosure 6 below
        Application Proof (1st submission) (Full version) Publication of an Application Proof under a listing application
        Application Proof (1st submission) (Multi-Files)
        PHIP—Contents Layout See Enclosure 6 below
        PHIP (1st submission) (Full version) 1st publication of a PHIP
        PHIP (1st submission) (Multi-Files)
        PHIP (1st revised proof) (Full version) Publication of the 1st revised PHIP
        PHIP (1st revised proof) (Multi-Files)
        PHIP (2nd revised proof) (Full version) Publication of the 2nd revised PHIP
        PHIP (2nd revised proof) (Multi-Files)
        Application Proof-Statement under Main Board Rule 9.08(2)(c) See paragraph A.14 above
        Application Proof-Statement under GEM Rule 12.10(2)(c)
        PHIP-Statement under Main Board Rule 9.08(2)(c) See paragraph A.14 above
        PHIP-Statement under GEM Rule 12.10(2)(c)
        Application Proof (Revised) (Full version) Publication of any revision to the Application Proof published under a listing application. Revisions must be blacklined
        Application Proof (Revised) (Multi-Files)


        Step 7 Click the "Upload" button to upload the file to be submitted.

        Step 8 Repeat Steps 4 to 7 until all the files are uploaded.

        Step 9 Input the relevant "Contact Person" and "Contact Number".

        Step 10 Click the "Submit" button to submit all files.



        Step 11 Check the completeness of the files on "List of Uploaded Files". Click the "Confirm" button to submit document(s) or click the "Previous" button to return to the previous page for amendment if necessary.



        The system will display "File uploaded successfully".

        Step 12 Select "Document Submission Log" under "Document Submission" to view the submission details, e.g. document submitted, date and time of submission

        C. Display of Application Proof, PHIP and MB Rule 9.08/ GEM Rule 12.10 Statements on the Exchange's Website
        C.1 To view Application Proofs, PHIPs and MB Rule 9.08/ GEM Rule 12.10 Statements submitted by applicants:

        For Main Board Applicants
        C1.1 Click the "Application Proof and PHIP" button found on: http://www.hkexnews.hk to access the Designated Webpage.



        (Updated in November 2016)

        Status Marks explanations for Main Board Applicants


        For GEM Applicants
        C.1.2 Click the "Application Proof and PHIP" button found in: http://www.hkgem.com/newlistings/e_app.htm to access the Designated Webpage. (Updated in November 2016)



        Status Marks explanations for GEM applicants
        C.2 Click the applicant's name to view Application Proofs, PHIPs, MB Rule 9.08/GEM Rule 12.10 Statements. For example, viewers can click the "Company A" button to select the Application Proof and PHIP submitted by Company A (see C.3 below).
        C.3 A warning statement page as shown below will be displayed. You must click the "Accept" button to go to the next screen.

        C.4 Click the "Active" button: The most recent Application Proof or PHIP will appear at the top of the list as shown below:

        C.5 Click the "Inactive" button:

        C.6 Click the "Listed" button:

        C.7 Click the "Returned" button:

        D. Searching for an Application Proof, PHIP and MB Rule 9.08/ GEM Rule 12.10 Statements on the Exchange's Website
        D.1 Select the following headline categories (see Appendix 24 of the Main Board Rules and Appendix 17 of the GEM Rules) to search for Application Proofs and PHIPs submitted by an applicant after listing:
        Tier 1 headline: Application Proofs and Post Hearing Information Packs or PHIPs
        Tier 2 headline: Application Proof and related materials
        Post Hearing Information Pack or PHIP or related materials
        D.2 In the "News Title" box insert an appropriate description of the document, e.g.

        Application Proof (1st submission)
        Application Proof (2nd submission)
        Application Proof (3rd submission)
        PHIP (1st submission)
        PHIP (1st revised proof)
        PHIP (2nd revised proof)
        Application Proof-Statement under MB Rule 9.08(2)(c)
        PHIP-Statement under MB Rule 9.08(2)(c)
        Application Proof-Statement under GEM Rule 12.10(2)(c)
        PHIP-Statement under GEM Rule 12.10(2)(c)

        D.3 Search functions of Application Proof and PHIP at the respective Main Board or GEM Designated Webpages.
        D.3.1 Search by Year.

        D.3.2 Search by Consolidated Excel Index.

        Enclosure 1

        Part A—Minimum Warning Statement in a Dedicated Section of the Exchange's Website

        Warning Statement
        The documents which you will access by clicking the acceptance button below ("these documents") are being published by [the name of the applicant] (the "Company") as required by The Stock Exchange of Hong Kong Limited/ the Securities and Futures Commission under the Listing Rules. These documents should not be accessed by persons located in any jurisdictions where the provision of the following information may breach local securities law.

        Each of these documents is in draft form. The information contained in it is incomplete and is subject to change which can be material. If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on the Company's [prospectus registered with the Registrar of Companies in Hong Kong] [offering circular authorised by the Securities and Futures Commission under Section 105 of the Securities and Futures Ordinance], copies of which will be distributed during the offer period.

        The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission give no indication that the application to which these documents relate has been approved for listing and take no responsibility for the contents of the Company's information published on this website, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this information.

        The Company, its sponsors, advisers and members of the underwriting syndicate do not have any obligation or liability to its investors in relation to these documents except for the Company's obligation to submit these documents for publication on the Exchange's website.

        I hereby declare that I am a resident of Hong Kong or I am not prohibited by any laws and regulations from gaining access to the applicant's documents referred to in the above warning statement and I confirm that I have read the warning statement before proceeding to the next web page.

        Viewer can choose to accept or not to accept the statement above *

        * This statement is provided by the Exchange for reference only.

        Part B—Minimum Disclaimer Statement on an Application Proof and a PHIP

        1. Minimum Disclaimer Statement on the Front Page of an Application Proof and a Post Hearing Information Pack (PHIP)

        The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the contents of this [*Application Proof] [*PHIP], make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this [*Application Proof] [*PHIP].
        [*Application Proof] [*Post Hearing Information Pack] of

        [name of the applicant] (the "Company")
        (a company incorporated in[ ])

        WARNING
        The publication of this [*Application Proof] [*PHIP] is required by The Stock Exchange of Hong Kong Limited (the "Exchange")/ the Securities and Futures Commission (the "Commission") solely for the purpose of providing information to the public in Hong Kong.

        This [*Application Proof] [*PHIP] is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with the Company, its sponsor, advisers or member of the underwriting syndicate that:
        (a) this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this document;
        (b) the publication of this document or supplemental, revised or replacement pages on the Exchange's website does not give rise to any obligation of the Company, its sponsor, advisers or members of the underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with the offering;
        (c) the contents of this document or supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual final listing document;
        (d) the [*Application Proof] [*PHIP] is not the final listing document and may be updated or revised by the Company from time to time in accordance with the Listing Rules;
        (e) this document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities;
        (f) this document must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended;
        (g) neither the Company nor any of its affiliates, advisers or underwriters is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document;
        (h) no application for the securities mentioned in this document should be made by any person nor would such application be accepted;
        (i) the Company has not and will not register the securities referred to in this document under the United States Securities Act of 1933, as amended, or any state securities laws of the United States;
        (j) as there may be legal restrictions on the distribution of this document or dissemination of any information contained in this document, you agree to inform yourself about and observe any such restrictions applicable to you; and
        (k) the application to which this document relates has not been approved for listing and the Exchange and the Commission may accept, return or reject the application for the subject public offering and/ or listing.
        If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on [the Company's prospectus registered with the Registrar of Companies in Hong Kong] [offering circular authorised by the Commission under Section 105 of the Securities and Futures Ordinance], copies of which will be distributed to the public during the offer period.
        2. Warning Statement—There should be a prominent warning statement on each page of this document displayed on the Exchange's website stating that this document is in draft form, incomplete and subject to change and that the information must be read in conjunction with the section headed "Warning" on the cover of this document.

        *delete as appropriate

        Enclosure 2

        (Deleted in November 2016)

        Enclosure 3

        Recommended Template for MB Rule 9.08/ GEM Rule 12.10 Statements

        "This announcement is a statement made under [*Main Board Rule 9.08(2)(c)/ GEM Rule 12.10(2)(c)] (Note)

        We noted [source of media reports] on [date] subsequent to the publication of the [*Application Proof/ PHIP] on [date]. No reliance should be placed on the [media reports identified].

        The publication of the [*Application Proof/ PHIP] and this document is only for the purpose of providing information about the Company and not for any other purposes. No investment decision should be based on the information contained in [*Application Proof/ PHIP] or this announcement.

        This announcement does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction. It is also not an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities.

        This announcement is made by the order of the Company. The Company's Board of Directors collectively and individually accept responsibility for the accuracy of this announcement."

        _____________________________________________________________________________
        Note: The applicant must ensure that the statement does not (i) include information that will constitute a prospectus under section 2(1) of the Companies Ordinance1 as amended from time to time (Cap. 32) ("Companies Ordinance"); or an advertisement under section 38B(1) of the Companies Ordinance1; or an invitation to the public in breach of section 103(1) of the Securities and Futures Ordinance as amended from time to time (Cap. 571), (ii) discusses the applicant's proposed issue of securities; or (iii) promotes its securities to be issued or its listing (Updated in March 2014).

        *delete as appropriate

        Enclosure 4

        Recommended Template for a Request for a Company Case number for a New Application

        [Letterhead of IPO sponsor]

        [date]

        By fax (2295 0198) and by mail

        To : IPO Vetting Team
        Listing Department
        The Stock Exchange of Hong Kong Limited
        11th Floor, One International Finance Centre
        1 Harbour View Street, Central
        Hong Kong

        Attention: [Head of IPO]

        Company : [         ] (Chinese Name)
        Transaction Type : New Listing—Primary Listing on SEHK
        Subject : Request for a Company Case Number for Publication of an Application Proof

        We will submit [*a new listing application ([*Form A1]/ [*Form5A])] [*a CIS application that requires the submission of an Application Proof] on [Date and Time]. Please assign us a company case number for submission of the relevant Application Proof.

        We propose to submit the Application Proof through HKEX-ESS on [*Date and Time].

        Please contact [name of the sponsor's responsible person] on [telephone number and email address].

        Yours faithfully,
        For and on behalf of
        [name of each IPO sponsor]

        _____________________________
        Name:
        Title:
        (Please submit by 6:00 p.m. if the applicant intends to file a listing/ authorisation application on the next business day).

        *Delete as appropriate

        Enclosure 5

        Recommended Template for a Confirmation Letter from Each Sponsor

        [Letterhead of IPO sponsor]

        [date]

        *By fax (2295 0198)/ By mail/ By hand
        To : Hong Kong Exchanges and Clearing Limited
        The Stock Exchange of Hong Kong Limited
        11th Floor, One International Finance Centre
        1 Harbour View Street, Central
        Hong Kong

        Dear Sirs,

        Company :  
        Case Number :  
        Transaction Type : New Listing—Primary Listing on SEHK
        Subject : Request for Publication of [*Application Proof] [*PHIP] [*Statement made under Main Board Rule 9.08(2)(c)/GEM Rule 12.10(2)(c)]]

        We confirm that we have been duly authorised by the Company to submit a ready-to-publish [*Application Proof] [*PHIP8] [Statement made under [*Main Board Rule 9.08(2)(c)/ GEM Rule 12.10(2)(c)]] in the English and Chinese language.

        The submission is made in the following manner:

        1. [*through HKEX-ESS, the Warning Statements (for Application Proof/ PHIP/ Statement made under Main Board Rule 9.08(2)(c)/ GEM Rule 12.10(2)(c)) in a single file format]9;
        2. through HKEX-ESS, the [*Application Proof] [*PHIP] in a multi-file format; and
        3. (please tick at the appropriate items below)
        through HKEX-ESS, the [*Application Proof] [*PHIP] [*Statement made under [*Main Board Rule 9.08(2)(c)/ GEM Rule 12.10(2)(c)]] of a file size equals to or less than 20MB in a single file format (with bookmarks)10, or
        enclosing a CD ROM which contains [*Application Proof] [*PHIP] of a file size exceeding 20MB in a single file format (with bookmarks).

        [##We further confirm that we have received a confirmation from the Company's legal adviser that the [*Application Proof] [*PHIP] submitted for publication on the Exchange's website follows the Exchange's guidance on redactions in an Application Proof/ PHIP and appropriate warning and disclaimer statements for publication of these documents (see Guidance Letter HKEX-GL57-13).]

        For any queries, please contact [name of contact] on [telephone no.].

        Yours faithfully,
        For and on behalf of
        [name of each IPO sponsor]

        ____________________________
        Name:
        Title:

        * Delete as appropriate
        ##Only applicable to Application Proofs and PHIPs

        Copy: Investment Products Division, Securities and Futures Commission (only for CIS applicant)

        Enclosure 6

        Recommended Content Layout of an Application Proof and a PHIP

        (Some sections/ chapters may not be applicable to an applicant and therefore would not be expected to be included)

        Sections/ Chapters
        Warning statement (see Enclosure 1—Part B for sample language)
        Cover
        Important
        Expected timetable
        Contents
        Summary
        Definitions and glossary
        Forward-looking statements
        Risk factors
        Waivers and exemptions from strict compliance with the Listing Rules
        Information about the listing document and any global offering
        Directors, supervisors and parties involved
        Corporate information
        Industry overview
        Regulations
        History, development and reorganisation
        Business
        Financial information
        Relationship with controlling shareholders
        Connected transactions
        Share capital
        Substantial shareholders
        Cornerstone investors
        Directors, senior management and employees
        Future plans and use of proceeds
        Underwriting
        Structure of the global offering
        How to apply for Hong Kong offer shares


        Appendix I—Accountants' report
        Appendix II—Unaudited pro forma financial information
        Appendix III—Profit forecast
        Appendix IV—Property valuation report
        Appendix V—Other expert reports
        Appendix VI—Summary of the applicant's constitution, law of the place of incorporation and information on its dual primary listing
        Appendix VII—Statutory and general information
        Appendix VIII—Documents delivered to the Registrar of Companies and available for inspection

        1 Retitled as the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) with effect from March 2014.

        2 As defined in Main Board Rule 1.01 and GEM Rule 1.01

        3 As defined in Main Board Rule 1.01and GEM Rule 1.01

        4 Under Main Board Rule 9A.03(1A), a GEM transfer applicant is not required to submit a PHIP for publication (unless there is a public offer). (Added in February 2018)

        5 A "main market" on one of the stock exchanges listed in paragraph A.10 refers to a full listing on a market of the relevant stock exchange that complies with the highest standards and full rigour of the rules and regulations of that particular market. For instance, a premium listing on the London Stock Exchange would meet the "main market" definition.

        6 "inside information" is defined under Part XIVA of the Securities and Futures Ordinance.

        7 Paragraph 21 of Practice Note 22 to the Main Board Rules; paragraph 20 of Practice Note 5 to the GEM Rules.

        8 Under Main Board Rule 9A.03(1A), a GEM transfer applicant is not required to submit a PHIP for publication (unless there is a public offer). (Added in February 2018)

        9 No warning statement is required to be submitted if the applicant has already submitted a warning statement and does not intend to change the contents of the warning statement.

        10 A statement made under Main Board Rule 9.08(2)(c)/ GEM Rule 12.10(2)(c) is expected to be in single file format not exceeding 20 MB.

      • GL56-13

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL56-13 (July 2013) (Updated in September 2013, February, March, June and September 2014, August 2015, May and November 2016, August 2017 and July 2018)

        Subject Guidance on (i) disclosure requirements for substantially complete Application Proofs; and (ii) publication of Application Proofs and Post Hearing Information Packs ("PHIPs") on the Exchange's website
        Listing Rules and Regulations Main Board Rules 2.13(2), 8.06, 9.03(3) and 11.07
        Paragraph 4 of Practice Note 22

        GEM Rules 12.09, 11.11, 14.08(7) and 17.56(2)
        Paragraph 3 of Practice Note 5

        Paragraph 17.4(b) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose
        1.1 This letter provides guidance on (i) the extent of disclosure required in Application Proofs in order for them to be considered substantially complete; and (ii) publication of Application Proofs and PHIPs on the Exchange's website (Updated in September 2014).
        1.2 The Exchange expects applicants to follow this guidance letter when preparing their listing applications. An Application Proof that does not follow this guidance may be considered not substantially complete as required under the Listing Rules.
        1.3 Applicants are expected to submit (i) an Application Proof for the Exchange's vetting ("AP-Vetting"); and (ii) an Application Proof to be published on the Exchange's website ("AP-Publication"). These are to be submitted when a listing application is made to the Exchange.
        1.4 For the purposes of publication on the Exchange's website, certain information in an AP-Vetting must be redacted such that the AP-Publication will not constitute a prospectus under section 2(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) ("CWUMPO"); or an advertisement under section 38B(1) of the CWUMPO; or an invitation to the public in breach of section 103(1) of the Securities and Futures Ordinance (Cap. 571) ("SFO"). (Updated in July 2018)
        2. Relevant Listing Rules and Provisions of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the "Code")
        2.1 Main Board Rule 2.13(2) (GEM Rule 17.56(2)) provides that the information in an applicant's listing document must be accurate and complete in all material respects and not be misleading or deceptive. (Updated in July 2018)
        2.2 Main Board Rule 11.07 (GEM Rule 14.08(7)) sets out an overriding principle of disclosure in a listing document.
        2.3 Main Board Rule 9.03(3) (GEM Rule 12.09) provides, among other things, that an applicant must submit a listing application form, an Application Proof and all other relevant documents under Main Board Rule 9.10A(1) (GEM Rules 12.22 and 12.23), and the information in these documents must be substantially complete except for information that by its nature can only be finalised and incorporated at a later date. If the Exchange decides that this information is not substantially complete, the Exchange will not continue to review any documents relating to the application.
        2.4 Paragraph 17.4(b) of the Code states that before submitting an application on behalf of an applicant to the 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.
        2.5 Paragraph 4 of Practice Note 22 to Main Board Rules (paragraph 3 of Practice Note 5 to GEM Rules) sets out the principles for preparation of an AP-Publication.
        2.6 1 Main Board Rules 4.04(1) and 18A.06 (GEM Rule 7.03(1)) require the accountants' report to include the results of the applicant in respect of each of the three financial years (Biotech Companies and GEM applicants: two) immediately preceding the issue of the listing document. (Added in July 2018)
        2.8 Main Board Rule 8.06 (GEM Rule 11.11) requires that the latest financial period reported on by the reporting accountants for a new applicant must not have ended more than six months from the date of the listing document. (Added in July 2018)
        3. Guidance on disclosure in an AP-Vetting
        3.1 An applicant and its sponsor must ensure that the applicant's AP-Vetting clearly and adequately discloses information which a reasonable investor would require to make a fully-informed investment decision, and the information in the AP-Vetting must be accurate and complete in all material respects and not be misleading or deceptive. To achieve this, the applicant and its sponsor should independently assess the standard of disclosure and not rely on the vetting processes of the Exchange and the Securities and Futures Commission (the "Commission") as a catalyst for disclosure.
        3.2 The Exchange considers that if fundamental issues in a listing application, such as its business model or operations, are not clearly understandable after two rounds of comments from the Exchange, it may be evidence that the listing document disclosure is not substantially complete. The Exchange may return the listing application under Main Board Rule 9.03(3) (GEM Rule 12.09). (Updated in July 2018)

        AP-Vetting
        3.3 Table A sets out the disclosure requirements expected for a substantially complete AP-Vetting. All information listed in each section of Table A is to be included in an AP-Vetting unless it is not applicable (e.g. not relevant to the applicant). To provide some flexibility to an applicant and its sponsor, the Exchange allows certain information that will be updated later during the vetting process to be in brackets in an AP-Vetting, but such information must be current as at the date of submission of the AP-Vetting. (Updated in July 2018)
        3.4 The Exchange also allows certain information to be omitted from the AP-Vetting. The sponsor should inform the Exchange in the application submission with detailed reasons if the Company is not able to follow any part of this guidance letter that may be applicable to its listing application. (Updated in July 2018)
        3.5 (Deleted in September 2014)
        3.6 (Deleted in September 2014)
        3.7 The following information must be included in the AP-Vetting if they are applicable to the applicant:
        (i) addressing the Listing Committee's comments raised at preliminary hearings and/ or the Listing Department's comments where pre-IPO enquires were made;
        (ii) addressing all published guidance letters and listing decisions that are applicable to the applicant, if any; and

        (http://en-rules.hkex.com.hk/en/display/display.html?rbid=4476&element_id=4422)

        http://en-rules.hkex.com.hk/en/display/display_main.html?rbid=4476&element_id=3842

        The Exchange revises these guidance materials from time to time. Market practitioners are expected to keep abreast of these publications.
        (iii) addressing all outstanding comments, including those from the Listing Committee and/ or the Listing Department upon re-submission of a listing application that has lapsed. (Updated in July 2018)
        3.8 (Deleted in July 2018)
        Financial Information for the Trading Record Period
        3.9 Depending on the audited fiscal year typically adopted by companies, a disproportionately high number of listing applications are submitted during certain months of the year. To alleviate congestion, the EXchange will accept an Application Proof with accountants' reports covering a period shorter than the trading record period required under Listing Rules (the "TRP") for a listing application filed after the end of the most recent financial year of its TRP so long as the following information are included in the Application Proof and the confirmations set out in paragraphs 3.10(a) and (c) below are submitted together with the listing application, as applicable:
        When listing application is filed — Example of date of filing (for applicants with trading record from 1 January 2015 to 31 December 2017) — Required financial information —
        Within two months after the end of the most recent financial year of its TRP Between I January 2018 and 28 February 2018 Two financial years* of the TRP and a stub period of at least nine months
        Between three and six months after the end of the most recent financial year of its TRP Between 1 March 2018 and 30 June 2018 Three financial years** of the TRP
        Between seven and eight months after the end of the most recent financial year of its TRP Between I July 2018 and 31 August 2018 Three financial years** of the TRP and a stub period of at least three months
        Between the nine and 12 months after the end of the most recent financial year of its TRP Between 1 September 2018 and 31 December 2018 Three financial years** of the TRP and a stub period of at least six months

        * One financial year of the TRP for Biotech Companies under Chapter 18A of the Main Board Rules and GEM listing applicants.

