Entire Section

  • PRACTICE NOTES

    • PN1 [Repealed]

      The Stock Exchange of Hong Kong Limited

      Practice Note 1

      to the Rules Governing the Listing of Securities on the GEM of The Stock Exchange of Hong Kong Limited (the "GEM Listing Rules")

      Issued pursuant to rule 1.07 of the GEM Listing Rules

      YEAR 2000 COMPLIANCE

      [Repealed 20 June 2001]

    • Due Diligence by Sponsors in Respect of Initial Listing Applications

      The Stock Exchange of Hong Kong Limited

      Practice Note 2

      to the Rules Governing the Listing of Securities on the GEM of The Stock Exchange of Hong Kong Limited (the "GEM Listing Rules")

      Issued pursuant to rule 1.07 of the GEM Listing Rules

      DUE DILIGENCE BY SPONSORS IN RESPECT OF INITIAL LISTING APPLICATIONS

      1. This Practice Note should be read together with Chapter 6A of the GEM Listing Rules and the SFC Sponsor Provisions. Chapter 6A, amongst other things, requires that Sponsors conduct reasonable inquiries ("due diligence") to enable the Sponsor to make a declaration set out in Appendix 7G under rule 6A.13. The SFC Sponsor Provisions provide a regulatory basis for defining the expected quality of work as a Sponsor.
      1A. In undertaking due diligence inquiries a Sponsor must have regard to this Practice Note and the SFC Sponsor Provisions. To the extent that any matters under this Practice Note and the SFC Sponsor Provisions overlaps, the more onerous provisions imposing a higher standard of conduct on Sponsors will prevail.
      2. The Sponsor should make such inquiries as may be necessary until the Sponsor can reasonably satisfy itself on the disclosure in the listing document. In undertaking its role a Sponsor should examine with professional scepticism the accuracy and completeness of statements and representations made, or other information given, to it by the new applicant or its directors. An attitude of professional scepticism means making a critical assessment with a questioning mind and being to information, including information from experts, that contradicts or brings into question the reliability of these statements, representations and information.
      3. This Practice Note sets out the Exchange's expectations of due diligence Sponsors will typically perform. It is not in any way intended to set out the actual steps that may be appropriate in any particular case. Each new applicant is unique and so will be the due diligence steps necessary for the purpose of its listing application. The scope and extent of appropriate due diligence by a Sponsor may be different from (and in some cases, considerably more extensive than) the more typical examples in this Practice Note. The Sponsor must exercise its judgment as to what investigations or steps are appropriate for a particular new applicant and the extent of each step.
      4. The Exchange expects Sponsors to document their due diligence planning and significant deviations from their plans. This includes demonstrating that they have turned their minds to the question of what inquiries are necessary and reasonably practicable in the context and circumstances of the case. The Exchange also expects Sponsors to document the conclusions they reach on the new applicant's compliance with all the conditions in Chapter 11 of the GEM Listing Rules taking into account the extent to which compliance with those rules has been waived by the Exchange.
      5. It may be appropriate for a Sponsor to engage third party professionals to assist it to undertake tasks related to certain due diligence inquiries. For example, assistance in reviewing the circumstances of all current legal proceedings to which the new applicant is a party. In such cases, the Exchange expects the Sponsor to satisfy itself that it is reasonable to rely on information or advice provided by the third party professional. That would include, for example:
      (a) being satisfied as to the competence of the professional, the scope of work to be undertaken by the professional and the methodology proposed to be used by the professional; and
      (b) being satisfied that the third party professional's report or opinion is consistent with the other information known to the Sponsor about the new applicant, its business and its business plans.
      6. The Exchange reminds Sponsors of their other obligations including but not limited to those under the GEM Listing Rules, the SFC Corporate Finance Adviser Code of Conduct, the Code of Conduct and particularly the SFC Sponsor Provisions, the Sponsor Guidelines, the Takeovers Code, the Code on Share Buy-backs, the Securities and Futures Ordinance and all other relevant ordinances, codes, rules and guidelines applicable to Sponsors. Nothing in this Practice Note detracts from or diminishes those obligations.