        ** Two financial years of the TRP for Biotech Companies under Chapter 18A of the Main Board Rules and GEM listing applicants.

        (Added in July 2018)
        3.10 The listing applicant must also provide the following:
        (a) with the listing application, a confirmation from the reporting accountants (the "RA's Confirmation") to the applicant and copied to the sponsor, the Exchange and the Commission, that no significant adjustment is expected to be made to the financial years which must be subject to an audit under this guidance letter (see paragraph 3.9 above) based on the work done as of the date of the RA's Confirmation and, if applicable, that they have substantially completed a review of the stub period financial information according to the Hong Kong Standards on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" ("ISRE 2410");
        (b) financial information for the complete TRP and the RA's Confirmation on such complete financial information as soon as practicable; and
        (c) for a listing application filed within two months after the end of an applicant's most recent financial year of its TRP, the sponsor's confirmation that it is beyond reasonable doubt that the applicant will satisfy Main Board Rule 8.05 (GEM Rule 11.12A) or other financial standard requirements following its due diligence review under Chapter 3A and Practice Note 21 of the Main Board Rules (Chapter 6A and Practice Note 2 of the GEM Rules). (Added in July 2018)
        3.11 A Main Board listing applicant planning to list within three months after the end of the most recent financial year of its TRP (GEM: two months) may omit the full financial information for its most recent financial year if it applies for and obtains from the Exchange a waiver from strict compliance with the requirements under Main Board Rule 4.04 or Rule 18A.06 (GEM Rules 7.03(1) and 11.10). (Added in July 2018)
        3.12 The TRP disclosed in the Application Proof will be determined by the listing timetable stated in the listing application. An applicant should plan its listing timetable to allow the regulators sufficient time to review the final year-end or latest stub period financial information subsequently provided to avoid delay to its listing timetable. (Added in July 2018)
        3.13 The stub period financial information and comparative information disclosed in the Application Proof must be at least reviewed by reporting accountants in accordance with ISRE 2410. The stub period financial information can either be part of the Accountants' Report or in a separate appendix to the Application Proof and must at least include the information as required under paragraph 37 of Appendix 16 to the Main Board Rules in relation to interim reports2 (GEM Rule 18.55). The audited financial information and the reviewed stub period financial information must be presented in the same table together with the related MD&A in the "Financial Information" section of the Application Proof for easy comparison and review, irrespective of how it is disclosed in the Accountants' Report. (Added in July 2018)
        3.14 A listing application (a) filed before the end of the most recent financial year of its TRP as stated in the applicant's listing timetable; or (b) fails to include the information required herein will be returned for not being substantially complete. These practices apply similarly to an applicant who applies for listing with a shorter trading period under Main Board Rules 8.05A and 8.05B (GEM Rule 11.14). (Added in July 2018)
        3.15 If an applicant has acquired or intends to acquire a company or business since the latest audited (or advanced draft) accounts have been made up (the "Acquisition"), the Application Proof should include the relevant information required under Main Board Rules 4.04(2), 4.04(4)(a) and 4.29 (GEM Rules 7.03(2), 7.03(4)(a) and 7.31), where applicable. Such financial information can be omitted in the Application Proof if the applicant's TRP covers the Acquisition. The complete financial information must be included in a subsequent proof as soon as practicable. (Added in July 2018)
        4. Guidance on disclosure in an AP-Publication or PHIP, as the case may be
        4.1 Information in an AP-Vetting and an AP-Publication should be the same, except that some information in the AP-Vetting must be redacted only to the extent necessary for the AP-Publication not to breach applicable laws and regulations (see paragraph 1.4). For the avoidance of doubt, if the information is permitted to be omitted from the AP-Vetting, it should not be disclosed in the AP-Publication. (Updated in July 2018)
        4.2 (Deleted in July 2018)
        4.3 As regards an AP-Publication or a PHIP, an applicant should refer to the column headed "Information must be redacted" in Table A for the only information that may be redacted. An applicant can request the Exchange to consider allowing additional information to be redacted (with detailed reasons) before submitting the listing application form to the Exchange. The applicant should allow sufficient time for the Exchange to consider any request. Any consent by the Exchange will be based on the applicant's specific facts and circumstances (Updated in June 2014).
        5. Guidance on disclosure in a PHIP
        5.1 Information to be redacted in a PHIP should follow the same principles in section 4 above. However, to the extent practicable and except for offer-related information, bracketed or omitted information in an AP-Publication should be updated or included upon the publication of the PHIP.
        5.2 (Deleted in July 2018)

        ****

        Table A

        Disclosure requirements for AP-Vetting and AP-Publication

        The following sets out the disclosure requirements for a substantially complete AP-Vetting and the information that must be redacted for the purpose of publication on the Exchange's website (i.e. AP-Publication). Redacting any additional information or otherwise failing to include the required disclosure described below (unless it is not applicable) may lead to a listing application being returned to the applicant as not substantially complete under Main Board Rule 9.03(3) (GEM Rule 12.09). Further, the Exchange may suspend vetting a listing application for up to a month for failure to redact from an AP-Publication information which must be redacted3. (Updated in July 2018)

        Individual section Disclosure requirements (where applicable)
        (Adherence to guidelines set out in listing decisions, guidance letters,
        guidance from pre-IPO enquiries, and Appendix 1A to Main Board
        Rules (Appendix 1A to GEM Rules) is required unless they are not applicable )
        Application Proof for the Exchange's vetting only
        (i.e. AP-Vetting)
        Application Proof for publication on the Exchange's website only
        (i.e. AP-Publication)
        Information permitted to be in square brackets3 Information permitted to be omitted4 Information must be redacted2
        Warning
        •   Disclaimer and warning statements to advise readers of the legal status of an AP-Publication (Enclosure 1-Part B of Guidance Letter HKEX-GL57-13)
        N/A N/A  
        Cover
        (Updated in July 2018)
        •   The cover design (can be in black and white only) should, among other things, (i) take into account the likely overall impression it will give; (ii) ensure that the illustrations or examples used are appropriate; and (iii) ensure that the graphs and diagrams are drawn to scale, and what is depicted is a fair representation of the position with all relevant information provided (Guidance Letter HKEX-GL98-18)
        •   Name of the applicant is not misleading with reference to the applicant's business (Guidance Letter HKEX-GL98-18)
        •   Name of sponsor
        •   Stock code
        •   Identities of lead managers/ co-ordinators/ book runners/ underwriting syndicate
        •   applicant's logo
        •   stock code
        •   identities of lead managers/ co-ordinators/ book runners/ underwriting syndicate
        6
        Important
        •   Name of the applicant
        •   Name of sponsor
        •   Stock code
        •   Number of offer shares
        •   Offer price
        •   Identities of lead managers/ co-ordinators/ book runners/ underwriting syndicate
        •   number of offer shares6
        •   offer price6
        •   stock code
        •   identities of lead managers/ coordinators/ book runners/ underwriting syndicate
        •   number of offer shares6
        •   offer price6
        •   stock code
        •   identities of lead managers/ coordinators/ book runners/ underwriting syndicate
        •   number of offer shares6
        •   offer price6
        Expected timetable
        •   Dates of events on the Hong Kong public offering
         
        Contents
        •   Headings of each section and page numbers
             
        Summary
        (Updated in July 2018)
        •   Refer to Section A of Appendix 1 in Guidance Letter HKEX-GL86-16 for guidance on disclosure in the Summary section
        •   Refer to Guidance Letter HKEX-GL98-18 for guidance on disclosure of material changes in the financial, operational and/ or trading positions after the trading record period
        •   Description of business model
        •   Strengths and business strategies
        •   Shareholders' information
        •   Key operational and financial data
        •  Profit forecast, if any
        •   Offer statistics
        •   Future plans and use of proceeds
        •   Summary of material risk factors
        •   Recent development
        •   Listing expenses
        •   Weighted voting right ("WVR") structure and innovative business model (Guidance Letter HKEX-GL93-18)
        •   recent development
        •   profit forecast figure (if applicable)
        •   offer statistics
        •   unaudited pro forma adjusted net
        •   tangible assets
        •   unaudited adjusted pro forma forecast earnings per share (if applicable)
        •   offer statistics
        •   unaudited pro forma adjusted net tangible assests
        •   unaudited adjusted pro forma forecast earnings per share (if applicable)
        Definitions and Glossary (Updated in September 2014)
        •   All defined terms in plain language and used consistently throughout the AP-Vetting
        •   For each entity disclosed in this section, specify the date and place of incorporation, its current ownership structure and relationship with the applicant, its shareholders or connected persons or the fact that it is an independent third party. All references to an "independent party" or "independent third party" in the listing document must be made with reference to the connected persons definition under Main Board Rules (GEM Rules)
        •   Relationship and details of the connectedness of connected persons with the applicant
        •  Definitions of technical terms in plain language
        •   offer-related information
        •   latest practicable date
        •   offer-related information
        •   offer-related information
        Forward-looking statements
        •   Where a profit forecast/ estimate is disclosed, there should not be any statement that mitigates the directors' responsibility for the profit forecast/ estimate (Listing Decision HKEX-LD50-4)
             
        Risk Factors (Updated in May 2016)
        •   Refer to Section B of Appendix 1 in Guidance Letter HKEX-GL86-16 for guidance on disclosure in the Risk Factors section
        •   Risk factors that are specifically required to be disclosed under specific guidance letters (e.g. Listing Decision HKEX-LD43-3 on structured contracts, Guidance Letter HKEX-GL19-10 on defective titles of properties) and any guidance by the Listing Department or Listing Committee in response to pre-IPO enquiries
        •   Material risks that are highlighted in final or advanced draft expert reports
        •   Risks relating to the applicant's business, the relevant industry and the share offering are identified
             
        Waivers and exemptions from compliance with the Listing Rules (Updated in September 2014)
        •   All applications for waivers/ exemptions/ consents under relevant Listing Rules/ CWUMPO with detailed basis
        •   Cross-reference to relevant sections (including Connected Transactions and Structure of the Global Offering sections for waivers from Chapter 14A of Main Board Rules (Chapter 20 of GEM Rules) and Practice Note 18 to Main Board Rules respectively)
        •   All waiver conditions that are set out in the relevant published listing decisions (e.g. Listing Decision HKEX-LD38-2012), guidance letters (e.g. Guidance Letters HKEX-GL9-09, HKEX-GL10-09, HKEX-GL11-09, HKEX-GL22-10, HKEX-GL25-11, HKEX-GL42-12); and any guidance by the Listing Department or Listing Committee in response to pre-IPO enquiries
        •   The statement that further information is disclosed in the "Connected Transactions" section below
        •   Ensure the number and description of Listing Rule waivers disclosed in the AP-Vetting are the same as the waiver applications submitted with the A1/ 5A documents
        •   The reasons, annual caps, basis and conditions for the waivers
        •   wording "the Exchange and the Commission have granted certain waiver/ exemption/ consents"
           
        Information about the Listing Document and Global Offering (Updated in February 2014)
        •   Directors' responsibility statement for the contents of listing document
        •   Selling shareholder (including name and number of shares sold, etc.)
        •   CSRC approval or other relevant PRC authorities approval
        •   Restrictions on offer and sale of shares
        •   Application for listing of shares on the Exchange
        •   Shares will be eligible for admission into CCASS
        •   Professional tax advice recommended
        •   Registration of subscription, purchase and transfer of shares (for PRC issuers)
        •   Share registrar and stamp duty
        •   Exchange rate conversion
        •   selling shareholder
        •   date of CSRC/ other relevant approval
         
        Directors, Supervisors and Parties Involved in the Global Offering (Updated in September 2013)
        •   Names (in English and Chinese), full residential addresses and nationalities of the directors (including all independent non-executive directors ("INEDs")) and supervisors
        (All executive directors and non-executive directors must be appointed. All INEDs, although they may not be appointed until closer to the time the listing document is issued, must be identified)
        •   The statement that further information is disclosed in the "Directors, Senior Management and Employees" section
        •   relevant information relating to INEDs
           
        •   Identities, addresses and qualifications of the professional parties (including sponsor; legal advisers to the applicant, sponsor and underwriters; reporting accountants; valuer; compliance adviser; global co-ordinators; book runners; lead managers; and receiving banks)
         
        •   identities of legal advisers to underwriters
        •   identities of global coordinators/ book runners/ lead managers and receiving banks
        •   identities of legal advisers to underwriters
        •   identities of global coordinators/ book runners/ lead managers and receiving banks
        Corporate Information
        •   Addresses of the applicant's registered office, headquarters, principal place of business in Hong Kong, and the applicant's website
        •   applicant's website
           
        •   Names and addresses of the company secretary and the authorised representatives
        •   Professional qualifications of the company secretary
        •   company secretary's information
           
        •   Members of the audit committee, remuneration committee, nomination committee, and other committees with an indication of the proposed chairperson for each committee
        •   relevant committees' members
           
        •   Identity and address of the share registrar
           
        •   share registrar's identity and address
        •   Identities and addresses of principal bankers
             
        Industry Overview
        (Updated in July 2018)
        •   Refer to Section C of Appendix 1 in Guidance Letter HKEX-GL98-18 for guidance on disclosure in the Industry Overview section
        •   Refer to Guidance Letter HKEX-GL8-09 for guidance on statistics and data quoted in a listing document
        •   Market information to be updated to the most recent information as far as practicable
        •   Statement on the source and reliability of information
        •   Competitive landscape and advantages
        •   Historical price trends of raw materials and final products (An Industry Overview section is not mandatory)
             
        Regulations
        •   Details of material regulations directly relevant to the applicant's current and future businesses and how these regulations will affect the applicant's business operations and future developments
             
        •   The regulatory and/ or shareholders' approvals which the applicant will require for its reorganisation and proposed listing and the status and actual/ expected timing to obtain these approvals
        •   dates of approvals
           
        History, Development and Reorganisation (Updated in July 2018)
        •   Refer to Section D of Appendix 1 in Guidance Letter HKEX-GL86-16 for guidance on disclosure in the History and Development section
        •   Establishment and development of the applicant and its major subsidiaries
        •   Corporate structure
        •   Major acquisitions, disposals and mergers
        •   Shareholders and shareholdings
        •   Listing on other exchanges (if any)
        •   completion date of reorganisation
           
        •   Refer to Guidance Letters HKEX-GL29-12, HKEX-GL43-12 and HKEX-GL44-12 for guidance on pre-IPO investments
        •   Refer to Guidance Letters HKEX-GL92-18 and HKEX-GL93-18 for guidance on third party investment from sophisticated investor(s)
        •   Identities of pre-IPO investors
        •   Terms of pre-IPO investments
        •   Confirmation that pre-IPO investments complied with the interim guidance on pre-IPO investments (i.e. Guidance Letter HKEX-GL29-12)
        •   Confirmation that all the special rights will be terminated upon the applicant's listing
        •   events that are expected to take place after the submission of the AP-Vetting
        •   any offer-related information (e.g. discount of the pre-IPO investment to the offer price)
        •   the dates of the events or information which cannot be ascertained until the date of the listing document is fixed (e.g. date of events relating to reorganisation)
        •   Any offer-related information (e.g. discount of the pre-IPO investment to the offer price)
        •   any offer-related information (e.g. discount of the pre- IPO investment to the offer price)
        Business
        (Updated in July 2018)
        •   Refer to Section E of Appendix 1 in Guidance Letter HKEX-GL98-18 for guidance on disclosure in the Business section; Guidance Letter HKEX-GL92-18 for description of business model of Biotech Companies; Guidance Letter HKEX-GL93-18 for description of the innovative business model for applicant with WVR structure; and Guidance Letter HKEX-GL98-18 for guidance on confidential information
        •   business model
        •   market and competition
        •   strengths, strategies and future plans
        •   suppliers, raw materials and inventory
        •   production and/ or subcontracting
        •   quality control
        •   products and services
        •   sales and marketing
        •   customers
        •   product returns and warranty
        •   insurance
        •   research and development
        •   health, work safety, social and environmental matters
        •   intellectual property
        •   employees
        •   properties
        •   compliance matters
        •   licences and permits
             
        Financial Information
        (Updated in July 2018)
        •   Management Discussion and Analysis—paragraph 34 of Appendix 1A and paragraph 32 and 47(2) of Appendix 16 to Main Board Rules (GEM Rule 18.41). Refer to Section F of Appendix 1 in Guidance Letter HKEX-GL86-16 for guidance on disclosure of management discussion and analysis on the historical financial information
        •   Key factors affecting the results of operations
        •   Critical accounting policies and estimates
        •   Review of historical results, financial position and cash flows
        •   profit forecast figure (if applicable)
        •   unaudited pro forma adjusted assets
        •   unaudited adjusted pro forma forecast earnings per share (if applicable)
        •   unaudited pro forma adjusted assets
        •   unaudited adjusted pro forma forecast earnings per share (if applicable)
        •   Liquidity, financial resources and capital structure of the applicant -paragraph 32 of Appendix 1A to Main Board Rules and GEM Rules
        •   Guidance Letter HKEX-GL56-13 for guidance on financial information for trading record period expected in an AP-Vetting submitted on or after 1 October 2013
        •   Guidance Letter HKEX-GL37-12 for guidance on indebtedness, liquidity, financial resources and capital structure disclosure ("Liquidity Disclosure")
        •   Guidance Letter HKEX-GL38-12 for guidance on the latest practicable date and the latest date for liquidity disclosure in a listing document
        •   Net current assets/ liability position and composition
        •   Sources and use of funds and analysis of material changes in the underlying drivers
        •   Capital commitments and major expenditure
        •   Regulatory requirements or restrictions on liquidity for regulated industries (e.g. banks and financial institutions)
        •   Material covenants or a negative statement
        •   working capital sufficiency statement
        •   financial information as at the latest practicable date
        •   financial information under Liquidity Disclosure
           
        Relationship with Controlling Shareholders m(Updated in November 2016)
        •   Controlling shareholder's background (including principal activities and shareholding of each listed company owned by controlling shareholder)
        •   Basis of identification of the applicant's controlling shareholder(s). Refer to Guidance Letter HKEX-GL89-16 for guidance on identification of "controlling shareholder(s)" and information required in the Application Proof and as part of the listing applications.
             
        •   Independence from controlling shareholder and its associates under paragraph 27A of Appendix 1A to Main Board and GEM Rules
        •   Basis that the applicant is financially and operationally independent of its controlling shareholder
        •   Basis of management independence (overlapping directors and senior management between the applicant and its controlling shareholder preferably in tabular form). Where there are overlapping directors, detailed mechanism to address conflicts of interests to ensure that the applicant's remaining board can properly function taking into account their expertise and experience (e.g. Listing Decisions HKEX-LD30-2012, HKEX-LD69-1 and HKEX-LD52-2)
             
        •   Competition under Main Board Rule 8.10 (GEM Rule 11.04)
        •   Basis of clear business delineation between the applicant and its controlling shareholder and/or directors
        •   Disclosure under Main Board Rule 8.10 (GEM Rule 11.04) for the controlling shareholder and director (in particular information for investors to assess whether the competition between the applicant and its controlling shareholder is extreme, or the basis that there is no competition between the applicant and the controlling shareholder, and the relevant financial information of the competing business) (e.g. Listing Decisions HKEX-LD51-2 and HKEX-LD51-3)
             
        •   Deed of non-competition or non-competition undertaking ("NCU")
        •   Clear disclosure of "restricted or excluded businesses" NCU
        •   Mechanism of (i) the controlling shareholder first referring business opportunities which compete or are likely to compete with the applicant (first right of refusal); and (ii) the applicant determining whether to take up the business opportunities and the basis which the board will consider
             
        •   Details of corporate governance measures to resolve actual/ potential conflicts of interests between the applicant and its controlling shareholder/ director. These can include abstention of conflicted directors from voting at the relevant meetings, INEDs to review compliance with the NCU, controlling shareholder to provide all information necessary for the INEDs' annual review, the applicant to disclose decisions on matters reviewed by the INEDs (including why business opportunities referred to it by its controlling shareholder were not taken up) either through its annual report or by way of announcements
             
        Connected Transactions (Updated in September 2014)
        •   Connectedness between the applicant and its connected persons under the Listing Rules, including the shareholding relationships
             
        •   Nature of connected transactions and classify them into different categories (i.e. exempt continuing connected transactions; non-exempt continuing connected transactions—subject to (i) reporting and announcement requirements; (ii) reporting, announcement and shareholders' approval requirements), together with the basis under the Listing Rules
             
        •   Aggregation of continuing connected transactions under Main Board Rule 14A.26 (GEM Rule 20.26)
             
        •   Historical figures and proposed annual caps of the connected transactions, preferably in tabular form
        •   Detailed quantitative and qualitative justifications of the annual caps (e.g. reasons for the significant difference between the historical amounts and proposed annual caps, and the amount of annual caps in the coming three years; key assumptions in estimating annuals caps with quantitative and qualitative information; reasons for and basis of non-monetary annual caps (Listing Decision HKEX-LD88-1))
        •   If the period of the agreement exceeds three years, the sponsor has to explain why a longer period for the agreement is required and to confirm that it is normal business practice for contracts of this type to be of such duration under Main Board Rule 14A.35(1) (GEM Rule 20.35(1))
        •   annual caps
           
        •   Ensure the number and description of Listing Rule waivers disclosed in the AP-Vetting are the same as the waiver applications submitted with the A1/ 5A documents
        •   Waiver applications for non-exempt continuing connected transactions
        •   Directors (including the INEDs if they have been appointed) and sponsor's confirmation that:
        •   the non-exempt continuing connected transactions have been (if not, this also must be disclosed) and will be entered into in the ordinary and usual course of the applicant's business, on normal commercial terms or better that are fair and reasonable and in the interests of the applicant's shareholders as a whole
        •   the proposed annual caps for the non-exempt continuing connected transactions are fair and reasonable and in the interests of the applicant's shareholders as a whole
        •   wording "the Exchange has granted the continuing connected transaction waiver"
           
        Share Capital (Updated in July 2018)
        •   Authorised share capital
             
        •   Number of different types of shares (e.g. A shares, B shares, H shares, domestic shares), and percentage of the total number of shares for each type of shares
        •   share in issue
        •   offer-related information
        •   offer-related information
        •   offer-related information
        •   Details of the WVR structure (Guidance Letter HKEX-GL93-18)
        •   Ranking of each type of shares
        •   Circumstances under which general meeting and class meeting are required
        •   General mandate to issue and repurchase shares
        •   Share option scheme
             
        Substantial Shareholders (Updated in September 2013)
        •   Substantial shareholders' identities and relationship among them
        •   In tabular form, the number of shares and percentage of issued share capital held by each substantial shareholder as at the date of the AP-Vetting
        •   interests of substantial shareholders upon listing
         
        •   interests of substantial shareholders upon listing
        Cornerstone Investors
        •   Salient terms and conditions for placing shares to cornerstone investors
        •   Refer to Guidance Letter HKEX-GL51-13 for guidance on disclosure of cornerstone investment
         
        •   identities of investors and their background, number and percentage of shares subscribed
        Directors, Senior Management and Employees (Updated in May 2016)
        •   Refer to Section H of Appendix 1 in Guidance Letter HKEX-GL86-16 for guidance on disclosure of the Directors, Supervisors and Senior Management section
        •   Name, age, present position in the applicant, date joining the applicant and appointment date of each director (including INEDs if they have been appointed) in tabular form and the board composition
        •   Directors, senior management, supervisors and company secretary's biographies
        •   Terms of contractual arrangements between the applicant and its compliance adviser
        •   Role and composition of audit committee, remuneration committee, nomination committee, and other committees (if applicable) with an indication of the proposed chairperson for each committee
        •   Directors, supervisors and senior management's remuneration, incentive plan for senior management and key employees
        •   relevant information relating to INEDs
        •   appointment dates of INEDs
         
        •   Material details of the contractual arrangements between the applicant and its compliance adviser
             
        Future Plans and Use of Proceeds (Updated in May 2016)
        •   Refer to Section I of Appendix 1 in Guidance Letter HKEX-GL86-16 for guidance on disclosure of use of proceeds
        •   Future plans
        •   Breakdown of the use of proceeds
        •   The identity of the businesses to be acquired or, if not yet identified, the nature and a brief description of the types of businesses to be sought, the acquisition strategy, and the status of any related negotiations
        •   The interest rate and maturity of the debt if the proceeds will be used to discharge any debt. If the debt to be discharged was incurred within one year before the date of the listing application, the listing document should describe how the borrowing was used (unless it was for working capital)
        •   The amount of net proceeds to be received by the applicant if the offer price is fixed at low-end, mid-point and high-end of the offer price range with and without exercising the over-allotment option
        •   percentage of total proceeds to an applicant broken down on use
        •   percentage of total proceeds to selling shareholder (if confirmed)
        •   dollar value of proceeds to an applicant
        •   dollar value of proceeds to selling shareholder (if confirmed)
        •   all offer-related information and use of proceeds
        Underwriting (Updated in June 2014)
        •   Salient terms of the underwriting agreements, grounds of termination of the underwriting arrangements. Refer to Guidance Letter HKEX-GL34-12 on hard underwriting
         
        •   identities of underwriters
        •   salient terms of the underwriting agreement
        •   identities of underwriters
        •   salient terms of the underwriting agreement
        •   Main Board Rule 10.07 (GEM Rule 13.16A) undertaking, undertakings by the applicant and any selling shareholder, and the interests of underwriters of Hong Kong offer in the applicant
           
        •   Main Board Rule 10.07 (GEM Rule 13.16A) undertaking
        •   undertakings by any selling shareholder
        •   Basis of determining commissions and expenses and the relevant amounts
         
        •   percentage of offer price of all the offer shares as commission and expenses and the relevant amounts
        •   percentage of offer price of all the offer shares as commission and expenses and the relevant amounts
        •   Activities by syndicate members
         
        •   activities by syndicate members
        •   activities by syndicate members
        Structure of the Global Offering
        (Updated in July 2018)
        •   Number of shares to be offered under the Hong Kong public offering, international offer, employee share offer and any assured entitlement, before and after exercising the over-allotment option
        •   number of shares to be offered5
        •   number of shares to be offered5
        •   Mechanism of determining offer price
        •   mechanism of determining offer price
         
        •   Details of allocation basis, reallocation, clawback mechanism under paragraph 4.2 of Practice Note 18 to Main Board Rules or relevant waiver. Also refer to Guidance Letter HKEX-GL91-18
        •   allocation basis, reallocation and clawback mechanism
         
        •   Details of any over-allotment, stabilization, stock borrowing arrangement, offer size adjustment option and other similar arrangements
        •   over-allotment, stabilization, stock borrowing arrangement, offer size adjustment option and other similar arrangements
         
        •   Conditions of the offer
        •   conditions of the offer
         
        •   Dealing arrangements
        •   dealing arrangements
         
        •   Board lot size
        •   board lot size
         
        How to Apply for Hong Kong Offer Shares (Updated in May 2016)
        •   All information that is essential for public investors to subscribe for the Hong Kong offer shares
        •   Refer to Section J of Appendix 1 in Guidance Letter HKEX-GL86-16 for disclosure of how to apply for Hong Kong offer shares
           
        Accountants' Report (Updated in July 2018)
        •   Financial information in audited or advanced draft form—Chapter 4 and Appendix 16 to Main Board Rules (Chapters 7 and 18 of GEM Rules)
        •   Guidance Letter HKEX-GL56-13 for guidance on financial information for trading record period expected in an AP-Vetting submitted on or after 1 October 2013
        •   Three year trading record for a Main Board applicant (or two year trading record for a GEM applicant) and a stub period in audited or advanced form where appropriate
        •   The latest financial period reported on in the Accountants' Report must not have ended more than six months before the expected date of the issue of the listing document based on the listing timetable submitted with the A1/5A documents
        •   Written confirmation from reporting accountants as set out in M116
        •   Guidance Letter HKEX-GL32-12 for guidance on disclosure requirements for acquisitions of subsidiaries and businesses conducted during or after the trading record period
         
        •   date of Accountants' Report
         
        Unaudited Pro Forma Financial Information
        (Updated in July 2018)
        •   Financial information in an advanced draft form—Main Board Rules 4.28, 4.29 and paragraph 21 of Appendix 1A (GEM Rules 7.30, 7.31 and paragraph 21 of Appendix 1A)
        •   Unaudited pro forma adjusted net tangible assets (except in an introduction case)
        •   Unaudited adjusted pro forma forecast earnings per share (where a profit forecast is included)
         
        •   unaudited pro forma adjusted net tangible assets
        •   unaudited adjusted pro forma forecast earnings per share (if applicable)
        •   unaudited pro forma adjusted net tangible assets
        •   unaudited adjusted pro forma forecast earnings per share (if applicable)
        •   letter on unaudited pro forma financial information relating to the offer
        Profit Forecast (Updated in July 2018)
        •   Financial information in an advanced draft form—Main Board Rules 11.16 to 11.19 (GEM Rules 14.28 to 14.31)
        •   Guidance Letter HKEX-GL58-13 for guidance on Accountants' Report, Pro-Forma Financial Information and Profit Forecast
        •   Written confirmation from reporting accountants as set out in M116
        •   Include a statement that the profit forecast may be updated
        •   The bases and assumptions, and the draft letters from the sponsor and the reporting accountants
        •   a statement that the profit forecast may be updated
        •   date of the report on profit forecast (if applicable)
         
        Property Valuation Report
        •   Include in final or advanced draft form
        •   The valuation methods adopted with detailed basis
        •   Bases of key assumptions underlying each valuation method adopted
        •   Professional qualifications and industry experiences of experts preparing relevant reports included in AP-Vetting
        •   Disclosure requirements under Chapter 5 of Main Board Rules (Chapter 8 of GEM Rules)
        •   Effective valuation date should not be more than three months before the submission of the AP-Vetting
        •   effective valuation date
        •   date of the property valuation report
         
        Other expert reports (Updated in July 2018)
        •   Include in final or advanced draft form
        •   The valuation methods adopted with detailed basis
        •   Bases of key assumptions underlying each valuation method adopted
        •   Professional qualifications and industry experiences of experts preparing relevant reports included in AP-Vetting
        •   Material findings in the expert reports should be disclosed in the main body of the AP-Vetting (e.g. Business and/or Risks Factors sections)
        •   For a competent person's report of mineral companies, the effective date at which resources and reserves under Chapter 18 of Main Board Rules (Chapter 18A of GEM Rules) are estimated or valued must be less than six months before the expected date of issue of the listing document based on the applicant's listing timetable submitted with the AP-Vetting
        •   Effective date of other expert reports (effective valuation date if valuation is included) must be less than six months before the expected date of issue of the listing document based on the applicant's listing timetable submitted with the AP-Vetting
        •   Written confirmations from the experts as set out in M117
        •   effective valuation date and/ or effective date of the expert report
        •   date of the expert report
         
        Summary of the applicant's constitution, law of the place of incorporation and information on its dual primary listing (Updated in June 2014)
        •   Relevant information required under the following:
        •   memorandum of association
        •   articles of association
        •   for PRC and overseas issuers, company law of the place where the applicant is incorporated as required by the CWUMPO and the Listing Rules, including Chapters 19, 19A and Appendix 1A to Main Board Rules (Chapters 24, 25 and Appendix 1A to GEM Rules)
        •   trust deed (in the case of stapled securities)
        •   material differences between the Listing Rules and overseas listing rules
             
        Statutory and General Information (Updated in July 2018)
        •   Information required under the CWUMPO and the Listing Rules, including Chapter 17 and Appendix 1A to Main Board Rules (Chapter 23 and Appendix 1A to GEM Rules) which include:
        •   incorporation of the applicant
        •   changes in share capital of the applicant and its subsidiaries at least within two years immediately preceding the issue of the listing document
        •   corporate reorganisation
        •   restrictions on share repurchases
        •   summary of material contracts
        •   disclosure of interests of directors/ chief executive/ substantial shareholders
        •   directors' service contracts and remunerations
        •   pre-IPO share option scheme/ share option scheme
        •   experts' qualification and consents
        •   promoter
        •   preliminary expenses
        •   information on selling shareholder
        •   Material intellectual property rights8
        •   Binding effect and bilingual listing documents
        •   Details of resolutions passed by the shareholders
        •   Financial advisers
        •   events that are expected to take place after the submission of the AP-Vetting
        •   offer-related information (e.g. number of shares to be repurchased upon listing)
        •   the dates of the events or information which cannot be ascertained until the date of the listing document is fixed (e.g. date of events relating to reorganization)
        •   disclosure of interests of directors/ chief executive/ substantial shareholders
        •   offer-related information (e.g. number of shares to be repurchased upon listing)
        •   Independence of sponsor (if the applicant has more than one sponsor, disclose whether each sponsor satisfies the independence criteria under Main Board Rule 3A.07 (GEM Rule 6A.07) and, if not, reason(s) for the lack of independence (Main Board Rule 3A.10(2) or GEM Rule 6A.10(2))). Refer to Guidance Letter HKEX-GL99-18 for guidance on assessment of a sponsor's independence
        •   independence of sponsor9
           
        •   Sponsor's fees
        •   sponsor's fees
        •   sponsor's fees
         
        Documents delivered to the Registrar of Companies and Available for Inspection (Updated in June 2014)
        •   Lists of documents to be delivered to the Registrar of Companies under the CWUMPO and be available for inspection under the CWUMPO and Main Board Rules 19.10(6) and 19A.27(4) (GEM Rules 24.09(6) and 25.20(4))
           

        2 Hong Kong Accounting Standard 34 "Interim Financial Reporting" allows disclosure of condensed financial statements or complete set of financial statements in interim financial reports. For the purposes of the stub period financial information under this guidance letter, both condensed financial statements or complete set of financial statements are acceptable as long as they comply with the requirements under notes 1 to 3 of paragraph 3.12(2), in particular the stub period financial information should at least include the same items as in the audited financial information for easy comparison and review.

        3 Information is only redacted for the purpose of publication of an AP-Publication on the Exchange's website. Information in an AP-Vetting and an AP-Publication should be the same, except that some information in the AP-Vetting must be redacted only to the extent necessary for the AP-Publication not to constitute a prospectus under section 2(1) of the CWUMPO; or an advertisement under section 38B(1) of the CWUMPO; or an invitation to the public in breach of section 103(1) of the SFO. For the avoidance of doubt, (a) if the information is permitted to be omitted from the AP-Vetting, it should not be disclosed in the AP-Publication; and (b) any information required to be redacted should be consistently redacted throughout the AP-Vetting. Redaction of information in a PHIP should follow the same principles. (Updated in November 2016)

        4 Information in square brackets provides certain flexibility to applicants. Sponsor may consider including a clear statement in the AP-Vetting that such information is expected to be updated in subsequent draft listing documents and/or final documents.

        5 Information that is omitted refers to information which is unavailable at the time when the AP-Vetting is submitted. For the avoidance of doubt, if such information is available, it has to be disclosed when the AP-Vetting is submitted.

        6 The symbol "✓" means that the whole relevant section must be redacted or put in square brackets; otherwise, only the specific items listed can be put in square brackets, omitted or redacted. For the avoidance of doubt, the section headings should be left in an AP-Publication even where the content of the whole section is deleted. (Updated in June 2014)

        7 The sponsor should provide us with information on the number of offer shares and offer price in the listing application form (Main Board: Form A1; GEM: Form 5A).

        8 An applicant should evaluate materiality of the intellectual property rights in the context of its business, profitability and prospects as a whole, and the extent to which its business activities, operations, financial position and prospects are dependent on the intellectual property rights. (Added in July 2018)

        9 During the vetting process, a sponsor's independence may change due to the matters set out in Main Board Rule 3A.07 (GEM Rule 6A.07). In any event, at least one sponsor of an applicant must be independent of the applicant under Main Board Rule 3A.07 (GEM Rule 6A.07)

      • GL55-13

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL55-13 (July 2013) (Updated in September 2013, February 2014, March 2014, December 2016, February 2018 and July 2018)

        Subject Guidance on Documentary Requirements and Administrative Matters for New Listing Applications (Equity)
        Listing Rules and Regulations Main Board Rules 9.03, 9.10A, 9.11, 9A.01, 9A.02, 19A.22A and Appendix 28

        GEM Rules 12.12 to 12.14, 12.22 to 12.26 and 25.17A
        Related Publications See body of this Guidance LetterHKEX-GL14-09 — Guidance on application for exemptions from the Companies (Winding Up and Miscellaneous Provisions) Ordinance ("GL14-09")

        HKEX-GL18-10 — Guidance on publicity materials and e-IPO advertisements ("GL18-10")

        HKEX-GL57-13 — Guidance on logistical arrangements for publication of Application Proofs, Post Hearing Information Packs ("PHIPs") and related materials on the Exchange's website for listing applicants ("GL57-13")

        HKEX-GL81-15 — Guidance on Mixed Media Offer ("GL81-15")

        HKEX-GL98-18 — Guidance on Disclosure in Listing Documents ("GL98-18")

        Checklists and forms for applications submitted on or after 15 February 2018 on the Exchange's website /strong>
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose
        1.1 This letter provides guidance on the documentary requirements and administrative matters for new listing applications. (Updated in July 2018)
        1.2 The Exchange expects applicants to follow this guidance letter when preparing their listing applications. The Exchange may consider an application to be not substantially complete as required under the Listing Rules if the applicant does not follow this guidance.
        2. Background
        2.1 The current filing requirements for a listing application require different documents to be submitted at various stages to facilitate the vetting process in a sequenced and orderly manner. There are corresponding checklists which set out the documents required to be submitted at those stages.
        2.2 Under the Securities and Futures Commission's ("SFC") new sponsor regulation effective on 1 October 2013, an Application Proof and related documentation must be substantially complete and the time between the date of the listing application and the actual listing should be shortened. To streamline the checklists and documentary requirements, the Exchange has amended the Listing Rules to complement the new sponsor regulation.
        2.3 With effect from 15 February 2018:
        (a) an application for transfer of a listing from GEM to the Main Board (a "GEM Transfer") requires the appointment of a sponsor (and an applicant is required to comply with the requirement to appoint a sponsor at least two months prior to the submission of its listing application for the Main Board); and
        (b) unless a listing document is not required pursuant to the transitional arrangements applicable to a GEM Transfer (an "Eligible Transfer") (see paragraph 3.2 below), a GEM Transfer applicant must publish a listing document and comply with the substantially complete Application Proof1 requirement under Main Board Rule 9.03(3) (GEM Rule 12.09(1)). (Added in February 2018)
        3. Relevant Listing Rules
        3.1 Main Board Rules 9.03, 9.10A and 9.11 (GEM Rules 12.12 to 12.14 and 12.22 to 12.26) set out the documentary requirements for application for the listing of equity securities, including a GEM Transfer (unless transitional arrangements apply). (Updated in February 2018)
        3.2 Appendix 28 to the Main Board Rules sets out the transitional arrangements for an Eligible Transfer for a qualifying GEM Transfer applicant (an "Eligible Issuer"2) for a period of three years from 15 February 2018. Paragraphs 8 and 10 of Appendix 28 allow a qualifying Eligible Issuer to publish a GEM Transfer announcement instead of a listing document. (Added in February 2018)
        3.3 For a PRC incorporated applicant, Main Board Rule 19A.22A (GEM Rule 25.17A) sets out the timing (i.e. at least four clear business days before the expected hearing date) when it is required to submit a certified copy of the document issued by the China Securities Regulatory Commission ("CSRC") or other PRC competent authority expressly approving its listing on the Exchange.
        4. Guidance
        4.1 Main Board Rule 9.11 (GEM 1Rule 12.22) sets forth the documents that are required to be submitted together with the respective listing application forms:
        (a) Form A1 — for Main Board, GEM Transfers and Category A Eligible Transfers3;
        (b) Form 5A — for GEM; or
        (c) Form 5J — for Category B Eligible Transfers4. (Updated in July 2018)
        4.2 To facilitate applicants and their sponsors to assemble information required for a new listing application in an orderly manner and on a timely basis, the following attachments set out the documentary and administrative requirements to be followed at different stages of the application process:
        Attachment I — for new listing applications (but excluding GEM Transfers and Eligible Transfers)
        Attachment II — for GEM Transfers and Eligible Transfers (Updated in February 2018)

        *****

        Attachment I

        Documentation and Administrative Matters for Main Board/GEM Applicants
        (Excluding GEM Transfers and Eligible Transfers)

        The Exchange requires the following documents to be submitted and administrative matters to be followed at different stages of the application process:

        For applicants that are applying for a certificate of exemption from any prospectus requirements under the CWUMPO, a final or an advanced draft of the applications to both the Exchange and the SFC. For guidance on application for exemptions from the CWUMPO, please refer to GL14-09. (Updated in March 2014).
        Before A1/ GEM: 5A submission
        1 Sponsor's appointment letter in accordance with Main Board Rules 3A.02A(1) and 3A.02B (GEM Rules 6A.02A(1) and 6A.02B) (Added in February 2018)
        1a The sponsor, if not yet registered as a user of the Exchange's e-submission system ("HKEX-ESS"), must register at least three business days before submission of the listing application to use HKEX-ESS for publication of listing-related documents through HKEX-EPS. Details of the registration process are set out at www.esubmission.hkex.com.hk. Please contact HKEX-ESS hotline on (852) 2840-3460 for any questions.
        2 The sponsor to obtain a company case number from the Listing Department—IPO Vetting Team at least one business day before submission of the listing application and listing-related documents through HKEX-ESS. Please refer to GL57-13.
        At the time of A1/ GEM: 5A submission
        3 A sponsor's confirmation that the applicant has submitted the Application Proof for publication on the Exchange's website in accordance with Main Board Rule 12.01A5 (GEM Rule 16.01A). Please refer to form M115 (GEM: form G115).
        4 Documents under Main Board Rules 9.03 and 9.11(1) to 9.11(17c) (GEM Rules 12.12 to 12.14, 12.22 and 12.23) together with additional information set out in form M104 (GEM: form G104).