      Interpretation of this Practice Note

      7. Unless otherwise stated, all terms used in this Practice Note have the same meanings as in the GEM Listing Rules.
      8. All references in this Practice Note to the new applicant's listing document include supporting or supplementary documents, for example, correspondence with the Exchange in relation to the new applicant's initial listing application and relied on by the Exchange in assessing that application.
      9. All references in this Practice Note to the new applicant include the new applicant's group of companies.
      10. Unless otherwise stated, all references in this Practice Note to directors include executive and non-executive directors.

      Due diligence

      11. Typical due diligence inquiries in relation to the collective and individual experience, qualifications, competence and integrity of the directors include:
      (a) reviewing written records that demonstrate each director's past performance as a director of the new applicant including participation in board meetings and decision making relating to the management of the new applicant and its business;
      (b) assessing individually and collectively the financial literacy, corporate governance experience and competence generally of the directors with a view to determining the extent to which the board of the new applicant as a whole has a depth and breadth of financial literacy and understanding of good corporate governance, having regard to any code on corporate governance practices that the Exchange publishes from time to time; and
      (c) reviewing the financial and regulatory track record of each publicly listed company (this includes companies listed on other exchanges as well as on the Exchange) of which any of the new applicant's directors is or was an executive or non-executive director, for example, by reference to company disclosures, media articles and information about those companies on the website of the relevant stock exchange.
      12. Typical due diligence inquiries in relation to the new applicant's compliance with the qualifications for listing include:
      (a) searching the company registry in the new applicant's place of incorporation to confirm that the new applicant is duly established in that place and that the new applicant is in compliance with its memorandum and articles of association or equivalent constitutive documents;
      (b) reviewing material financial information, including:
      (i) financial statements of the new applicant;
      (ii) financial statements of all subsidiaries of the new applicant and other companies that are material to the group's financial statements; and
      (iii) the internal financial records, tax certificates and supporting documents to the tax certificates for the trading record period.
      Such review would in most cases include interviewing the new applicant's accounting staff and internal and external auditors and reporting accountants and, where relevant, obtaining comfort from the new applicant's external auditors or reporting accountants based upon agreed procedures; and
      (c) assessing the accuracy and completeness of the information submitted by the new applicant to demonstrate that it satisfies the trading record requirement.
      13. Typical due diligence inquiries in respect of each new applicant and the preparation of its listing document and supporting information include:
      (a) assessing the financial information to be published in the listing document including:
      (i) obtaining written confirmation from the new applicant and its directors that the financial information (other than that al reported upon by a reporting accountant) has been properly extracted from the relevant underlying accounting records; and
      (ii) being satisfied that the confirmation referred to at paragraph (i) has been given after due and careful inquiry by the new applicant and its directors;
      (b) assessing the new applicant's performance and finances, business plan and any profit forecast or estimate, including an assessment of the reasonableness of budgets, projections and assumptions made when compared with past performance, including historical sales, revenue and investment returns, payment terms with suppliers, costs of financing, long-term liabilities and working capital requirements. This would normally include interviewing the new applicant's senior management and would often involve interviewing the new applicant's major suppliers and customers, creditors and bankers;
      (c) assessing whether there has been any change since the date of the last audited balance sheet included in the listing document that would require disclosure to ensure the listing document is complete and not misleading;
      (d) assessing whether it is reasonable to conclude that the proceeds of the issue will be used as proposed by the new applicant, taking into account the outcome of the Sponsor's assessment of, in particular, the new applicant's existing cash and liquid reserves, projected liabilities, working capital requirements and expenditure controls;
      (e) undertaking a physical inspection of material assets, whether owned or leased, including property, plant, equipment, inventory and biological assets (for example, livestock or crops) used or to be used in connection with the new applicant's business;

      Notes:
      1. By physical inspection the Exchange means the Sponsor should visit the site of the asset in order to view the asset and to assess its extent, quality and quantity and the purpose for which it is used.
      2. Where, in the reasonable opinion of the Sponsor, assessment of an asset, including as to its extent, quality, quantity and use, genuinely cannot be achieved without the use of an expert (for example, in undertaking the physical inspection the Sponsor becomes suspicious that the asset does not exist as to the extent represented or exists but is not used for the purpose claimed) the Sponsor should ensure that the new applicant instructs an appropriately qualified independent expert to conduct all or part of the inspection. In such cases the Sponsor should ensure the expert is required to provide a written report in respect of the inspection.
      (f) reaching an understanding of the new applicant's production methods;
      (g) reaching an understanding of the manner in which the new applicant manages its business, including as relevant actual or proposed marketing plans, including distribution channels, pricing policies, after-sales service, maintenance and warranties;
      (h) reviewing the business aspects of all contracts material to the new applicant's business;