        Document specifications:
        —   18 copies of Application Proof, two copies for other documents (double-sided printing required)
        —   two CD-ROMS containing all documents in text searchable format

        If the Exchanges decides that information is not substantially complete, the Exchange will not continue to review any documents relating to the application. All documents, including the form A1 (GEM: form 5A) (except for the retention of a copy of these documents for the Exchange's record) submitted to the Exchange will be returned to the sponsor. (Updated in February 2018)
        4a If an applicant delays its proposed timetable more than three times before the lapse of its listing application, the initial application fee will be forfeited. An applicant wishing to continue its listing application must repay the initial listing fee. (Added in July 2018)
        5 Completed checklists on
        •   basic qualifications for new listing under the Rules (form M105) (GEM: form G105)
        •   basic requirements for contents of listing document under the Rules and Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) ("CWUMPO") (form M106) (GEM: form G106)
        •   rules on valuation of and information on properties (form M107) (GEM: form G107)
        •   rules on accountants' report (form M108) (GEM: form G108)
        •   for applicants (both Main Board and GEM) seeking to list shares and are incorporated in an acceptable overseas jurisdiction ("Acceptable Jurisdiction7"), the CCASS Admission Form — New Listing of Shares (set out at here)
        •   for Main Board applicants seeking to list Depositary Receipts and are incorporated in an Acceptable Jurisdiction, the CCASS Admission Form — New Listing of Depositary Receipts (set out at here)
        Where a legal opinion referred to in the relevant CCASS Admission Form has been provided to the Exchange at the pre-IPO stage by the applicant, the applicant only needs to provide a bring down legal opinion confirming that the position in the earlier legal opinion is still valid (Updated in December 2016).
        5a A written confirmation to the applicant from:
        •   the reporting accountants that no significant adjustment is expected to be made to the historical financial information, the pro forma financial information and the profit forecast (if any) included in the Application Proof (form M116) (GEM: form G116)
        •   each of the experts who is named as an expert in the listing document that no material change is expected to be made to the relevant expert opinion included in the Application Proof (form M117) (GEM: form G117) (Added in July 2018)
        6 For applicants that are applying for a certificate of exemption from any prospectus requirements under the CWUMPO, a final or an advanced draft of the applications to both the Exchange and the SFC. For guidance on application for exemptions from the CWUMPO, please refer to GL14-09. (Updated in March 2014)
        7 A final or draft legal opinion from a legal adviser of the relevant jurisdiction on the applicant's Chinese name if a Chinese stock short name is required for a non-Hong Kong or a non-PRC issuer.
        7a Where a listed issuer conducts a reverse takeover and is treated as if it were a new listing applicant under Main Board Rule 14.54 (GEM Board Rule 19.54), a draft and final legal opinion from a PRC legal adviser confirming whether the reverse takeover falls within the scope of the "1997 Red Chip Guidelines" (GuoFa [1997] No.21) and, if so, that the transaction has been duly reported to the competent PRC authorities and all required prior consents and approvals have been obtained. The PRC legal adviser must state the reasons and bases for (i) its opinion; and (ii) consulting or not consulting the CSRC on this issue (Added in February 2014).
        7b For an applicant incorporated in an Acceptable Jurisdiction, the following sponsor's confirmations, with accompanying legal opinions of the Acceptable Jurisdiction and of a Hong Kong legal adviser that:
        (a)
        (i) the laws, regulations and market practices of the Acceptable Jurisdiction contained in the relevant Country Guide are still applicable; or
        (ii) where the relevant laws, regulations and market practices of the Acceptable Jurisdiction described in the relevant Country Guide have changed, provide details of the changes that are relevant to the circumstances, unless already provided to the Exchange, together with a confirmation that these changes will not affect the applicant's compliance with the shareholder protection standards under the Joint Policy Statement8 ("JPS");
        (b) the applicant is able to satisfy the accounting and auditing related requirements set out in Section 3 of the JPS and that listing of the applicant's securities would not give rise to any practical or operational difficulty as set out in Section 4 of the JPS; and
        (c) that the applicant's constitutive documents do not conflict with the Listing Rules and the Takeovers Code and Part XV of the Securities and Futures Ordinance (Disclosure of Interest); or alternatively, details of the conflicts, together with the measures proposed to address the conflicts and a confirmation that with the implementation of the measures, the conflicts will not affect the issuer's compliance with the shareholder protection standards under the JPS. (Updated in February 2018)
        Where a legal opinion referred to in (a) to (c) above has been provided to the Exchange at the pre-IPO stage by the applicant, the sponsor only needs to provide a written confirmation with the support of a bring down legal opinion confirming that the position in the earlier legal opinion is still valid (Added in December 2016).
        After A1/ GEM: 5A submission
        8 Where there is an update of:
        •   (i) the historical financial information, (ii) the pro forma financial information, and (iii) the profit forecast (if any), a written confirmation from the reporting accountants that no significant adjustment is expected to be made to the updated information (form M116) (GEM: form G116).
        •   any opinion, statement or report made by an expert in the listing document, a written confirmation from the expert that no material change is expected to be made to the updated information (form M117) (GEM: form G117). (Updated in July 2018)
        8a Where applicable, a completed form M115 (GEM: form G115) — Confirmation with regard to posting of statement made under Main Board Rule 9.08(2)(c) (GEM Rule 12.10(2)(c)). (Added in February 2018)
        By 6:00p.m. at least four clear business days before the expected hearing date
        9 Documents under Main Board Rules 9.11(18) to 9.11(22) (GEM Rules 12.22(15) and 12.23A).

        For a PRC incorporated applicant, a certified copy of the document issued by the CSRC or other PRC competent authority expressly approving the applicant's listing on the Exchange under Main Board Rule 19A.22A ("CSRC Approval") (GEM Rule 25.17A).

        For an investment company under Chapter 21 of the Main Board Rules ("Chapter 21 Company"):
        (i) a formal application for listing on Form C3Z in Appendix 5; and
        (ii) a written submission from the sponsor where there is to be restricted marketing that:
        •   there is not likely to be significant public demand for the securities of the investment company; and
        •   (b) adequate arrangements have been made to ensure that the securities of the investment company will not be permitted to be marketed to the public under Main Board Rules 21.14(1) and 21.14(3).
        To provide flexibility and to facilitate the vetting process, the final proof of the listing document may be submitted to the Exchange not less than two clear business days before the expected hearing date (all dates exclusive). The CSRC Approval (if applicable) may be submitted not less than three clear business days before the expected hearing date (all dates exclusive). We may allow the final proof of the listing document and CSRC Approval to be submitted on a later date on a case-by-case basis.

        Applicants and sponsors must adhere to the time for submission to avoid delay of the Listing Committee hearing.(Updated in July 2018)
        10 Completed checklist on the new listing particulars (form M201) (GEM: form G201) of the applicant.
        Before bulk-printing of the listing document
        11 Documents under Main Board Rules 9.11(24) to 9.11(28a) (GEM Rule 12.23A).

        For a Chapter 21 Company, completed Listing Agreement (Chapter 21 Investment Companies) (see form M502). (Updated in February 2018)
        12 A signed and certified true copy of the undertakings from the applicant's controlling shareholder in relation to pledged/charged securities, as required under note 3 to Main Board Rule 10.07 (GEM Rule 13.19).
        13 If an applicant has been given a mandate to repurchase shares, (a) a confirmation from the applicant that the explanatory statement required to be sent to the applicant's shareholders contains the information required under Main Board Rule 10.06(1)(b) (GEM Rule 13.08) and that neither the explanatory statement nor the proposed share repurchase has unusual features; and (b) an undertaking from the applicant's directors to the Exchange under Main Board Rule 10.06(1)(b)(vi) (GEM Rule 13.08(6)).
        14 A signed confirmation from a legal adviser that the listing document duly complies with relevant CWUMPO requirements (Updated in March 2014).
        15 Notify the Exchange in writing if the applicant will not adopt the standard transfer form.
        16 A sponsor's confirmation that the applicant has submitted the Post Hearing Information Pack for publication on the Exchange's website in accordance with Main Board Rule 12.01B (GEM Rule 16.01B). Please refer to form M115 (GEM: form G115). (Updated in July 2018)
        17 Before noon on the day when the sponsor would like to obtain our clearance for bulk-printing the listing document, a written confirmation from the applicant or the sponsor that the listing document covers (both English and Chinese versions) meet the principles set out in GL98-18.
        On or before the issue of the listing document
        18 Documents under Main Board Rules 9.11(29) to 9.11(32) (GEM Rule 12.24).
        19 Where applicable, (a) documents under Main Board Rule 9.11(33) (GEM Rule 12.25); and (b) a sponsor's confirmation that the prospectus and application forms have been registered and that the Exchange is authorised to publish the prospectus and application forms on the Exchange's website.
        After the issue of the listing document but before dealings commence
        20 Documents under Main Board Rules 9.11(34) to 9.11(38) (GEM Rule 12.26).
        21 Main Board Rule 2.07C(1)(b)(ii) (GEM Rule 16.17(2)(b)) requires the applicant to submit to the Exchange for publication on its website a "ready-to-publish electronic copy of each of the prospectus and any application forms". For compliance with this rule, submit an electronic copy of each sample application form together with an electronic copy of the prospectus.

        The use of a sample application form is to avoid applicants for Hong Kong offer shares from using a downloaded electronic application form for subscription purposes which may contain reproduction errors. Therefore, please print a "SAMPLE" watermark (i.e. ghost text) or text to have similar effect on each page of the electronic copy of the application form.

        Please also refer to refer to question 12 in Appendix 5 to GL81-15. (Updated in July 2018)
        22 Where the applicant's directors and the sponsor outsource the process of reviewing the IPO application forms to a third party service provider (for example, a licensed share registrar), reasonable enquiries in relation to the service provider's background, credentials, experience and the appropriateness of the scope of work performed in light of the codes of conduct applicable to the service provider's trade is expected. Furthermore, unless where the applicant's circumstances warrant other considerations to be taken into account, directors and sponsor are expected to discuss and agree with the service provider on the appropriate criteria for rejecting multiple or suspected multiple applications, instead of relying solely on the service provider's standard practices. Outsourcing to a third party service provider does not exonerate the applicant's directors or the sponsor from their responsibilities under Main Board Rule 10.09(1) (GEM Rule 13.21). (Updated in July 2018)
        23 To ensure the efficient administration and publication of allotment results:
        (a) please submit an electronic file of the allotment results for publication on the Exchange's website under Appendix F of the e-Submission System User Manual for Publication Related Matters; and
        (b) where the applicant proposes to raise HKD1.5 billion or more in the Hong Kong offering, include a "Search by Identity Card" function to facilitate searching of IPO allotment results on the applicant's own website.
        24 To expedite the IPO brokerage distribution process and enhance the operational efficiency of Exchange Participants, share registrars and the Exchange, the Main Board/GEM Listing Rules allow the applicant to pay the IPO brokerage to Exchange Participants' bank accounts through electronic transfer.

        The applicant is encouraged to distribute IPO brokerage to Exchange Participants through autopay for every successful IPO application. To effect the autopay arrangement, the applicant should submit a written request to Hong Kong Securities Clearing Company Limited ("HKSCC") to release to it or its share registrar information in relation to the bank accounts of Exchange Participants in CCASS. Please note that the written request needs to be received by HKSCC at least three business days before the listing document date.

        For queries, you can contact a HKSCC personnel on (852) 2211-6271 or (852) 2211-6258.
        25 Please ensure receiving banks' staffs are aware that potential investors are permitted to obtain both English and Chinese versions of the prospectus during the offer period.

        Attachment II

        Documentation and Administrative Matters for GEM Transfers and Eligible Transfers (Added in February 2018)

        Notes:
        1. "Eligible Issuer" is defined in Main Board Rule 9A.01A as:
        (a) all issuers listed on GEM as at 16 June 2017; and
        (b) all GEM applicants who have submitted a valid listing application for listing on GEM as at 16 June 2017 and subsequently listed on GEM pursuant to such application or a renewal of such application.
        An Eligible Issuer is entitled to transitional arrangements for a period of three years from 15 February 2018 ("Transitional Period") as set out in Appendix 28 of the Main Board Rules.
        2. Category A Eligible Issuer — is an Eligible Issuer which has changed its principal businesses and/ or controlling shareholder(s) since listing on GEM or is an infrastructure company or a mineral company.
        3. Category B Eligible Issuer — is an Eligible Issuer which has neither changed its principal businesses nor its controlling shareholder(s) since listing on GEM and is not an infrastructure company or a mineral company.

        Documentation and Administrative Matters GEM Transfer by non-Eligible Issuers on or after 15 February 2018 Eligible Issuers note 1 during the Transitional Period
        Category A Eligible
        Issuers note 2
        Category B Eligible
        Issuers note 3
        Before submission of listing application
        1. Sponsor's appointment letter in accordance with Main Board Rules 3A.02A(1) and 3A.02B.
        1a. The sponsor, if not yet registered as a HKEX-ESS user, must register at least three business days before submission of the listing application to use HKEX-ESS for publication of listing-related documents through HKEX-EPS. Details of the registration process are set out at www.esubmission.hkex.com.hk. Please contact HKEX-ESS hotline on (852) 2840-3460 for any questions. (Added in July 2018)
        2. The sponsor to obtain a company case number from the Listing Department — IPO Vetting Team at least one business day before submission of the listing application and listing-related documents through HKEX-ESS. Please refer to GL57-13. X
        At the time of submission of listing application
        3. Completed Application Form. Form A1 Form A1 Form 5J
        4. A sponsor's confirmation that the applicant has submitted the Application Proof for publication on the Exchange's website in accordance with Main Board Rule 12.01A. Please refer to form M115. X
        5. Documents under Main Board Rules 9.03 and 9.11(1) to 9.11(17c), except Rule 9.11(17a), together with additional information set out in form M104. Please refer to paragraph 4 of Attachment I for document specifications.

        If the Exchanges decides this information is not substantially complete, the Exchange will not continue to review any documents relating to the application. All documents, including the form A1 (except for the retention of a copy of these documents for the Exchange's record) submitted to the Exchange will be returned to the sponsor.
        X
        5a. If an applicant delays its proposed timetable more than three times before the lapse of its listing application, the initial application fee will be forfeited. An applicant wishing to continue its listing application must repay the initial listing fee. (Added in July 2018)
        6. Documents set out in paragraph 12 of Appendix 28 to the Main Board Rules and information specified in form MT001 – Checklist on documents to be submitted when making an application for transfer of listing from GEM to Main Board. X X
        7. Completed checklist — Basic qualifications for:
        (a) new listing (other than Eligible Transfers);
        (b) Category A and Category B Eligible Issuers.
        M105 MT002 MT002
        8. Completed form MT004 — form 5K — Declaration of Directors and Supervisors with regard to a Transfer of Listing from GEM to Main Board. X X
        9. Completed checklist — Basic requirements for contents of listing document/ announcement of transfer. M106 M106 MT005
        10. Completed checklist M107 — Property valuation. X
        11. Completed checklist M108 — Accountants' report. X
        12. Completed form M109 — Sponsor's Undertaking and Statement of Independence (Appendix 17 to the Main Board Rules).
        13. Completed form MT009 — New listing particulars. X X
        14. For applicants incorporated in Acceptable Jurisdictions, information required in paragraphs 5 and 7b of Attachment I.
        14a. A written confirmation to the applicant from the reporting accountants and each of the experts as required in paragraph 5a of Attachment I. (Added in July 2018) X
        14b. Information on:
        •   the percentage of public float as at the latest practicable date;
        •   number of shareholders as at the latest practicable date; and
        •   the identity of three largest shareholders and their aggregate shareholding. (Added in July 2018)
        After submission of listing application
        15. Where there is an update of:
        •   (i) the historical financial information, (ii) the pro forma financial information, and (iii) the profit forecast (if any), a written confirmation from the reporting accountants on no significant adjustment. Please refer to paragraph 8 of Attachment I;
        •   any opinion, statement or report made by an expert in the listing document, a written confirmation from the expert on no material change. Please refer to paragraph 8 of Attachment I. (Updated in July 2018)
        X
        16. Where applicable, a completed form M115 — Confirmation with regard to posting of statement made under Main Board Rule 9.08(2)(c). X
        By 6:00p.m. at least 4 clear business days before the expected hearing date
        17. Documents under Main Board Rules 9.11(18) to 9.11(22). X
        18. For a PRC incorporated applicant, a certified copy of the document issued by the CSRC or other PRC competent authority expressly approving the applicant's listing on the Exchange under Main Board Rule 19A.22A.
        19. Completed form M201 — New listing particulars. X
        Before bulk printing of the listing document or issue of the GEM Transfer announcement
        20. Documents under Main Board Rules 9.11(24) to 9.11(28a). X
        21. A written confirmation from the applicant or the sponsor that the listing document covers (both English and Chinese versions) meet the principles set out in Guidance Letter GL98-18. Please refer to paragraph 17 of Attachment I. (Updated in July 2018) X
        22. Notify the Exchange in writing if the applicant will not adopt the standard transfer form.
        22a. Information on:
        •   the percentage of public float as at the latest practicable date;
        •   number of shareholders as at the latest practicable date; and
        •   the identity of three largest shareholders and their aggregate shareholding. (Added in July 2018)
        On or before the issue of the listing document
        23. Documents under Main Board Rules 9.11(29) to 9.11(32), except Rule 9.11(30). X
        24. Completed form M302 — Sponsor's Declaration (Appendix 19 to the Main Board Rules)
        After the issue of the listing document or GEM Transfer announcement, but before dealings commence
        25. Documents under Main Board Rules 9.11(34) to 9.11(38). X
        26. Completed forms B/ H/ I in Appendix 5 — Declaration and undertaking with regard to director/ supervisor.
        26a. Information on:
        •   the percentage of public float as at the latest practicable date;
        •   number of shareholders as at the latest practicable date; and
        •   the identity of three largest shareholders and their aggregate shareholding. (Added in July 2018)

        1 Refers to a draft listing document that is required to be substantially complete and is submitted to the Exchange together with a listing application form (see Main Board Rule 1.01 (GEM Rule 1.01)).

        2 Defined in Main Board Rule 9A.01A.

        3 A Category A Eligible Transfer relates to an Eligible Transfer by an Eligible Issuer which (a) has changed its principal businesses and/ or controlling shareholder(s) since listing on GEM; or (b) is an infrastructure company or a mineral company.

        4 A Category B Eligible Transfer relates to an Eligible Transfer by an Eligible Issuer which (a) has neither changed its principal businesses nor its controlling shareholder(s) since listing on GEM; and (b) is not an infrastructure company nor a mineral company.

        7 See a list of Acceptable Jurisdictions at: http://www.hkex.com.hk/eng/rulesreg/listrules/listsptop/listoc/list_of_aoj.htm

        8 See "Joint Policy Statement Regarding the Listing of Overseas Companies (Updated on 30 April 2018)" webpage at: https://www.hkex.com.hk/-/media/HKEX-Market/Listing/Rules-and-Guidance/Other-Resources/Listing-of-Overseas-Companies/Understanding-the-Risks-of-Investing-in-Overseas-Issuers/jps_20180430.pdf?la=en

      • GL53-13

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        HKEx GUIDANCE LETTER
        HKEx-GL53-13 (April 2013) (Updated in July 2013)—effective for applications submitted on or after 1 October 2013

        Subject Liquidity arrangements for issuers seeking to list by introduction where the securities to be listed are already listed on another stock exchange
        Listing Rules Main Board Rule 2.03; GEM Rule 2.06
        Related Publications HKEx News Releases regarding precautionary measures by issuers listed by introduction dated 31 March 2010 and 18 May 2010
        http://www.hkex.com.hk/eng/newsconsul/hkexnews/2010/1003312news.htm
        http://www.hkex.com.hk/eng/newsconsul/hkexnews/2010/100518news.htm
        HKEx-GL57-13 on Guidance on Logistical Arrangements for Publication of Application Proofs, Post Hearing Information Packs ("PHIPs") and related materials on the Exchange's Website for Listing Applicants
        Author IPO Transactions Department

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Division on a confidential basis for an interpretation of the Listing Rules, or this letter.

        1. Purpose and Application
        1.1 This Letter seeks to provide issuers seeking to list by introduction guidance on arrangements to facilitate liquidity of their securities to meet demand on the Hong Kong market during the initial period of listing and to ensure that trading of these securities are conducted in a fair and orderly manner (Main Board Rule 2.03 and GEM Rule 2.06).
        1.2 The liquidity arrangements outlined in this Letter apply to listings by introduction where the securities (including shares, depositary receipts and units under collective investment schemes) sought to be listed are already listed on another stock exchange, and the securities held by the existing holders need to be transferred to the issuer's Hong Kong register before they can be traded in Hong Kong. For the avoidance of doubt, this Letter does not apply to a PRC company seeking to list H-shares on the Exchange by way of introduction upon converting its B shares into H shares.
        1.3 The liquidity arrangements in this Letter are for reference only. The applicability of these arrangements will be based, among other things, on an issuer's circumstances, its capital holding structure, availability of arbitrage opportunities between Hong Kong and the other market(s). Where appropriate, we may add to or modify the liquidity arrangements proposed. We encourage applicants to consult us early if they envisage any difficulties.
        2. Background
        2.1 To avoid a disorderly market developing from significant unfulfilled demand for an issuer's securities in Hong Kong upon and during the initial period after a listing by introduction, the Exchange, after consultation with the Securities and Futures Commission ("SFC"), issued two news releases on 31 March 2010 and 18 May 2010 highlighting liquidity arrangements that the Exchange considered acceptable for the cases concerned.
        2.2 Since then, other issuers have adopted a variety of liquidity arrangements acceptable to the Exchange.
        3. Liquidity Arrangements
        3.1 An issuer and its sponsor must submit its proposed liquidity arrangements for vetting when it submits its listing application form (i.e. Form A1 or Form 5A).
        3.2 An issuer and its sponsor should reasonably estimate the potential Hong Kong demand for the issuer's securities when designing its liquidity arrangements and demonstrate how the demand can be satisfied by adopting its proposed liquidity arrangements. The estimate may be based on the historical trading statistics of an issuer's securities in its overseas market and the expected increase in trading upon listing in Hong Kong.
        3.3 A suitable designated period ("Designated Period") during which an issuer will facilitate liquidity for its securities in the Hong Kong market must be proposed. A Designated Period of one to three months commencing from the beginning of the pre-opening session (9:00 a.m.) on the first day of the introduction is usually accepted.
        3.4 An issuer's liquidity measures are to ensure an adequate supply of securities in the Hong Kong market during the Designated Period. An issuer and its sponsor should take into consideration the following:
        (a) Batch removal services - These refer to services to transfer existing securities from the overseas securities registers to their Hong Kong registers in pre-specified batch(es) before and during the Designated Period to satisfy the expected demand in Hong Kong.
        (b) Expedited removal services - These refer to services to expedite transfer of existing securities from the overseas securities registers to their Hong Kong registers before and during Designated Period at no or reduced cost to the overseas securities holders. If an issuer does not consider expedited removal services effectively facilitate (due to minimal savings in time and/or cost) an adequate supply of an issuer's securities in Hong Kong during the Designated Period, these services may be dispensed with provided that the other measures adopted are sufficient.
        (c) Appointment of designated securities dealers ("Designated Dealers") to provide liquidity - Appointment of Designated Dealers acceptable to the Exchange to undertake arbitrage, bridging and/or other trading activities to provide liquidity of the securities during the Designated Period. More than one Designated Dealer may be appointed. Where only one Designated Dealer is appointed, an alternate should be appointed.
        (d) Investor education and announcements — There should be adequate arrangements to inform the investing community in the Hong Kong and overseas markets of the securities transfer processes and the liquidity arrangements available in Hong Kong.
        Appointment and Functions of Designated Dealer
        3.5 Each Designated Dealer (including any alternate) must be a regulated entity acceptable to the Exchange. The Exchange will consider the dealer's experience in carrying out the functions mentioned below in Hong Kong and overseas when assessing suitability.
        3.6 A Designated Dealer is expected to conduct arbitrage, bridging and other trading arrangements on a voluntary basis in good faith and on arm's length terms with a view to contributing towards liquidity to meet demand for the issuer's securities in Hong Kong. A Designated Dealer is not required to act as a Market Maker or Securities Market Maker (as defined in the Rules of the Exchange) and does not need to undertake to create or make a market in the securities on the Hong Kong market.
        3.7 All arbitrage, bridging and trading activities conducted during the Designated Period must comply with all applicable laws and regulations, and reasons provided for the exemptions sought. For this purpose, a Designated Dealer must ensure:
        (a) the arbitrage, bridging and/or trading arrangements are within the circumstances under paragraph 2.3 of the SFC's Guidance Note on Short Selling Reporting and Stock Lending Record Keeping Requirements and are not regarded as short selling in breach of section 170 of the Securities and Futures Ordinance; or
        (b) specific short-selling regulation exemptions from the Exchange (under the Rules of the Exchange, including but not limited to Rule 563D and the Eleventh Schedule of the Rules of the Exchange) have been obtained to permit it to conduct covered short selling, input short selling orders that may be below the best current ask price during the pre-opening and continuous trading sessions, and execute short sales of the securities when the opportunity arises during the Designated Period. A Designated Dealer is required to satisfy the conditions for short-selling imposed.
        3.8 To facilitate liquidity of an issuer's securities during the Designated Period, a Designated Dealer should consider the following:
        (a) conduct arbitrage, bridging trades in line with market practice in the context of dual listed stocks during the Designated Period when:
        (i) there is a concurrent availability of the securities on both the overseas and Hong Kong stock exchanges; and
        (ii) there is a meaningful price differential (as determined by the Designated Dealer) to contribute towards trading liquidity;
        (b) build a sufficient inventory of securities in Hong Kong to enable it to carry out arbitrage, bridging and/or trading activities during the Designated Period. This can be achieved through:
        (i) entering into stock borrowing arrangements with an existing holder(s) of the securities to borrow the securities listed on the overseas exchange and remove the borrowed securities to the Hong Kong register before the commencement of trading and during the Designated Period. This will require the Designated Dealer to close out its borrowed positions by purchasing securities from the overseas exchange or in the Hong Kong market or remove back to the overseas register any unutilised securities and transfer those securities back to the lender of the securities; and/or
        (ii) entering into a sale and repurchase agreement with an existing holder/s of the securities to build up a small inventory of the securities before the commencement of trading and during the Designated Period. In the precedents, we have seen agreements enabling the Designated Dealer to sell back or have a right to sell back to the selling holder at the same price as the securities were sold shortly after the Designated Period.
        3.9 A Designated Dealer may need to continue to replenish its inventory when there is a demand during the Designated Period.
        3.10 Administrative arrangements—The following is required prior to execution of any arbitrage, bridging and trading activities by a Designated Dealer:
        (a) set up designated broker identity number(s) for the sole purpose of conducting arbitrage trades, covered short-sale and other trades in Hong Kong during the Designated Period; and
        (b) conduct testing with the Exchange to confirm readiness for the Designated Dealer's activities.
        Investor education
        3.11 An issuer and its sponsor must ensure there is sufficient investor education in both the overseas and Hong Kong markets to provide details of the liquidity arrangements available in Hong Kong.
        3.12 The investor education materials include:
        (a) analyst briefings at applicable local brokerage/research institutions;
        (b)[deleted in July 2013];
        (c) public announcements in the overseas and Hong Kong market (see paragraph 3.15); and
        (d) an issuer's Application Proof 1, Post Hearing Information Pack ("PHIP") 2 and listing document (see paragraph 3.14).
        3.13 An issuer and its sponsor must ensure compliance with Main Board Rule 9.08 (GEM Rule 12.10) and the codes of conduct3 issued by the SFC when conducting investor education activities in relation to liquidity arrangements.
        Disclosure in Application Proofs, PHIPs and Listing Documents (Updated in July 2013)
        3.14 A dedicated section of the Application Proof, PHIP and listing document should contain updated details of:
        (a) the removal process of securities from the overseas register to the Hong Kong register and vice versa including the time and costs involved during and after the Designated Period;
        (b) special arrangements for batch and/or expedited removal services provided by the issuer during the Designated Period. These should include period of availability, time and cost saved compared to the normal process;
        (c) arbitrage, bridging and/or trading arrangements provided by the Designated Dealers and their related benefits; and
        (d) investor education to be performed by the issuer and the sponsor.
        3.15 Contents, timing of publication and publication method of public announcements:

        In the issuer's overseas market(s)
        (a) Contents—Details of the removal services (and related costs) provided by the issuer to facilitate the removal of securities from the issuer's overseas register(s) of the securities to the Hong Kong register.

        Timing of Publication—As soon as practicable after the finalisation of the liquidity arrangements, but no later than the publication of the listing document in Hong Kong.

        Publication Method—(i) publication on the overseas regulatory website or other media permitted by the relevant regulators in the overseas market(s); and/or (ii) publication on the issuer's website; and/or (iii) through corporate communication to the securities holders.
        In Hong Kong
        (b) Contents—An Application Proof and a PHIP. (Updated in July 2013)

        Timing of Publication—See paragraph 9 of Practice Note 22 of the Main Board Rules and paragraph 8 of Practice Note 5 of the GEM Rules on the prescribed time for publication as supplemented in paragraphs A.15 to A.17 of HKEx-GL57-13.

        Publication Method—Publication on the Exchange's website.
        (c) Contents—Details of the available pool of securities at the time of listing to meet demand on the Hong Kong market. The pool should aggregate the number of transfers under the batch removal services and the inventory held by the Designated Dealers, and the designated broker identity number(s) for carrying out liquidity activities for the issuer.

        Timing of Publication—As soon as practicable and in any event not later than one business day before the commencement of trading of the securities.

        Publication Method—Publication on the Exchange's website and the issuer's website.
        (d) Contents—The closing price, trading volume and relevant historical trading data of the issuer's securities in the overseas market(s).

        Timing of Publication—On each of the three business days before the commencement of trading of the securities.

        Publication Method—Publication on the Exchange's website and the issuer's website.
        (e) Contents—Relevant developments and updates on the liquidity arrangements, e.g. update on the available pool of securities transferred to Hong Kong register under a staged removal process.

        Timing of Publication—As soon as practicable after the completion of each stage of the share removal process after trading has commenced.

        Publication Method—Publication on the Exchange's website and the issuer's website.

        1 Defined in Rule 1.01 of the Main Board Rules and Rule 1.01 of the GEM Rules

        2 Defined in Rule 1.01 of the Main Board Rules and Rule 1.01 of the GEM Rules

        3 For example the Code of Conduct for Persons Licenced by or Registered with the Securities and Future Commission and the Corporate Finance Adviser Code of Conduct.

      • GL52-13

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        HKEx GUIDANCE LETTER
        HKEx-GL52-13 (March 2013) (Updated in July 2013)

        Subject Disclosure in listing documents for mineral companies applicants that the Exchange normally expects and to address comments raised by the Exchange and the SFC in the vetting of previous listing applications
        Listing Rules and Regulations Main Board Rules 2.13(2), 11.07 and Chapter 18

        GEM Rules 14.08(7), 17.56(2) and Chapter 18A
        Author IPO Transactions Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter. Defined terms in this letter have the same meaning as those used in Chapter 18 of the Main Board Rules (Chapter 18A of the GEM Rules).

        1. Background and Purpose
        1.1 This letter is intended to assist applicant mineral companies by giving guidance for better preparation of listing documents under Chapter 18 of the Main Board Rules (Chapter 18A of the GEM Rules).
        1.2 Chapter 18 of the Main Board Rules (Chapter 18A of the GEM Rules) was revised and became effective on 3 June 2010. Since May 2012, the Exchange has reviewed the operation of the revised Chapter 18 of the Main Board Rules (Chapter 18A of the GEM Rules) by looking at the vetting process and comments from the Listing Committee, the Listing Department, the SFC, market practitioners and industry experts, and has identified certain disclosure deficiencies commonly found in draft listing documents.
        1.3 The Exchange expects applicants to follow this letter when preparing their listing applications. A listing document that does not follow this guidance may be considered not substantially complete as required under the Listing Rules (Updated in July 2013).
        2. Relevant Rules
        2.1 Main Board Rule 2.13(2) (GEM Rule 17.56(2)) provides that the information contained in the listing document must be accurate and complete in all material respects and not be misleading or deceptive.
        2.2 Main Board Rule 11.07 (GEM Rule 14.08(7)) sets out an overriding general duty of disclosure in a listing document.
        2.3 Chapter 18 of the Main Board Rules (Chapter 18A of the GEM Rules) sets out the content requirements for the listing document of an applicant mineral company in addition to the information required under Appendix 1A to the Main Board Rules (Appendix 1A to the GEM Rules).
        3. Guidance
        3.1 The Exchange suggests that the following disclosures be made in the listing documents which fall under Chapter 18 of the Main Board Rules (Chapter 18A of the GEM Rules) (where applicable):

        "Summary" section
        3.2 An overview of the Mineral or Petroleum Assets, including the location, main products and by-products generated, a summary of the Reserves and Resources by category under a Reporting Standard, the grade(s) and quality of an applicant's Natural Resources with reference to applicable industry standards, the mining/recovery method, the life of the mines/oilfields, the current status and future plan, and the cash operating and production costs of the minerals or Petroleum produced, in tabular format, as extracted from the Competent Person's Report, where applicable.
        3.3 The salient terms of the mining and exploration licences in tabular format, such as the identity of each of the licence holders, the grant and expiry dates of the licences, and the particular Natural Resources which the licences are related to.
        3.4 The access of an applicant's mines/oilfields to major transportation networks.
        3.5 The revenue, sales volume and average selling price of each major product during the track record period.
        3.6 An applicant's mining rights which are pledged to secure its banking facilities, if any.
        3.7 The risk associated with an applicant's capital expenditure projects if the expected capital expenditure is significantly more than its IPO proceeds.
        Competent Person's Report and related disclosure
        3.8 The cut-off grade, minimum mining width, economic parameters (e.g. waste to ore ratio, stope productivity), specific gravity derivation, prevailing metal/product price assumptions, and whether the cut-off grade used in the Competent Person's Report is an industry standard commonly used by experts for the type of mine which is the subject matter of the Competent Person's Report.
        3.9 If the Competent Person and the applicant have different views over certain assumptions (e.g. processing recovery rate) adopted by the applicant, both views should be disclosed in the listing document, with differences highlighted, or explanation be provided as to why the applicant takes a different view and the impact on the applicant if the more conservative view is taken.
        3.10 Detailed analysis for harmful elements identified at mines (e.g. mercury or arsenic identified at lead and zinc mines) to give a better picture of whether there are material concentrations of these elements within particular lodes, given that these elements can materially affect the saleability of the minerals.
        3.11 Clear and meaningful drawings and diagrams, shown to scale, of the location of the applicant's principal Mineral or Petroleum Assets.
        3.12 Reserves
        (i) The procedures, amount of testing, assessment and time required to ascertain the amount of Reserves.
        (ii) The existing Reserves of the mine over its entire mine life, expected average Resource and Reserve grades of ore that can be extracted in future years (preferably covering the whole economic life of the mine), depletion charges and hedging activities.
        3.13 Net present value ("NPV")
        (i) Clarification as to whether the historical or the expected improved recovery rate is used for estimating the NPV.
        (ii) The basis on which the discount rates are considered appropriate.
        3.14 Whether the Competent Person has performed a site visit and verification on information provided by the applicant. If not, the main text of the listing document should disclose the bases on which the Reserves/Resources, cost forecasts and other data relating to the mines/oilfields as disclosed in the Competent Person's Report are arrived at, how the lack of a site visit would affect the reliability of the information, and an appropriate risk factor1.
        3.15 The listing document should disclose all material risks mentioned in the Competent Person's Report in the "Risk Factors" section. Whether an applicant has taken/will take action to address key recommendations mentioned in the Competent Person's Report should be disclosed in the main body of the listing document.
        "Business" section
        3.16 Project development
        (i) Construction details by key stages (e.g. different stages of the planned development) leading to commercial production with the assistance of flow diagram or a summary table.
        (ii) Options available to an applicant (e.g. capital expenditure staging options, joint development options, cost-cutting strategies and financing options) in the event of upside and downside market developments.
        3.17 Workflow/Production
        (i) A workflow diagram for each of the major steps/processes for an applicant's business (from excavation to product delivery), with a general indication of the time involved in each step/process and whether any of the process is/will be outsourced to contractors.
        (ii) Designed capacities, permitted production volume and actual production volume of the mines, oilfields and/or the production plants, the utilisation rates of the production plants, in tabular format, during the track record period and commentary on material fluctuations.
        (iii) Reasons and outstanding liabilities for major accidents that took place during the track record period and up to the latest practicable date, and the internal controls to prevent recurrence of similar accidents.
        3.18 Outsourcing arrangement
        (i) The number of contractors engaged by an applicant for each type of activities during the track record period, whether they are independent third parties, the criteria for selecting the contractors, and the total contracting fees incurred during the track record period.
        (ii) Salient terms of the agreements with contractors (e.g. the duration, the basis of determining the fees, the rights and obligations of each of the applicant and the contractors (including those related to accidents/fatalities/injuries in the course of the contractors' operations), credit and settlement terms, and fee adjustment, indemnity, termination and renewal clauses).
        (iii) Whether the contractors have obtained all licences/permits to conduct their activities, details of an applicant's internal controls to ensure that the contractors comply with all applicable rules and the contractual terms (e.g. occupational health and safety, environmental protection, validity of the licences).
        (iv) Availability of contractors providing similar services on similar terms, and how the applicant manages the risks associated with the outsourcing arrangement and reliance on the contractors.
        3.19 Utilities
        (i) Any measures taken to secure stable and sufficient utility supplies for an applicant's existing and future business operations, whether the applicant is able to identify any alternative supplier at competitive prices, and salient terms of the utility contracts.
        (ii) How the utility fees charged to an applicant compares with the market rates charged to other users.
        (iii) Whether an applicant experienced any material disruptions as a result of shortage of utilities, including electricity and water, during the track record period and up to the latest practicable date, and the risk associated with the availability and stability of the supplies.
        3.20 Sales/Product delivery
        (i) Salient terms of the sales agreements, if any, and whether those terms are in line with industry standards.
        (ii) Whether an applicant has experienced any shortage of transportation capacity for its products during the track record period and up to the latest practicable date, whether the existing transportation infrastructure is sufficient for the applicant's expansion and the associated risk, and the applicant's plans to secure sufficient access to the infrastructure.
        3.21 Regulatory, environmental and social matters
        (i) A summary of all outstanding approvals and the current status of the relevant applications, any restriction on the renewal of exploration and mining permits, and the legal advisers' view on an applicant's ability to obtain/renew all relevant licences, permits and approvals for the proposed exploration and mining activities.
        (ii) Details of the regulations governing the provision of rehabilitation costs and reserves, how an applicant estimates the relevant provisions, and the relevant accounting treatment.
        (iii) Environmental impact of an applicant's mining/extracting activity and production process, and the measures taken or to be taken by the applicant to mitigate the adverse impact together with the time frame.
        (iv) Any weaknesses and deficiencies of an applicant's environmental management policies and if there are, how the applicant will address them.
        (v) Whether any local community concerns (e.g. potential pollution of local environment by the mining operation) have been properly addressed.
        (vi) Any operational and financial impact of new environmental regulations/programs, and the associated risk to an applicant.
        3.22 Financial information
        (i) A sensitivity analysis on changes in the price of Mineral or Petroleum Assets, contracting fees, utility expenses and transportation costs, where material, during the track record period and the forecast period.
        (ii) A breakdown of production costs and total cash operating costs.
        (iii) The amounts of exploration expenses during the track record period and up to the latest practicable date, and how they were accounted for in an applicant's financial statements.
        (iv) The major assumptions adopted for the forecast operating costs.
        (v) The expected time when a project under development becomes self-sufficient in working capital and funding, and the amount of additional funding required to reach that level of self-sufficiency (Updated in July 2013).
        Drafting
        3.23 The listing document, including the Competent Person's Report, should address the following, where applicable, for ease of understanding:
        (i) avoid using the word "mine" to describe projects which are still at an early stage of development or exploration work;
        (ii) explain qualitative descriptions used, such as "high estimates", "low estimates" and "best estimates" for Reserves and Resources;
        (iii) where estimates are disclosed, they should be sensibly rounded to avoid an unrealistic indication of accuracy; and
        (iv) ensure that consistent terminology is used throughout the listing document.

        Note:

        Please refer to Listing Decisions (http://www.hkex.com.hk/eng/rulesreg/listrules/listdec/2013listdec.htm) and Guidance Letters (http://www.hkex.com.hk/eng/rulesreg/listrules/listguid/iporq/guidance1.htm) related to mineral companies.

        ****


        1 The Exchange would expect the sponsor to submit the basis that the Competent Person considers unnecessary to perform any facility or onsite investigation and no verification work is required.

      • GL51-13

        View Current PDF

        HKEx GUIDANCE LETTER
        HKEx-GL51-13 (February 2013)

        Subject Cornerstone Investment — No Direct or Indirect Benefits to Cornerstone Investors other than Guaranteed Allocation at IPO price
        Listing Rules Main Board Rules 2.03(2) and (4), and 2.13

        GEM Rules 2.06(2) and (4), and 17.56
        Author IPO Transactions Department

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Division on a confidential basis for an interpretation of the Listing Rules, or this letter.