      Note: By business aspects the Exchange means non-legal aspects.
      (i) reviewing legal proceedings and other material disputes that are current or recently resolved (for example, resolved in the previous 12 months) and in which the new applicant is involved, and all proceedings or material disputes the new applicant knows to be contemplated and which may involve the new applicant or one of its subsidiaries;
      (j) analysing the business aspects of economic, political or legal conditions that may materially affect the new applicant's business;
      (k) considering the industry and target markets in which the new applicant's business has principally operated and is intended to principally operate, including geographical area, market segment and competition within that area and/or segment (including existing and potential principal competitors and their relative size, aggregate market share and profitability);
      (l) assessing whether there is appropriate documentation in place to confirm that the material assets, whether owned or leased, including property, plant, equipment, inventory and biological assets used or to be used, in connection with the new applicant's business, are appropriately held by the new applicant (for example, reviewing the relevant certificates of title and rights of land use);
      (m) assessing the existence, validity and business aspects of proprietary interests, intellectual property rights, licensing arrangements and other intangible rights of the new applicant;
      (n) reaching an understanding of the technical feasibility of each new product, service or technology developed, being developed or proposed to be developed under the new applicant's business plan that may materially affect the new applicant's business; and
      (o) assessing the stage of development of the new applicant's business and assessing the new applicant's business plan and any forecasts or estimates, including reaching an understanding of the commercial viability of its product(s), service(s) or technology, including an assessment of the risk of obsolescence as well as market controls, regulation and seasonal variation.
      14. Typical due diligence inquiries in relation to the expert sections of the listing document include:
      (a) interviewing the expert, reviewing the terms of engagement (having particular regard to the scope of work, whether the scope of work is appropriate to the opinion required to be given and any limitations on the scope of work which might adversely impact on the degree of assurance given by the expert's report, opinion or statement) and reviewing publicly available information about the expert to assess:
      (i) the expert's qualifications, experience and resources; and
      (ii) whether the expert is competent to undertake the required work;
      (b) reviewing the expert sections of the draft listing document to form an opinion as to whether the following are disclosed and commented on appropriately:
      (i) the factual information on which the expert relies;
      (ii) the assumptions on which the expert opinion is based; and
      (iii) the scope of work performed by the expert in arriving at his opinion;
      (c) verifying factual information for the purpose of making that part of the declaration in rule 6A.13 and Appendix 7G(3);
      (d) where the Sponsor is aware that the new applicant has made formal or informal representations to an expert in respect of an expert section or in respect of a report made in connection with the listing application, assessing whether the representations are consistent with the Sponsor's knowledge of the new applicant, its business and its business plans;
      (e) by reference to the Sponsor's knowledge of the new applicant, its business and its business plans assessing whether the assumptions disclosed by the expert as those on which the expert's opinion is based, are fair, reasonable and complete;
      (f) if the expert's opinion is qualified, assessing whether the qualification is adequately disclosed in the listing document; and
      (g) where the standard of independence is not set by a relevant professional body, obtaining written confirmation from the expert that it is independent from the new applicant and its directors and controlling shareholder(s), and being satisfied that there is no cause to inquire further about the truth of this confirmation. This would include confirming that the expert does not have a direct or indirect material interest in the securities or assets of the new applicant, its core connected persons, or any close associate of the new applicant beyond that allowed by rule 6A.07.
      15. Typical due diligence inquiries in relation to the new applicant's accounting and management systems and in relation to the directors' appreciation of their and the new applicant's obligations include:
      (a) assessing the new applicant's accounting and management systems that are relevant to:
      (i) the obligations of the new applicant and its directors under the GEM Listing Rules and other legal and regulatory requirements, in particular the financial reporting, disclosure of notifiable and connected transaction and inside information requirements; and
      (ii) the directors' ability to make a proper assessment of the financial position and prospects of the new applicant and its subsidiaries, both immediately before and after listing.
      This assessment should cover the new applicant's compliance manuals, policies and procedures including corporate governance policies and any letters from the reporting accountants to the new applicant commenting on the new applicant's accounting and management systems or other internal controls; and
      (b) interviewing all directors and senior managers with key responsibilities for ensuring compliance with the GEM Listing Rules and other legal and regulatory requirements (including the staff responsible for the accounting and financial reporting function, company secretary and any compliance officers) to assess:
      (i) their individual and collective experience, qualifications and competence; and
      (ii) whether they appear to understand relevant obligations under the GEM Listing Rules and other relevant legal and regulatory requirements and the new applicant's policies and procedures in respect of those obligations.
      16. To the extent that the Sponsor finds that the new applicant's procedures or its directors and/or key senior managers are inadequate in any material respect on issues referred to at paragraph 15 above, the Sponsor should typically discuss the inadequacies with the new applicant's board of directors and make recommendations to the board regarding appropriate remedial steps. It should also typically ensure that these steps be taken before listing. These steps might include training tailored to the needs of individual directors and senior managers.