        1. Purpose
        1.1 Some market participants have asked the Exchange to remind applicants that it does not allow any direct or indirect benefits by side letter or otherwise, other than a guaranteed allocation of shares at the IPO price, to be given to cornerstone investors to participate in the placing tranche of a listing applicant's share offering.
        2. Background
        2.1 It is not uncommon in an IPO that a portion of IPO shares under the placing tranche are preferentially placed to certain investors, usually referred to as "cornerstone investors". Cornerstone investors, usually larger institutions and well-known individuals including asset management funds, sovereign wealth funds and Hong Kong tycoons, are introduced to an IPO to signify that these investors have confidence in the applicant, and the investment is worthwhile such that they are willing to take up shares at the IPO price. These are preferential placings where the cornerstone investors are guaranteed to receive allocation of shares irrespective of the final offer price.
        2.2 Placings to cornerstone investors are generally permitted based on the following principles:
        (a) the placing must be at the IPO price;
        (b) the IPO shares placed are subject to a lock-up period generally for at least six months following the listing date;
        (c) each investor will not have any board representation in the listing applicant, and is independent of the listing applicant, its connected persons and their respective associates;
        (d) details of the placing arrangement, including the identity and background of the investors, are disclosed in the listing document; and
        (e) notwithstanding the minimum six-month lock-up period, the shares will be part of the public float under Main Board Rule 8.08 (GEM Rule 11.23) provided the investor is a member of the public for the purpose of Main Board Rule 8.24 (Notes 2 and 3 to GEM Rule 11.23).
        2.3 In 2012, among the 50 newly listed Main Board companies (excluding listing of investment funds, GEM transfers, and new listings under VSA), the cornerstone placings ranged between 6% and 66% of the total offering size of IPO shares. In 2011, the range was between 9% and 76%. We tend to see more cornerstone placings when market conditions are difficult.
        3. Relevant Listing Rules
        3.1 Main Board Rules 2.03(2) and (4) (GEM Rules 2.06(2) and (4)) require the issue and marketing of securities to be conducted in a fair and orderly manner and that all holders of listed securities be treated fairly and equally.
        3.2 Main Board Rule 2.13 (GEM Rule 17.56) requires that information contained in the prospectus must be accurate and complete in all material respects and not be misleading or deceptive.
        4. No Direct or Indirect Benefits to Cornerstone Investors other than Guaranteed Allocation at IPO Price
        4.1 The Exchange considers that cornerstone investors provide an impression of voluntary commitment to an IPO by these investors and that the investment is worthwhile. They in fact can make an IPO very successful as retail investors are incentivised to invest in the applicant after finding out these cornerstone investors' commitment. Preferential placings to the cornerstone investors will not violate the fair and equal treatment under Main Board Rules 2.03(2) and (4) (GEM Rules 2.06(2) and (4)) if they follow the principles set out in paragraph 2.2 above.
        4.2 Because the existence of cornerstone investors is sometimes critical to the success of an IPO, including when market sentiment is weak, some applicants and their controlling shareholders, sponsors or other syndicate members may be willing to offer to some cornerstone investors direct or indirect benefits by side letter or otherwise, other than a guaranteed allocation at IPO price.
        4.3 We consider it misleading to the public if these investors receive some direct or indirect benefits by side letter or otherwise, other than a guaranteed allocation, to take up shares in an IPO and yet being considered cornerstone investors. Accordingly, where there is any form of direct or indirect benefits by side letter or otherwise, other than a guaranteed allocation, given to investors, for example, waiver of brokerage commission, a put option from the controlling shareholder or any other person to buy back the shares after listing, sharing of underwriting commissions, an assurance that the applicant will re-invest the IPO proceeds in funds managed by the cornerstone investor, an agreement to allow allocation of shares in another IPO, or any other transaction or arrangement entered into on non-arm's length commercial terms in connection with the acquisition of the shares, these investors should be reclassified as pre-IPO investors and the requirements under the Interim Guidance on Pre-IPO Investments issued in January 2012 (http://www.hkex.com.hk/eng/rulesreg/listrules/listguid/Documents/gl29-12.pdf) apply. Please also refer to Guidance Letters HKEx-GL43-12 and HKEx-GL44-12 for the Exchange's policies on pre-IPO investment.
        4.4 In addition, the non-disclosure of any form of direct or indirect benefits by side letter or otherwise, other than a guaranteed allocation, given to cornerstone investors violates the principles under Main Board Rule 2.13 (GEM Rule 17.56). This guidance letter does not intend to preclude the entering into of arm's length commercial arrangements between applicants and investors, such as when the investors are major customers and suppliers, or formation of joint ventures for business development with such investors. These are considered as strategic dealings and/ or arrangements with strategic investors. Details of any commercial arrangements should however be fully disclosed in the listing document.

        *****

      • GL46-12

        View Current PDF

        HKEx GUIDANCE LETTER
        HKEx-GL46-12 (December 2012) (Updated in October 2015)

        [Updated due to adoption of Hong Kong Financial Reporting Standard 13 on Fair Value Measurement effective for annual periods beginning on or after 1 January 2013 and revisions to Hong Kong Accounting Standard 41 on Agriculture in August 2014]

        Subject Guidance on:
        1. Unrealised fair value gains on valuation of biological assets for the purpose of trading record and profit requirements under Rule 8.05(1)(a)
        2. Disclosure requirements for IPO applicants with biological assets
        3. Due diligence work expected to be performed by sponsor and other professional advisers on biological assets
        Listing Rules and Regulations Main Board Rule 8.05(1)(a)
        Main Board Rule 2.13
        Related Publications Listing Decision HKEx-LD66-1
        Author IPO Transactions Department

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules, or this letter.

        1. Purpose
        1.1 This letter provides guidance on (i) unrealised fair value gains arising from valuation of biological assets1 for the purpose of trading record and profit requirements under Main Board Rule 8.05(1)(a); (ii) the disclosure requirements for IPO applicants with biological assets; and (iii) due diligence work expected to be performed by sponsors and other professional advisers on biological assets. It supersedes paragraphs 17 and 18 of Listing Decision HKEx-LD66-1.
        1.2 Our treatment described below is unique to applicants engaging in agricultural activities in view of the nature and inherent risks relating to the biological assets and their valuation. It is not appropriate to apply this treatment to all applicants who recognise unrealised fair value gains of their trading/ principal assets under the applicable accounting standards, e.g. investment properties and investments in securities. We consider that the risks in biological assets are higher as they are perishable and their valuation is usually subject to higher uncertainty due to the complex and not easily verifiable assumptions adopted.
        2. Background
        2.1 The Exchange considers that guidance to applicants engaging in agricultural activities is unique in view of the nature and inherent risks relating to biological assets and their valuation.
        2.2 Hong Kong Accounting Standard 41—Agriculture ("HKAS 41") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") requires a biological asset to be measured at fair value less cost to sell, other than when its fair value cannot be measured reliably. The fair value of biological assets can be determined based on the market approach2, income approach3 (i.e. discounted cash flow or DCF method) or the cost approach4. Hong Kong Financial Reporting Standard 13 ("HKFRS 13") requires an entity to use valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs 5. HKFRS 13 also establishes a fair value hierarchy that categorises into three levels the inputs to valuation techniques used to measure fair value6. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs6. (Updated in October 2015)
        2.3 IPO applicants which engage in agricultural activities6 have recorded in their income statements unrealised fair value gains/ losses from valuation of biological assets under the applicable accounting standards. In cases where an applicant's profits are mainly made up of unrealised fair value gains from its biological assets, there have been concerns that allowing unrealised fair value gains to fulfill the trading record and profit requirements may not be consistent with the spirit of the Listing Rules.
        2.4 In addition, due to the nature and inherent risks relating to the agricultural activities, biological assets and valuations of these assets, it is expected that sufficient information should be included in the applicant's listing document and certain due diligence work should be performed by the sponsors and other professional advisers.
        3. Relevant Listing Rules
        3.1 Main Board Rule 8.05(1)(a) provides that a new applicant must have a trading record of not less than three financial years during which the profit attributable to shareholders must, in respect of the most recent year, be not less than HK$20 million and, in respect of the two preceding years, be in aggregate not less than HK$30 million. The profit mentioned above should exclude any income or loss of the issuer, or its group, generated by activities outside the ordinary and usual course of its business.
        3.2 Main Board Rule 2.13 requires that information contained in the listing document must be accurate and complete in all material respects and not be misleading or deceptive.
        4. Guidance

        Trading record and profit requirements
        4.1 The trading record and profit requirement under Main Board Rule 8.05(1)(a) is one of the pre-requisite conditions to determine if an IPO applicant is eligible for listing. In view of the importance of this, the Exchange may not rely solely on the judgment of the directors and/ or accountants and may reach its own conclusion based on the information presented and disregard the accounting treatment in the financial statements to ensure that the eligibility standards of Main Board Rule 8.05(1)(a) are interpreted consistently.
        4.2 Main Board Rule 8.05(1)(a) states that an applicant must have an adequate trading record with minimum profits, a trading record of not less than three financial years and the profits are to be generated by activities in the ordinary and usual course of the applicant's business. In determining whether any income can be counted towards the trading record and profit requirements, the Exchange must be satisfied that, based on the facts and circumstances of a particular case, the income was actively derived from commercial transactions in the applicant's ordinary business throughout the trading record period, rather than from unrealised fair value movements.
        4.3 We consider that the sales of biological assets/ agricultural produce7 are the principal activities in the ordinary and usual course of business of an applicant which engages in agricultural activities. In addition, biological assets are subject to inherent risks and their valuation is usually subject to higher uncertainty due to complex and not easily verifiable assumptions adopted. Allowing an applicant engaging in agricultural activities to use unrealised fair value gains on valuation of biological assets to fulfill the trading record and profit requirements is contrary to the principles of the Listing Rules as discussed in paragraph 4.2 above. Therefore the applicant would be expected to have recorded sales of biological assets/ agricultural produce and profits (excluding unrealised fair value gains on biological assets) throughout three financial years to satisfy the three-year trading record and profit requirements under Main Board Rule 8.05(1)(a).
        4.4 For agricultural companies which have recorded sales of biological assets/ agricultural produce and unrealised fair value gains/ losses in biological assets for a number of years, we recognise that unrealised fair value gains/ losses in biological assets would have already been accounted for as part of the trading profits and retrieving and separating historic costs for the purpose of profits test may be difficult if the applicants' accounting system does not capture and maintain the relevant information for that purpose. However, we consider that adjustments will need to be made to exclude the unrealised fair value gains on biological assets to demonstrate compliance with the three-year trading record and profit requirements under Main Board Rule 8.05(1)(a).
        4.5 Different types of biological assets may have different development or fruition periods which result in different levels of uncertainty in determining their fair value. For example, it will take two years for some varieties of apple trees to bear fruits while a hog will have a gestation period of 180 days. Listing applicants engaging in agricultural activities are encouraged to consult with the Listing Department of the Exchange at the earliest possible opportunity to seek informal and confidential guidance as to their fulfillment of the trading record and profit requirements under Main Board Rule 8.05(1)(a).
        Disclosure requirements for IPO applicants with biological assets
        4.6 The Exchange considers that the following disclosures, where not required by relevant accounting standards, should be made in the listing documents of applicants with biological assets:
        a. the group's results during the track record period excluding unrealised fair value gains/ losses on biological assets;
        b. the relevant qualifications, experience and independence of the valuer, and how the directors and the sponsor are satisfied that the valuer is independent and competent to determine the fair value of biological assets;
        c. information on the fair value measurement of biological assets and the significance of these assets to the applicant's net asset value;
        d. the basis or reasons for using the specific technique in valuation of biological assets (i.e. quoted price in an active market, the cost approach or DCF method); (Updated in October 2015)
        e. the material inputs, including bases and assumptions used in the valuation techniques (especially where discount rates are concerned), and (where appropriate) historical yield of the biological assets and commentary on the material fluctuation during the track record period;
        f. how the sponsor is satisfied that the valuation technique chosen and the inputs used in the valuation technique are appropriate and reasonable;
        g. that the reporting accountants are satisfied that the valuation technique chosen and the inputs used in the valuation technique are appropriate and reasonable;
        h. details of any limitations on the sponsor's due diligence in relation to biological assets (e.g. limitations in stock-take due to regulatory constraints and conditions in regulatory permits or licences which may not be fulfilled by the applicant), the alternative steps taken to address these limitations in respect of the information disclosed in the listing document and what steps can be taken going forward in respect of future disclosure of the same information. In some cases limitations on due diligence may make an applicant not suitable for listing;
        i. sensitivity analysis on changes in material inputs used in the valuation techniques, including discount rate and key assumptions and variables;
        j. details of the material cash flows used in the fair value measurement based on the DCF method, and confirmations from the directors and the sponsor that the components are consistent with market factors and assumptions used in the measurement;
        k. comprehensive details of how the applicant performs its stock-take on biological assets, and internal controls over physical existence of biological assets and the relevant record keeping;
        l. full details of the applicant's licences/ rights/ permits to carry out the agricultural activities;
        m. a robust risk factor stating that unrealised fair value gains/ losses on biological assets can fluctuate dramatically from period to period, are non-cash in nature, and are derived from many assumptions; and
        n. a risk factor, if material, that reported profits may be more volatile as any increase in the selling prices of biological assets will increase both the sales revenue and the unrealised fair value gains and vice versa.
        Due diligence work to be performed by sponsor/ professional advisers on biological assets
        4.7 Certain problems have been encountered by listed companies with biological assets including the physical existence of biological assets, inconsistencies between the licences/ rights/ permits to carry out the agricultural activities provided by the listed companies and the records of relevant authorities, and inconsistencies between the actual operations or area/ size operated by the listed companies and those stated in the relevant licences/ rights/ permits and/ or previously disclosed by the listed companies.
        4.8 We expect more stringent due diligence work to be performed by the sponsor and other professional advisers:
        a. an independent qualified valuer should be appointed to value the biological assets unless cogent reasons are provided;
        b. the sponsor should be satisfied that (i) the independent valuer has appropriate and adequate experience in valuation of the type of biological asset; (ii) the independent valuer's scope of work is appropriate to the opinion; and (iii) the bases and assumptions adopted by the independent valuer are fair and reasonable;
        c. the sponsor and independent valuer should be satisfied with the physical existence and the condition/ development status (e.g. age and health) of the biological assets by their independent verification (including the extent of reliance on data and information provided by the applicant and details of independent fieldwork/ physical inspections conducted) and with the disclosure in the listing document on the quantity and valuation of the biological assets;
        d. the reporting accountants should be satisfied with the physical existence of the biological assets by their independent verification (including the extent of reliance on data and information provided by the applicant and details of independent fieldwork/ physical inspections conducted) and with the measurement and disclosure of the biological assets in the accountants report;
        e. the sponsor should confirm that it has independently verified the validity and accuracy of the applicant's licences/ rights/ permits, including inspection of records maintained by the competent authorities; and
        f. the sponsor should confirm that it has independently verified that the applicant's actual operations (including area covered by the operations) are consistent with and in compliance with the relevant licences/ rights/ permits and records maintained by the competent authorities (if any).

        ****


        1 Biological asset is defined as a living animal or plant under Hong Kong Accounting Standard 41—Agriculture.

        2 The market approach uses the prices and other relevant information generated by market transactions involving identical or comparable (i.e. similar) assets, liabilities or a group of assets and liabilities, such as a business (Source: paragraph B5 of HKFRS 13—Fair Value Measurement).

        3 The income approach converts future amounts (e.g. net cash flows or income and expenses) to a single current (i.e. discounted) amount (Source: paragraph B10 of HKFRS 13).

        4 The cost approach reflects the amount that would be required currently to replace the service capacity of an asset (i.e. the current replacement cost) (Source: paragraph B8 of HKFRS 13).

        5 Source: paragraph 61 of HKFRS 13.

        6 Source: paragraph 72 of HKFRS 13. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability (Source: paragraphs 76, 81 and 86 of HKFRS 13 respectively).

        7 Agricultural activity is the management by an entity of the growth, degeneration, production, and procreation and harvest of biological assets for sale or conversion into agricultural produce or into additional biological assets. Such activity covers a diverse range of activities, for example, raising livestock, forestry, annual or perennial cropping, cultivating orchards and plantations, floriculture, and aquaculture (including fish farming). (Source: paragraphs 5 and 6 of HKAS 41).

        8 Agricultural produce is defined as the harvested product of the entity's biological assets under HKAS 41.

      • GL45-12

        View Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL45-12 (November 2012) (Updated in February 2018)

        Subject Trading record requirements
        Listing Rules Rules 4.04 and 8.05(1) of Main Board Rules

        Rules 7.03, 11.10 and 11.12A of GEM Rules
        Related Publications N/A
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules, or this letter.

        1. Purpose
        1.1 This letter provides guidance on matters relating to the trading record requirements under the Main Board Listing Rules and GEM Listing Rules after several enquiries have been received.
        2. Background
        2.1 The Listing Rules require that a new applicant must have an adequate trading record. The requirement has two limbs: (i) the minimum length of the trading record and (ii) the minimum amount of profits (for Main Board) or cash flows (for GEM) during such period.
        2.2 The length of the trading record for the purpose of the Main Board Listing Rules is a period of not less than three financial years whereas that for GEM Listing Rules is a period of not less than two financial years. A financial year does not necessarily equal to a period of twelve months (see paragraphs 4.1 to 4.3 below)
        2.3 Where a new applicant conducts certain preparation activities such as business planning, construction of factory facilities, procurement of raw materials, preliminary negotiations with potential customers and trial production before it commences trading activities, it is questionable whether such activities can be counted towards satisfaction of the trading record requirements.
        3. Relevant Requirements
        3.1 Main Board Listing Rule 8.05(1) states, among others, that a new applicant must have an adequate trading record under substantially the same management and ownership. This means that the issuer must satisfy a trading record of not less than three financial years during which the profit attributable to shareholders must, in respect of the most recent year, be not less than HK$20,000,000 and, in respect of the two preceding years, be in aggregate not less than HK$30,000,000. The profit mentioned above should exclude any income or loss of the issuer, or its group, generated by activities outside the ordinary and usual course of its business.
        3.2 GEM Listing Rule 11.12A(1) states, among others, that a new applicant or its group must have an adequate trading record of at least two financial years comprising a positive cash flow generated from operating activities in the ordinary and usual course of business before changes in working capital and taxes paid. Such positive cash flow from operating activities carried out by the new applicant, or its group, that are to be listed, must be of at least HK$30,000,000 in aggregate for the two financial years immediately preceding the issue of the listing document. (Updated in February 2018)
        4. Guidance

        A financial year does not necessarily cover a calendar year or twelve months
        4.1 Rule 1.01 of Main Board Listing Rules (Rule 1.01 of GEM Listing Rules) defines a financial year as the period in respect of which any profit and loss account of a company laid or to be laid before it in a general meeting is made up, whether that period is a year or not.
        4.2 Therefore, the trading record requirements of three financial years for Main Board applicants and two financial years for GEM applicants do not necessarily correspond to a period of three calendar years or two calendar years.
        4.3 For example, a Main Board applicant adopts 31 December as its financial year end. If the applicant was only incorporated on 1 April in the first year, its trading record will cover the nine months from 1 April to 31 December Year 1, the year ended 31 December Year 2 and the year ended 31 December Year 3. Although there is only 9 months in Year 1 of the trading record period, it is still regarded as a full financial year if the applicant's profit and loss account for that period was laid before it in a general meeting.
        Whether preparation activities should be counted towards satisfaction of the trading record requirement
        4.4 The trading record of an applicant refers to the record of the applicant's trading activities, including its revenue, expenses, cash flows, assets and liabilities arising from the core businesses of the applicant. Where an applicant is still at the preparatory stage and has not yet commenced generating any revenue, the expenses related to preparation activities such as business planning, construction of factory facilities, procurement of raw materials, preliminary negotiations with potential customers or trial production, or ancillary income or revenue generated outside the ordinary and usual course of business should not be counted towards satisfaction of adequate trading record.
        4.5 Therefore, where an applicant did not carry out any trading activity during any part of its financial year, that period would not be taken as part of its trading record.

        ****

      • GL44-12

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        HKEX GUIDANCE LETTER
        HKEX-GL44-12 (October 2012) (Updated in March 2017)

        Subject Guidance on Pre-IPO investments in convertible instruments
        Listing Rules Main Board Rules 2.03(2) and (4)

        GEM Rules 2.06(2) and (4)
        Related Publications HKEX News Release (updated: 13/10/2010) and Guidance Letter HKEX-GL29-12 (Updated in March 2017)

        HKEX-GL43-12 (October 2012) (Updated in March 2017)
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules, or this letter.