    • Practice with Regard to Proposals Submitted by Issuers to Effect the Separate Listing on the Exchange or Elsewhere of Assets or Businesses Wholly or Partly within their Existing Groups

      The Stock Exchange of Hong Kong Limited

      Practice Note 3

      to the Rules Governing the Listing of Securities on the GEM of The Stock Exchange of Hong Kong Limited (the "GEM Listing Rules")

      Issued pursuant to rule 1.07 of the GEM Listing Rules

      PRACTICE WITH REGARD TO PROPOSALS SUBMITTED BY ISSUERS TO EFFECT THE SEPARATE LISTING ON THE EXCHANGE OR ELSEWHERE OF ASSETS OR BUSINESSES WHOLLY OR PARTLY WITHIN THEIR EXISTING GROUPS

      1. Definitions

      Terms used in the Practice Note which are defined or interpreted in the GEM Listing Rules shall have the same meaning as in the GEM Listing Rules.
      2. Introduction

      This Practice Note is intended to set out the Exchange's policy with regard to proposals submitted by issuers to effect the separate listing on the GEM or elsewhere of assets or businesses wholly or partly within their existing groups ("spin-offs"). This Practice Note sets out the principles which the Exchange applies when considering spin-off applications.

      Issuers are reminded that they are required to submit their spin-off proposals to the Exchange for its approval.

      Note: This Practice Note is normally only applicable to an issuer and entity which is a subsidiary of the issuer at the time of submission of the spin-off proposal. However, the Exchange will treat an entity as if it were a subsidiary of an issuer for the purpose of this Practice Note if such entity is at the time of submission of the issuer's spin-off proposal, an associated company of the issuer and was, at any time during the latest completed financial year of the issuer (comprising at least 12 months) up to the date of submission of the spin-off proposal, a subsidiary of the issuer.

      In such circumstances, the entity will be required to comply with the requirements of this Practice Note and will be treated as if it has remained as a subsidiary of the issuer. The issuer is required to substantiate the changes in the beneficial ownership of the entity's issued shares in the period stated above.
      3. Principles

      The principles, which apply equally whether the entity to be spun off is to be listed in Hong Kong or overseas, are as follows:
      (a) Newco to satisfy basic listing criteria

      Where the entity ("Newco") to be spun-off by the existing issuer ("Parent") is to be listed on a stock market operated by the Exchange, it must satisfy all requirements of the relevant listing rules falling on new listing applicants, including the relevant basic listing criteria contained in Chapter 8 or Chapter 19A of the Main Board Listing Rules, or in Chapter 11 or Chapter 25 of the GEM Listing Rules, as the case may be.
      (b) No spin-off within three years of Parent's original listing

      In recognition that the original listing of the Parent will have been approved on the basis of the Parent's portfolio of businesses at the time of listing, and that the expectation of investors at that time would have been that the Parent would continue to develop those businesses, the Exchange would not normally consider a spin-off application within three years of the date of listing of the Parent.
      (c) The remaining business of the Parent

      The Exchange must be satisfied that, after the listing of Newco, the Parent would retain a sufficient level of operations and sufficient assets to support its separate listing status. In particular, it would not be acceptable to the Exchange that one business (Newco's) supported two listing statuses (the Parent's and Newco's). In other words, the Parent itself would be required to retain, in addition to its interest in Newco, sufficient assets and operations of its own, excluding its interest in Newco, to satisfy independently the listing requirements of Chapter 11 of the GEM Listing Rules.
      (d) Principles applied in the consideration of spin-off applications

      In considering an application for listing by way of spin-off, the Exchange would apply the following principles:
       
      (i) there should be a clear delineation between the business(es) retained by the Parent and the business(es) of Newco;
      (ii) Newco should be able to function independently of the Parent. As well as independence as regards its business and operations, the Exchange would expect from Newco:
      •   independence of directorship and management. While common directors would not be a bar to qualification under this test, the Exchange would require to be satisfied that Newco would operate independently and in the interests of its shareholders as a general body, and not in the interests of the Parent only, where the former interests and the latter were actually or potentially in conflict;
      •   independence of administrative capability. The Exchange would expect that all essential administrative functions would be carried out by Newco without requiring the support of the Parent, although the Exchange is prepared to be flexible in the sharing of administrative, nonmanagement functions, such as secretarial services; and
      •   the Exchange must be satisfied that ongoing and future connected transactions between the Parent and Newco would be properly transacted under Chapter 20 of the GEM Listing Rules and/or waivers thereunder and, in particular, that the ongoing relationship would not, in the context of any waivers granted, be unduly artificial or difficult to monitor from the perspective of safeguarding the interests of the respective minority shareholders of the Parent and of Newco.
      (iii) there should be clear commercial benefits, both to the Parent and to Newco, in the spin-off which should be elaborated upon in the listing document; and
      (iv) there should be no adverse impact on the interests of shareholders of the Parent resulting from the spin-off.
      (e) Shareholder approval of the spin-off
      (1) At present, under the GEM Listing Rules, as well as where the connected transaction provisions are applicable, shareholder approval will be required where, under rule 19.07, any of the percentage ratios of the transaction is 25% or more.
      (2) The Exchange is of the view that the approval of shareholders of the Parent must be sought for the proposal if it falls within (1) above, and that the controlling shareholder and its associates must abstain from voting if the controlling shareholder has a material interest in the proposal.
      (3) [Repealed 1 January 2009]
      (4) In cases where the spin-off proposal requires approval by shareholders of the Parent, whether or not the controlling shareholder is required to abstain from voting, the Parent must comply with the requirements set out in rules 17.47(6) and (7). The circular to shareholders must contain full details of the spin-off and its effect on the Parent. The independent financial adviser appointed under rule 17.47(6)(b) may not also be the sponsor or co-sponsor or an underwriter of Newco.
      (5) In any case where the controlling shareholder votes through the spin-off proposal in the face of significant minority opposition, the Exchange would expect to receive a report from the independent financial adviser as to the discussions at the relevant general meeting.
      (f) Assured entitlement to shares in Newco

      The Exchange expects the Parent to have due regard to the interests of its existing shareholders by providing them with an assured entitlement to shares in Newco, either by way of a distribution in specie of existing shares in Newco or by way of preferred application in any offering of existing or new shares in Newco. The percentage of shares in Newco allocated to the assured entitlement tranche would be determined by the directors of the Parent and by its advisers, and all shareholders of the Parent would be treated equally. There would be no bar to the controlling shareholder receiving his proportion of shares under such entitlement. Where Newco is proposed to be listed elsewhere than in Hong Kong, and where shares in Newco under the assured entitlement can only be made available to existing shareholders of the Parent by way of a public offering in Hong Kong, the Exchange would consider submissions as to why the assured entitlement requirement would not be for the benefit of the Parent or its shareholders. Further, the minority shareholders of the Parent may by resolution in general meeting resolve to waive the assured entitlement, even where Newco is to be listed in Hong Kong.

      Note: In case where Newco is made subject to this Practice Note by virtue of the Note to paragraph 2, the Parent should use its best endeavours to provide its shareholders an assured entitlement to the shares in Newco. Whether such assured entitlement is available will be taken into account by the Exchange when considering whether to approve the spin-off proposal.
      (g) Announcement of spin-off

      An issuer must announce its spin-off listing application by the time it lodges the Form A (or its equivalent in any overseas jurisdiction). Where an overseas jurisdiction requires a confidential filing, the matter should be discussed with the Listing Division before the filing. Until announcement of the application, strict confidentiality should be maintained and if there is a leakage of information or a significant, unexplained movement in the price or turnover volume of the Parent's securities, an earlier announcement would be required.