        1. Purpose
        1.1 This guidance sets out our current practice in dealing with convertible instruments issued to pre-IPO investors. The guidance relating to special rights attached to pre-IPO share investments set out in Guidance Letter HKEX-GL43-12 shall apply to all special rights attached to convertible instruments. Any reference to shares therein shall refer to convertible instruments as applicable. (Updated in March 2017)
        2. Applicable rules, regulations and principles
        2.1 Main Board Listing Rules 2.03(2) and (4) (GEM Rules 2.06(2) and (4)) (the "Rules") require the issue and marketing of securities to be conducted in a fair and orderly manner and that all holders of listed securities be treated fairly and equally.
        3. Convertible or exchangeable bonds, notes or loans and convertible preference shares (collectively "CBs") (Updated in March 2017)
        3.1 CBs issued to pre-IPO investors may be structured in such a way that they are not shares in form, but the investors would enjoy a risk-return profile similar to or even better than that of a shareholder. We have in the past requested the removal of conversion price reset mechanism of CBs and the termination of all special rights for bondholders. The rationale is to ensure that all shareholders are treated fairly and equally under the Rules.
        3.2 We set out in paragraphs 3.3 to 3.5 our current practices in dealing with convertible instruments with conversion price reset mechanism issued to pre-IPO investors.
        (a) Conversion price linked to IPO price or market capitalisation
        3.3 The conversion price for the CBs should be at a fixed dollar amount or at the IPO price. A guaranteed discount to the applicant's IPO price or market capitalization of shares may give rise to concerns that the pre-IPO investor does not bear the same investment risk as public investors and is not permitted.
        (b) Conversion price reset
        3.4 We consider that any conversion price reset mechanism of the CBs should be removed as they are considered to be contrary to the principle of the Rules.
        3.5 An example is where the conversion price reset mechanism is based on the lower of a fixed price and a floating market price. Such a price reset mechanism allows conversion at a discount to the fixed price. As the share price declines, the market price based conversion formulae would lead to more shares to be issued, hence greater dilution and greater potential for share price reduction which can work in a spiral.
        (c) Mandatory or partial conversions
        3.6 Partial conversion of CBs is only allowed if all special rights are terminated after listing. This prevents the situation where a pre-IPO investor enjoys the special rights it held as bondholder by converting a significant portion of their CBs into shares and yet still be entitled to special rights by holding a small portion of the CBs.
        (d) Early redemptions
        3.7 Certain CBs provide bondholders the option to redeem early the outstanding CBs at a price which would enable the bondholders to receive a fixed internal rate of return (IRR)1 on the principal amount of the CBs being redeemed. Upon maturity, all outstanding CBs shall become immediately payable at a price which would enable the bondholders to receive the same fixed IRR.
        3.8 We consider that the IRR on the principal amount of the CBs to be redeemed is compensation for the investment and risk undertaken by the bondholders and is allowed.
        (e) Negative Pledges
        3.9 Negative pledges restrict an applicant from certain corporate actions such as creating any additional lien, encumbrance or security interest on its assets and revenues, or paying dividends without prior consent of the pre-IPO investor. They are common in debt instruments, such as convertible bonds.
        3.10 Negative pledges should be removed upon listing unless the sponsor confirms that the negative pledges are not egregious, and do not contravene the fairness principle in the Rules.
        (f) Disclosure requirements
        3.11 Given the complexity of CBs and their terms, additional information should be disclosed in the "Financial Information" and "Risk Factors" sections of the prospectus to explain the impact of the CBs on the applicant, including if the applicant was required to redeem the CBs before the maturity date:
        (i) a qualitative analysis on the cash flow and cash position in the event of CBs redemption;
        (ii) the various terms and impact of early redemption, including the monetary amount that the applicant is required to pay to the bondholders on the assumption of redemption upon maturity or early redemption, so as to enable the bondholders to receive the required percentage of IRR;
        (iii) the maximum number of shares that would be converted and the corresponding change in shareholding; and
        (iv) the expected source of cash inflows upon listing, in particular the applicant's existing cash position of the Group, the additional positive operating cashflow the applicant expects to generate and estimated net proceeds from the IPO.

        ****


        1 IRR is the interest rate needed in the discounting of cash flows to their present value so the investment's net present value is equal to zero. For example, if the cost of investment of a financial instrument is HK$100 and it is expected to pay its holder $110 in one year's time, the investment's internal rate of return is 10%.

      • GL43-12

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        HKEX GUIDANCE LETTER
        HKEX-GL43-12 (October 2012)(Updated in July 2013 and March 2017)

        Subject Guidance on Pre-IPO investments
        Listing Rules Main Board Rules 2.03(2) and (4)

        GEM Rules 2.06(2) and (4)
        Related Publications HKEX News Release (updated: 13/10/2010), Guidance Letters HKEX-GL29-12 ("Interim Guidance") and HKEX-GL44-12 (Updated in March 2017)

        Listing Decisions superseded:

        1. HKEX-LD36-1 and 36-2
        2. HKEX-LD55-1, 55-2 and 55-3
        3. HKEX-LD59-1, 59-2, 59-3, 59-4, 59-5, 59-6 and 59-7
        Author IPO Vetting Team

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Department on a confidential basis for an interpretation of the Listing Rules or this letter.

        1. Purpose
        1.1 This guidance is a consolidation of listing decisions on pre-IPO investments which the Exchange issued in the past, and only principles applicable after the introduction of the Interim Guidance on 13 October 2010 are included in this Guidance Letter. Past listing decisions have been superseded.
        1.2 Listing decisions HKEX-LD12-2011 on whether the Interim Guidance applied to an applicant seeking a secondary listing on the Main Board of the Exchange in June 2011 and HKEX-LD15-2011 on whether the Interim Guidance was applicable to an issue of shares upon exercise of warrants in July 2011 remain effective.
        1.3 This letter and the Interim Guidance apply to investments in shares of an unlisted company ("pre-IPO investment")1. To clarify, an investment in shares refers to the acquisition of shares from an applicant or its shareholder by a new or existing shareholder prior to the applicant's IPO, except as provided in paragraphs 6.2 and 6.3 herein. A potential applicant is encouraged to consult the Exchange in advance if it believes that special rights granted to a shareholder should not be subject to this Guidance Letter. (Updated in March 2017)
        2. Applicable rules, regulations and principles
        2.1 Main Board Listing Rules 2.03(2) and (4) (GEM Rules 2.06(2) and (4)) (the "Rules") require the issue and marketing of securities to be conducted in a fair and orderly manner and that all holders of listed securities be treated fairly and equally.
        2.2 Pre-IPO investors will often make their investments on more favourable terms than IPO investors (e.g. by being given special rights that do not extend to other shareholders and/or by investing at a lower price than the IPO price). This reflects the significantly different risks assumed by a pre-IPO investor. (Updated in March 2017)
        2.3 However, where a pre-IPO investment is made close in time to an IPO, there is a concern that the pre-IPO investor is investing on more favourable terms than IPO investors but is not exposed to risks significantly different from those assumed by IPO investors, which would contravene the Rules. (Updated in March 2017)
        2.4 Under the Interim Guidance, the Exchange will generally delay, except in very exceptional circumstances, the first day of trading of the applicant's securities until 120 clear days after the later of the completion or divestment of the last pre-IPO investments ("120 Day Delay") if (a) the applicant has a pre-IPO investment completed within 28 clear days before the date of the first submission of the first listing application form (the "First Filing") and the relevant pre-IPO investor remains as a shareholder at the First Filing or (b) the pre-IPO investment is completed on or after the First Filing and before the date of the listing. (Updated in March 2017)
        2.5 Pre-IPO investments are considered completed when the funds for the underlying shares are irrevocably settled and received by the applicant (in the case of an issue of shares by the applicant), or existing shareholders (in the case of a transfer or sale of shares by existing shareholders). (Updated in March 2017)
        3. Special rights attached to pre-IPO investments (Updated in March 2017)
        3.1 Pre-IPO investors may be offered special rights by the applicant or its shareholders. The range of these special rights varies and generally, special rights which do not extend to all other shareholders are not permitted to survive after listing to comply with the general principle of even treatment of shareholders under the Rules. To clarify, such rights may exist and be exercised up to listing.
        3.2 Except as otherwise provided in the Interim Guidance, this Guidance Letter and Guidance Letter HKEX-GL44-12 (collectively, the "Pre-IPO Investment Guidance"), rights granted by one shareholder to another or agreements among shareholders (including controlling shareholders) are private arrangements and generally not subject to the Pre-IPO Investment Guidance.
        3.3 For the purposes of this paragraph 3, 'applicant' shall refer to the applicant, its subsidiaries or anyone acting on its behalf.2
        3.4 Below are examples of common special rights and our guidance on whether they are permitted to survive. Our treatment of any specific special right will depend on the facts and circumstance of each listing application:
        3.5 Price adjustments

        May survive listing:
        •    Terms that provide a fixed rate of return to the pre-IPO investor (which effectively reduce the price per share) and settled by a shareholder provided that they are not based on (1) a discount to the IPO price; or (2) a discount to market capitalization of the shares at IPO.
        Must terminate upon listing:
        •    Terms which adjust the purchase price based on a discount to the IPO price or discount to the market capitalization of the shares may not survive listing whether they are settled by the applicant or a shareholder because they are contrary to the principles of the Rules.
        3.6 Divestments
        (a) Divestments prior to First Filing
        •    Pre-IPO investors who divest prior to the First Filing do not disrupt the listing process nor affect the equal treatment of shareholders post listing. Therefore, there will be no penalty to the applicant for pre-IPO investors who divest prior to the First Filing regardless of when the pre-IPO investment was made or whether divestment is pursuant to a contractual right.
        •    the divestment must be a bona fide transaction.
        (b) Divestments on or after First Filing
        •    Divestments on or after the First Filing is highly disruptive to the listing process and will be subject to a 120 Day Delay regardless of when the pre-IPO investment was made or whether divestment is pursuant to a contractual right.
        •    the divestment must be a bona fide transaction.
        (c) Divestment Rights
        •    Any divestment right (e.g. put options, redemption or repurchase rights) granted by the applicant or the controlling shareholder to the pre-IPO investor or right (e.g. call options) permitting the applicant or the controlling shareholder to repurchase shares of the pre-IPO investor (together, the "Divestment Rights") must be terminated before the First Filing. Except as provided in the following paragraph, if an applicant fails to comply with the above requirement in respect of the termination of its Divestment Rights, the applicant shall be subject to the 120 Day Delay from the date of exercise or termination of any Divestment Right existing on the date of First Filing3.
        •    A Divestment Right may exist on or after the First Filing if it is only exercisable if the listing does not take place4 and will terminate upon listing.
        3.7 Director nomination/appointment rights

        May survive listing:
        •    Any agreement among the shareholders to nominate and/or vote for certain candidates as directors are generally not subject to this Guidance on Pre-IPO investments.
        •    Any rights available to all shareholders subject to certain qualifications stipulated in the applicant's constitutive documents (e.g. holding a certain minimum interest) may survive after listing as such right is available to all shareholders that fulfil such criteria.
        Must terminate upon listing:
        •    Any right granted by the applicant to nominate or appoint a director must terminate upon listing as such a right is not generally available to other shareholders. Any director nominated or appointed by a pre-IPO investor need not resign at listing unless required under the applicant's articles of association.
        3.8 Other nomination rights

        May survive listing:
        •    Rights to nominate senior management and committee representatives (other than directors and board committee members) granted to pre-IPO investors by the applicant or the controlling shareholder are permitted to survive listing provided that all such appointments are subject to the decision of the board.
        •    In such circumstances, the board of directors must not be contractually obligated to approve pre-IPO investor's nominations without further review as the directors are subject to fiduciary duties to act in the best interest of the applicant and its shareholders as a whole.
        3.9 Veto rights

        Must terminate upon listing:
        •    Any contractual right to veto the applicant's major corporate actions (e.g. a petition or resolution for winding-up, change in the business by the applicant group, or the amalgamation or merger by any member of the applicant group with any other company or legal entity, etc.).
        3.10 Anti-dilution rights
        •    Under Main Board Rule 10.04 and Paragraph 5 of Appendix 6 to the Main Board Rules, no securities can be offered to existing shareholders of the issuer on a preferential basis and no preferential treatment can be given to them in the allocation of the securities.
        •    However, some pre-IPO investors are granted preferential rights to purchase additional shares to be issued by the applicants so as to maintain their percentages of shareholding in the applicant.
        May exercise before and in connection with an IPO:
        •    Exercise of anti-dilution rights by the pre-IPO investors in connection with the IPO is permissible if:
        (i) the allocation is necessary in order to give effect to the pre-existing contractual rights of the pre-IPO investors;
        (ii) full disclosure of the pre-existing contractual entitlement of the pre-IPO investors contained in the relevant investor rights agreement and the number of shares to be subscribed by the pre-IPO investors will be made in the listing document and the allotment results announcement; and
        (iii) the additional shares will be subscribed for at the offer price of the IPO offering.
        Must terminate upon listing:
        •    Anti-dilution rights may not survive after listing to be in line with Main Board Rule 13.36 (GEM Rule 17.39) on pre-emptive rights.
        3.11 Financial compensation

        May survive listing:
        •    Any financial compensation5 settled by a shareholder and is not linked to the market price or capitalisation of the shares;
        Must terminate upon listing:
        •    Any financial compensation that is settled by the applicant; or
        •    Any financial compensation linked to the market price or market capitalisation of the shares.
        3.12 Prior consent for certain corporate actions/ changes in articles

        Must terminate upon listing:
        •    Any right that requires the prior consent of the pre-IPO investor for certain corporate actions. Examples of these actions include:
        (i) a declaration of dividend by any member of the applicant group;
        (ii) the sale, lease or transfer of a substantial part of the applicant's business or assets;
        (iii) any amendments to the applicant's constitutional documents; and
        (iv) any change in executive directors.
        3.13 Exclusivity rights and no more favourable terms

        Must terminate upon listing unless the agreement is modified to include an explicit "fiduciary out" clause:
        •    Any restriction on the applicant to issue or offer any shares, options, warrants and rights to any direct competitor of the pre-IPO investor or to other investors on terms more favourable than the terms on which the shares are issued to the pre-IPO investor. These rights could potentially prevent the board of the applicant from considering bona fide alternative proposals that would be in the best interest of the applicant and its shareholders as a whole and thus must not survive listing except as provided below.
        •    The rights discussed above can survive after listing if the terms of the investment are modified to include an explicit "fiduciary out" clause so that directors are allowed to ignore the terms if complying with them would constitute a breach of their fiduciary duties. In such case, the directors would not be prevented from exercising their judgment in whether to undertake certain corporate actions in the best interest of the applicant and its shareholders as a whole.
        3.14 Information rights

        May survive listing if the information is made available to the general public at the same time:
        •    Information rights can only survive after listing if the pre-IPO investor is only entitled to receive published information or information which is at the same time made available to the general public, with a view to avoiding unequal dissemination of information. If the issuer provides price sensitive information to the pre-IPO investor, the issuer needs to comply with the Inside Information Provisions (as defined in the Listing Rules).
        3.15 Right of first refusal and tag-along rights

        May survive listing:
        •    Any right of first refusal granted by the controlling shareholder such that the controlling shareholder must first offer to sell shares to the pre-IPO investor at the same price and on the same terms and conditions as proposed sales of shares to another investor.
        •    Any right granted by the controlling shareholder to include the shares of a pre-IPO investor for sale together (i.e. tag-along) with the shares of the controlling shareholder if the controlling shareholder sells any of its shares to another investor.
        •    These rights are agreements between shareholders and can survive after listing.
        4. Lock-up and Public Float
        4.1 Pre-IPO investors are usually requested by the applicant to lock-up their pre-IPO shares for a period of six months or more. These shares are counted as part of the public float so long as Main Board Rule 8.24 (note 3 to GEM Rule 11.23) (shares are not financed directly or indirectly by a connected person of the applicant) is fulfilled.
        5. Disclosure requirements (Updated in July 2013)
        5.1 The listing document must include the following information:
        (a) in table format, details of the pre-IPO investments, including the name of each pre-IPO investor, date of investment, amount of consideration paid, payment date of the consideration, cost per share paid by each pre-IPO investor and the respective discount to the IPO price, use of proceeds from the pre-IPO investments and whether they have been fully utilized, strategic benefits they will bring to the applicant, and shareholding in the applicant held by each pre-IPO investor upon listing;
        (b) the beneficial owner and background of each of the pre-IPO investors and their relationship with the applicant group and/ or any connected persons of the applicant;
        (c) basis of determining the consideration paid by each pre-IPO investor;
        (d) details of any material special rights granted to the pre-IPO investors that will survive after the applicant's listing and how they comply with Main Board Rule 2.03(4) (GEM Rule 2.06(4)) and the principles set out in paragraph 3 of this Guidance Letter or a statement that no special rights shall survive listing; (Updated in March 2017)
        (e) whether the shares held by each pre-IPO investor will be subject to any lock-up after listing (as part of the terms of the pre-IPO investment) and, with basis, whether the shares held by the pre-IPO investors are considered as part of the public float for the purposes of Main Board Rule 8.08 (GEM Rule 11.23);
        (f) if the pre-IPO investment is in the form of share-based payments:
        (i) the accounting treatment of the pre-IPO investments;
        (ii) the basis of the reporting accountants' view on the accounting treatment; and
        (iii) a risk factor, if applicable, on the future impact on the applicant's profit and loss; and
        (g) the sponsor's confirmation, with basis, that the pre-IPO investments are in compliance with the Interim Guidance, this Guidance Letter and Guidance Letter HKEX-GL44-12.
        6. Application of the Pre-IPO Investment Guidance (Updated in July 2013 and March 2017)
        6.1 An applicant with a pre-IPO investment made within (1) 28 clear days of the First Filing or (2) after the First Filing and before its listing may not list until 120 days from the later of completion of such pre-IPO investment or subsequent divestment.
        6.2 The Pre-IPO Investment Guidance do not apply to shares of the applicant acquired in an exchange of shares of a predecessor in interest company6 or an operating subsidiary of the applicant or otherwise as part of a corporate restructuring of the applicant in connection with the listing.
        6.3 Shares awarded to directors or employees of the applicant as part of a defined share award scheme are not subject to the Pre-IPO Investment Guidance.
        6.4 All special rights, which do not comply with this Guidance Letter and/or Guidance Letter HKEX-GL44-12 must be amended or terminated prior to listing.

        ****


        1 Guidance on pre-IPO investments of convertible or exchangeable securities in an unlisted company are covered in Guidance Letter HKEX-GL44-12.

        2 To clarify, the controlling shareholder is not presumed to be acting on behalf of the applicant.

        3 Unwinding a pre-IPO investment is no longer a remedy.

        4 Non-exhaustive examples of when listing does not take place include any event which occurs which would render the applicant unable to comply with the listing requirements or a listing application that has been withdrawn/rejected/returned/lapsed.

        5 Includes profit guarantees or compensation for failure to achieve a qualified IPO (i.e., an IPO which satisfies certain conditions agreed with a pre-IPO investor)

        6 Refers to a company operating the applicant's business prior to the formation of the applicant.

      • GL42-12

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        HKEx GUIDANCE LETTER
        HKEx-GL42-12 (August 2012)

        Subject Guidance on Main Board Rule 9.09(b) in new listing cases
        Listing Rules Regulations and Main Board Rule 9.09(b)
        Related Publications Interim Guidance on Pre-IPO Investments (HKEx-GL29-12 dated January 2012)
        Author IPO Transactions Department

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Division on a confidential basis for an interpretation of the Listing Rules, or this letter.

        I. Purpose
        1. This Guidance describes the purpose of Rule 9.09(b) and the circumstances under which a waiver may be considered in the case of a new applicant.
        II. Listing Rules
        2. Rule 9.09(b) prohibits dealing in shares by any core connected person of the issuer from 4 clear business days before the Listing Committee hearing until listing is granted. This rule does not apply to circumstances under Rule 7.11 where the share dealing is to achieve the required public float.
        3. The purpose of Rule 9.09(b) is to prevent core connected persons such as directors and substantial shareholders (and their close associates) of a listing applicant holding the applicant's shares from benefiting through dealing in those shares shortly before listing. These core connected persons are deemed to have inside information and are in a position to influence the IPO process.
        III. Guidance
        4. The share dealing prohibition under Rule 9.09(b) ceases to apply after an application has lapsed, that is 6 months after the filing of a listing application (Form A1)1.

        Circumstances for Rule 9.09(b) Waiver
        5. We would normally grant a Rule 9.09(b) waiver under each of the following circumstances:
          Circumstances for waivers
        1 The applicant's shares are already listed overseas (excluding trading-only status or over-the-counter-trading status). Its existing shareholders include independent and public investors over whose investment decisions the applicant has no control. A public investor may become a substantial shareholder of the applicant before it lists on the Exchange.

        We would consider granting a Rule 9.09(b) waiver so as not to restrict share dealings by these public investors on the basis that:
        (i) the applicant has no control over the investment decisions of the public investors who may become its substantial shareholders before listing on the Exchange;
        (ii) the applicant will promptly release any price sensitive information to the public in its home jurisdiction;
        (iii) the applicant's existing core connected persons (including substantial and controlling shareholders, directors and chief executive and their respective close associates) will not deal in the applicant's shares during the prohibited period under Rule 9.09(b); and
        (iv) the applicant will notify the Exchange of breach of the dealing restriction by any of its core connected persons during the restricted period.
        2 The share dealing would not result in any change in the ultimate beneficial owners, for example a distribution in specie by the legal holder of the shares to the ultimate controlling shareholders on a pro-rata basis.
        3 The share dealing is due to a corporate reorganisation.
        4 There was a pre-existing shareholder agreement for distribution of the applicant's shares in a particular way so as not to dilute the shareholdings of the original shareholders.
        5 The share dealing is due to a need to comply with the Listing Rules, for example:
        (i) to unwind a pre-IPO investment that does not comply with the Guidance on Pre-IPO Investment, or
        (ii) to revise the applicant's corporate structure which involves issuing more shares to the controlling shareholder as consideration for injecting its business into the applicant to address the Exchange's concern on conflicts of interest posed by the controlling shareholder's business.
        6. For a Rule 9.09(b) waiver to be granted, applicants must:
        (a) demonstrate that compliance with Rule 9.09(b) would be irrelevant or unduly burdensome based on the facts and circumstances of their case; and
        (b) disclose in the listing document the reasons for applying a Rule 9.09(b) waiver and the waiver conditions attached.
        7. The circumstances that support a Rule 9.09(b) waiver are not exhaustive. Each application will be considered on a case-by-case basis and we may modify or add conditions for granting the waiver.
        Rule 9.09(b) may overlap with the restrictions applicable to pre-IPO investments
        8. Dealing in the applicant's shares by core connected persons during the prohibited period under Rule 9.09(b) may fall under the Interim Guidance on Pre-IPO Investments. Applicants must ensure that any share dealing complies with the Interim Guidance on Pre-IPO Investments2 , where applicable.
        Early consultation with the Exchange
        9. Applicants are encouraged to contact the Exchange at the earliest possible opportunity to seek informal and confidential guidance if needed.

        1 Rule 9.03

        2 Interim Guidance on Pre-IPO Investments is available at:
        http://www.hkex.com.hk/eng/rulesreg/listrules/listguid/iporq/Documents/gl29-12.pdf

      • GL40-12

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        HKEx GUIDANCE LETTER
        HKEx-GL40-12 (August 2012) (Updated in March 2014)

        Summary
        Subject The Exchange's approach to listing of:
        •   Business trusts
        •   Stapled securities
        Listing Rules General principles for listing of business trusts and stapled securities
        Related Publications N/A
        Author Listing Division

        Important note: This letter does not override the Listing Rules and is not a substitute for advice from qualified professional advisers. If there is any conflict or inconsistency between this letter and the Listing Rules, the Listing Rules prevail. You may consult the Listing Division on a confidential basis for an interpretation of the Listing Rules, or this letter.

        A. PURPOSE
        1. This letter is intended to assist listing applicants by setting out the principles that we apply and key issues that a listing applicant should address when considering listing a business trust. It also sets out our approach on the application of Listing Rules to business trusts. This letter does not apply to Real Estate Investment Trusts (REITs).
        B. INTRODUCTION

        Different forms of trust

        Business Trust
        2. A business enterprise may be set up as a trust and managed by a trustee-manager. The trustee-manager operates the business and holds legal title to assets for beneficiaries. It is established and governed by a trust deed. In general, it has the following features:
        (a) Its purpose is to enable holders of its units to participate in or receive profits, income or other payments or returns arising from the management of the business assets or operation of a business.
        (b) It has a trustee-manager who holds the business assets for the benefit of all unitholders and manages and operates the trust's business.
        (c) The unitholders do not have day-to-day control over the management of the property.
        (d) The units in the trust are not redeemable.
        Corporate Trust
        3. A company may incorporate features of a trust into its Articles of Association. The company operates the business and holds the business assets in this case.
        Early consultation is strongly recommended
        4. The issues and approaches set out in this letter are not exhaustive or definitive. We will consider listing applications for business trusts or corporate trusts on a case-by-case basis. We may or may not consider that the listing applicant has sufficiently addressed relevant issues depending on the detailed structure and facts of the listing applicant. In appropriate cases, we may impose other requirements and/ or modifications to the Listing Rules that we consider necessary.
        5. We strongly recommend listing applicants and their advisers to consult us at an early stage on any proposed listing of business trusts, stapled securities or corporate trusts. We would recommend that consultations are carried out before submitting a formal listing application.
        C. GUIDANCE
        6. A listing applicant may consider listing a business trust, a corporate trust, or a company that owns a business trust by balancing the commercial needs and the regulatory issues that it needs to overcome.
        7. Relevant provisions of the Securities and Futures Ordinance ("SFO"), Companies Ordinance ("CO"), Companies (Winding Up and Miscellaneous Provisions) Ordinance and Listing Rules generally apply to a corporate trust or a company that owns a business trust. Business trusts, unlike companies, are not subject to the provisions for shareholder protection under the CO and the Companies (Winding Up and Miscellaneous Provisions) Ordinance (or equivalent company laws of the jurisdiction where a company is incorporated), the SFO and other laws and regulations applicable to listed companies. The Listing Rules do not currently contain provisions which expressly deal with the listing of business trusts (Updated in March 2014).
        Overriding principle
        8. Our principle is to ensure that holders of units in business trusts are subject to investor protection standards comparable to those required of Hong Kong corporate issuers. To this end, unitholders must be given the same level of protection as shareholders and key relevant SFO provisions must apply.
        9. A listing applicant will need to address the issues and the additional requirements and modifications discussed below. This Guidance Letter suggests possible approaches listing applicants may consider in order to address a particular issue. It is for the listing applicant to ensure that the relevant key provisions of the SFO apply to its proposed structure as a whole. The listing applicant will also need to confirm or obtain legal opinions satisfactory to the SFC that the key provisions of the SFO would apply.
        10. Having addressed the regulatory issues, we will consider listing applications and regulate business trusts by applying the same principles as those applying to any company seeking a listing on the Exchange. To achieve this, we will modify the current regulatory framework for listed companies in the Listing Rules on a case-by-case basis to apply to business trusts in a manner that fully preserves all the current Listing Rule requirements for investor protection, disclosure and corporate governance.
        Issues to consider in listing a business trust

        Application of the SFO
        11. We and the SFC consider that it is essential for unitholders of listed business trusts to have the same level of protection as shareholders of listed companies. The key relevant provisions in the SFO must apply to business trusts as they apply to listed companies. The key provisions include:
        (a) Market manipulation: Parts XIII and XIV of the SFO cover civil and criminal liabilities for market manipulation in respect of listed securities of listed corporations. It covers aspects such as false trading, price rigging, disclosure of information about prohibited transactions, disclosure of false or misleading information inducing transactions and stock market manipulation;
        (b) Insider dealing: Parts XIII and XIV cover civil and criminal liabilities for insider dealing. Generally, insider dealing takes place when a person connected with a corporation with relevant information deals in, or procures others to deal in, the listed securities of the corporation. Relevant information refers to information about a corporation or the listed securities of the corporation which if known is likely to affect the share price;
        (c) Disclosure of interests in shares: Part XV of the SFO imposes duties to disclose interests in shares of listed corporations and short positions of the shares on those who acquire or dispose of the interests or have or cease to have the positions;
        (d) Powers of the SFC to apply to the courts for certain orders if the business or affairs of a listed corporation have been conducted in a manner that is oppressive to its members, involves misconduct towards its members etc., under section 214 of the SFO;
        (e) Powers of the SFC to require production of documents concerning the affairs of a listed corporation under section 179 of the SFO; and
        (f) Powers for shareholders of a listed corporation to require the listed corporation to investigate those interested in its shares under sections 329 and 331 of the SFO.
        Issue 1: A listed business trust is not a "listed corporation"
        12. The provisions in paragraph 11 apply to "listed corporations" as defined in the SFO. However, listed business trusts are not "listed corporations" and unitholders are not shareholders of "listed corporations".
        Possible Approach
        13. A listing applicant should consider a structure that will result in the key relevant provisions of the SFO being applicable to the business trust and its unitholders. One approach to satisfy this requirement could be through using a form of "Stapled Securities" structure, which is discussed in paragraphs 29 to 33 and illustrated in Appendix 1. Other approaches may include a HKT Trust structure (stock code: 6823). As mentioned in paragraph 6, a listing applicant may also consider listing a corporate trust or a company that owns a business trust.
        Issue 2: Directors or employees of the trustee-manager are not persons connected with the corporation
        14. Directors or employees of the trustee-manager are not persons connected with the corporation under section 247 of the SFO for insider dealing as a business trust is not a corporation.
        Possible Approach
        15. The trustee-manager and its directors/employees should have day-to-day management or business relationships with the business subsidiaries or related corporations of the holding company or operating company and these individuals could be persons connected with the corporation under section 247 of the SFO. The business trust and the holding company/listed company could also have the same board of directors. This approach is illustrated in Appendix 1.
        Issue 3: Relevant information for the business trust may not be relevant information for the corporation
        16. Relevant information for the business trust may not be relevant information for the corporation as defined in section 245 of the SFO for insider dealing.
        Possible Approach
        17. The business trust could have a duty to account for a percentage of earnings (plus all assets on wind-up) to the holding company/operating company so relevant information for the business trust could become relevant information for the corporation, and in addition could also list the corporation that operates the trust assets. The business trust and the corporation will both be "listed issuers" under the Listing Rules and subject to the provisions of the Listing Rules and the SFO. This approach is illustrated in Appendix 1.
        Issue 4: The affairs of the business trust are not the affairs of the corporation
        18. The affairs of the business trust are not the affairs of the corporation under section 214 that can be the subject of a complaint if conducted in an oppressive or unfairly prejudicial manner.
        Possible Approach
        19. The trust deed could provide that the holding company/operating company has the right and duty to enforce a deed covenant in favour of its members (who are also unitholders under the Stapled Securities arrangement) so that the affairs of the business trust could be the affairs of the holding company/operating company. This approach is illustrated in Appendix 1.
        Application of the Takeovers Code
        20. A listing applicant should consider a structure that can ensure the compliance with and application of the Takeovers Code. An example of such is the HKT Trust (stock code 6823).
        Application of the Listing Rules

        Issue 1: Potential conflict between duties of the trustee-manager to its shareholders and those to the trust's unitholders
        21. In a business trust, the trustee-manager has legal ownership of the trust property and manages it for the benefit of the unitholders. The trustee-manager and its controller (usually its shareholder which established the business trust) can control or exercise significant influence over the trust. There is a potential conflict between the duties of the trustee-manager to its controller and those to the trust's unitholders.
        Possible Approach
        22. Since the trustee-manager operates the trust, our approach is to apply all the Listing Rule requirements relating to an issuer's directors to the trustee-manager's directors, including provisions for unitholders to elect or remove these directors by ordinary resolution.
        23. To afford further investor protection, we will impose additional requirements including:
        (a) The business trust must have a trustee-manager acceptable to the Exchange. We would normally expect that the trustee-manager does not carry on any business other than the management and operation of the business trust as its trustee-manager.
        (b) The trustee-manager must prepare and publish its accounts under the standards and requirements in the Listing Rules applicable to listed companies.
        (c) The trust deed must provide that the business trust's unitholders can remove the trustee-manager by ordinary resolution in general meeting.
        (d) The trustee-manager's directors must give priority to the interests of the unitholders as a whole if these conflict with the trustee-manager's own interests. The trust must include in its corporate governance report the policies and measures taken by the trustee-manager to manage conflicts and potential conflicts of interests between (i) the business trust and (ii) its controlling unitholder, or any director or controlling shareholder of the trustee-manager.
        (e) The definitions of connected person will be extended to include the trustee-manager, its directors and controlling shareholder, and any of their associates.
        Issue 2: Distributions
        24. Unlike a company, a business trust can make distributions to unitholders in excess of its net profits. The company law restrictions on the amount of dividends that can be paid do not apply to business trusts.
        Possible Approach
        25. We will require that when the trust announces any distribution to its unitholders, the trustee-manager's board of directors must on reasonable grounds confirm that, immediately after making the distribution, the trustee-manager will be able to meet, from the trust property, the liabilities of the trust as they fall due.
        26. Each listing applicant will be required to sign a listing agreement with us before the commencement of dealing in its units on the Exchange. Appendix 2 provides a general form of the addendum to the listing agreement, which sets out the principles described above and the additional requirements and modifications we will impose on the trust.
        27. Companies incorporated in certain jurisdictions can make distributions to their shareholders in excess of their net profits.
        Other issues—Governance issues
        28. A listing applicant should also address, among other things, the following issues:
        (a) risks and consequences if the trustee-manager becomes insolvent;
        (b) consequences of breach of trust;
        (c) redemption or repurchase of the stapled units;
        (d) segregation of the trustee-manager's assets from the trust's assets;
        (e) exercise of the trustee-manager's powers and its ability to invest and manage the trust's assets and other assets/business operations.
        Stapled Securities
        29. Stapling is an arrangement under which different securities, such as units of a business trust and shares of a holding company/operating company, are listed on the basis that they are legally bound together and cannot be transferred or traded separately. This arrangement can be structured to satisfy the requirements mentioned in paragraph 11.
        30. Once the applicant satisfies the SFC on the applicability of the SFO requirements to its stapled securities structure, our approach is to treat the stapled securities as a "combined security" for the purposes of the Listing Rules. The issuer's constitutive documents must contain adequate arrangements to maintain the stapled structure after listing. It will be a condition of listing that the securities remain "stapled" at all times.
        31. When securities of different issuers are stapled together, we may treat the issuers as a "combined entity" on the basis that they have identical investors and operate in a coordinated manner. In this situation the Listing Rules will apply to them as if they were one issuer.
        32. In the stapled securities scenario, it is possible for units of the business trust to be stapled to shares of the trustee manager, or shares of the holding company of the trustee manager. This approach is illustrated in Appendix 1.
        33. Appendix 3 sets out the principles that we apply to listing of stapled securities.
        Implementation of the Listing Rules
        34. We will invoke Rule 2.04 to impose additional requirements and modifications to the Listing Rules on a case-by-case basis to address the issues arising from listing of business trusts and stapled securities.

        APPENDIX 1

        Possible business trust structure

        APPENDIX 2

        Addendum to Listing Agreement for Business Trusts

        A. General
        1. The Listing Rules apply to business trusts subject to the additional requirements and modifications set out in this addendum. These requirements and modifications are imposed by the Exchange under rule 2.04.
        2. The principle underlying this addendum is to ensure holders of units in business trusts are subject to appropriate standards of investor protection comparable to those afforded to shareholders of Hong Kong issuers. The Exchange preserves its right to impose additional requirements under rule 2.04 if it considers them necessary or desirable to ensure that this principle is met.
        3. Terms in this addendum have the same meanings as in the Listing Rules unless otherwise stated.
        B. Definitions and interpretations
        4. The definitions and interpretations in the Listing Rules are modified as follows:
        (a) The reference to "issuer" in the Listing Rules includes a business trust whose units are the subject of a listing application or are already listed. The term "trustee-manager" means the trustee-manager of the business trust.
        (b) Reference in the Listing Rules to:
        (i) "board of directors" of an issuer includes the trustee-manager and its board of directors;
        (ii) "committee" established by an issuer's board of directors includes the committee established by the trustee-manager's board of directors;
        (iii) "company secretary", "director" or "member of the senior management" of an issuer includes company secretary, director or member of the senior management respectively of the trustee-manager;
        (iv) "shares" or "equity securities" includes units in the business trust;
        (v) "shareholder" or "member" of an issuer includes the holder of units in the business trust.
        C. Trustee-manager and its directors
        5. The following additional requirements apply:
        (a) The business trust must have a trustee-manager acceptable to the Exchange.
        Note: The Exchange normally expects the trustee-manager to be a company which does not carry on any business other than the management and operation of the business trust as its trustee-manager.
        (b) The trustee-manager must prepare and publish its accounts under the financial reporting standards and requirements in the Listing Rules applicable to listed companies.
        (c) The business trust's unitholders can appoint or remove any trustee-manager by ordinary resolution in general meeting. The rights of unitholders to nominate, appoint or remove the trustee-manager must be comparable to those available to members of a Hong Kong issuer for nomination, appointment or removal of a director of the issuer.
        (d) The trustee-manager must not resign except upon the appointment of a new trustee-manager in the manner set out in the trust deed.
        (e) In the case of a change of trustee-manager, the outgoing trustee-manager must hand over the books and records relating to the trust to the new trustee-manager and provide reasonable assistance to facilitate the change.
        (f) The Listing Rules relating to an issuer's directors apply to the trustee-manager's directors, including the provisions for unitholders to elect or remove the trustee-manager's directors.
        Note: Appointment of a director must be voted on individually. Unanimous approval of unitholders is required to pass a resolution permitting appointment of two or more directors by a single resolution.
        (g) The business trust must include in its corporate governance report the policies and measures taken by the trustee-manager to manage conflicts and potential conflicts of interests between (i) the business trust and (ii) its controlling unitholder, or any director or controlling shareholder of the trustee-manager.
        6. Rule 2A.10 is modified to include the trustee-manager as one of the parties who may be subject to rule 2A.09.
        7. Rule 3.08 is modified to include an additional requirement that the trustee-manager and its directors must give priority to the interests of the unitholders as a whole if these conflict with the trustee-manager's interests.
        8. Rules 9.11(38) and 13.51(2) are modified to require the trust to submit a declaration and undertaking, in the form set out in Form B in Appendix 5 with appropriate modifications, duly signed by each director of the trustee-manager.
        D. Connected persons
        9. The definitions of connected person in rules 1.01 and 14A.11 are extended to include the trustee-manager, its directors and controlling shareholder, and any of their associates.
        10. The following rules are modified so that the references to an issuer's "controlling shareholder" in the rules also include the trustee-manager and its controlling shareholder:
        (a) Rules 6.12 and 6.13 (withdrawal of listing) and rules 7.19 and 7.24 (large scale rights issue or open offer)—The trustee-manager, its controlling shareholder and their associates who are unitholders of the business trust must abstain from voting on the matters referred to in the Listing Rules.
        (b) Rule 8.10 (competing business)—The trust must comply with the rule if the trustee-manager or its controlling shareholder has an interest in a business that competes with the trust's business.
        E. Continuing obligations
        11. The following additional requirements apply:

        Disclosure
        (a) The business trust must publish an announcement as soon as practicable to disclose:
        (i) a change in the trustee-manager; or
        Note: The announcement of resignation of the trustee-manager must disclose the reasons for its resignation, and whether there are any matters that need to be brought to the attention of unitholders.
        (ii) any of the events described in rule 13.25 (winding-up and liquidation) in respect of the business trust, trustee-manager or its controlling shareholder.
        Distribution
        (b) When the trust announces any distribution to its unitholders, the trustee-manager's board of directors must on reasonable grounds confirm that, immediately after making the distribution, the trustee-manager will be able to fulfil, from the trust property, the liabilities of the trust as they fall due, and disclose this confirmation in the announcement.
        Matters requiring unitholders' approval
        (c) The following matters must be approved by unitholders on terms comparable to those required of a Hong Kong issuer:
        (i) change of the trust's constitutive documents;
        (ii) change of the rights attached to any class of units in the trust;
        (iii) consolidation or sub-division of units;
        (iv) voluntary winding up of the trust; and
        (v) appointment, removal and remuneration of auditors.
        General meetings
        (d) General meetings must be called and conducted on terms comparable to those required of a Hong Kong issuer. The rights of unitholders at general meetings must be comparable to those available to members of a Hong Kong issuer.
        F. Trust deed
        12. The trust deed must contain provisions that comply with Appendix 3, and where not otherwise provided by the law governing the business trust, Appendices 13A and 13B to the Listing Rules.
        13. The trust deed must also contain:
        (a) The scope of the trust's business, its structure, and the nature of the units in it.
        (b) Provision to the effect that the deed is binding on each unitholder as if he/ she had been a party to it and so to be bound by its provisions and authorises and requires the trustee-manager to do as required of it by the terms of the deed.
        (c) Unitholders' rights and liabilities. There must be provisions to limit the liability of a unitholder to the amount paid or payable for the purchase price of units held by the unitholder.
        (d) The trustee-manager's responsibilities and power relating to the management and operation of the trust's business, its power to borrow or raise money on behalf of the trust, the fees and charges payable to it, and the circumstances under which it may be indemnified out of the trust property.
        Note: Nothing in the deed shall provide that the trustee-manager or its officers may be exempt from, or indemnified against, any liability for breach of trust through fraud or negligence or wilful default.
        (e) The duties and obligations of the trustee-manager and its directors including those set out in rule 3.08.
        (f) The circumstances and procedures for appointment, removal or resignation of the trustee-manager and its directors.
        (g) The trust's distribution policy.
        (h) Matters relating to the trust that require unitholders' approval and the approval thresholds.
        (i) Proceedings for general meetings of unitholders.
        (j) Provisions for amendments to the trust deed. A variation of the trust deed should be subject to unitholders' approval.
        (k) The circumstances in which the trust can be wound-up or terminated, the procedures to be followed, and the rights of the unitholders in the process.
        (l) The circumstances in which the minority unitholders may be bought out or may require an offeror to buyout their interests after a successful takeover or repurchase of units.
        (m) The circumstances in which an interim trustee-manager may be appointed in the event that the trustee-manager has resigned or been removed, and the new trustee-manager has not been appointed.
        14. A copy of the trust deed must be made available to the public without charge. The trust deed must also be published on the HKEx website and the trust's website.

        APPENDIX 3

        Guidance notes for stapled securities

        1. This note sets out the principles that the Exchange applies to listing stapled securities.
        2. Stapling is an arrangement under which different securities are listed on the basis that they are legally bound together and cannot be transferred or traded separately. Stapled securities may involve different classes of securities issued by an issuer or securities issued by different issuers. Typical stapling structures include (a) a "twin" structure where an issuer's ordinary securities are stapled to another issuer's ordinary securities; and (b) a "parent/ child" structure where an issuer's ordinary securities are stapled to a special class of securities of its subsidiary.