      These are general principles to assist the market. The Listing Division should be consulted at an early stage of any spin-off proposal for clarification as to the application thereof.
      4. The Exchange emphasises that it retains an absolute discretion to accept or reject a proposal submitted by an issuer to effect the separate listing of assets or businesses wholly or partly within its existing group. The principles in this Practice Note are not exhaustive and the Exchange may impose additional requirements or make a spin-off proposal subject to special conditions whenever it considers it appropriate.'

    • Suggested Risk Assessment for Mineral Companies

      The Stock Exchange of Hong Kong Limited

      Practice Note 4

      to the Rules Governing the Listing of Securities on the GEM of The Stock Exchange of Hong Kong Limited (the "GEM Listing Rules")

      Issued under rule 1.07 of the GEM Listing Rules

      SUGGESTED RISK ASSESSMENT FOR MINERAL COMPANIES

      Risk Assessment

      Although other jurisdictions do not have a specific risk factor requirement, a listing of significant risk factors provides investors with a summary of significant risks to the company and its properties. A risk factor section is often included in reports filed in jurisdictions without a specific requirement for their inclusion. This can be particularly important for investors looking to invest in the mineral resource sector.

      In their technical reports, most consulting firms include risk analysis tables that address common areas of risk along with an assessment of the degree of risk for the particular project. These assessments are necessarily subjective and qualitative. Risk has been classified from minor to major, which can be further clarified as:

      •   Major Risk: the factor poses an immediate danger of a failure, which if uncorrected, will have a material effect (>15% to 20%) on the project cash flow and performance and could potentially lead to project failure.
      •   Moderate Risk: the factor, if uncorrected, could have a significant effect (10% to 15% or 20%) on the project cash flow and performance unless mitigated by some corrective action.
      •   Minor Risk: the factor, if uncorrected, will have little or no effect (<10%) on project cash flow and performance.

      The likelihood of a risk must also be considered. Likelihood within a 7-year time frame can be considered as:
      •   Likely: will probably occur
      •   Possible: may occur
      •   Unlikely: unlikely to occur

      The degree or consequence of a risk and its likelihood are combined into an overall risk assessment as presented in Table 1.1.

      Table 1.1
      Overall Risk Assessment

      Likelihood of Risk   Consequence of Risk  
      (within 7 years) Minor Moderate Major
      Likely Medium High High
      Possible Low Medium High
      Unlikely Low Low Medium

      Table 1.2 presents an example of a risk assessment for a coal project and shows how the likelihood and consequences of a risk are combined into an overall rating. Note that the detailed items considered are project specific.

      Table 1.2
      Project Risk Assessment Table Before Mitigation

          Consequence  
      Hazard/Risk Issue Likelihood Rating Risk
      Geological      
      Lack of Significant Resource Unlikely Minor Low
      Loss of Significant Reserve Possible Major High
      Significant Unexpected Faulting Likely Major High
      Significant Subsidence Possible Moderate Medium
      Poor Geological Roof Likely Moderate Medium
      Unexpected Groundwater Ingress Possible Moderate Medium
      Unexpected Seam Gas Outburst Unlikely Moderate Low
      Mining      
      Significant Production Shortfalls Possible Major High
      Production Pumping System Adequacy Unlikely Major Medium
      Adverse Pre-Mining Stress Possible Moderate Medium
      Excessive Gas Possible Moderate Medium
      Spontaneous Combustion Unlikely Major Medium
      Significant Geological Structures Likely Moderate High
      Poor Development Roof/Rib Conditions Possible Minor Low
      Poor Development Floor Conditions Unlikely Moderate Low
      Poor Production Roof Unlikely Major Medium
      Excess Surface Subsidence Possible Major High
      Outbursts Unlikely Major Medium
      Windblasts Unlikely Moderate Low
      Processing/Handling      
      Lower Yields Possible Minor Low
      Lower Plant Production Levels Possible Moderate Medium
      Higher Plant Production Costs Possible Moderate Medium
      Plant Reliability Possible Moderate Medium
      Handling System Unlikely Moderate Low
      Environmental      
      Water Discharge Non-Compliance Possible Minor Low
      Significant Unpredicted Subsidence Possible Moderate Medium
      Regulatory Consent/Variation Delays Possible Minor Low
      Capital and Operating Costs      
      Project Timing Delays Possible Moderate Medium
      Mine Management — Plan Unlikely Minor Low
      Capital Cost Increases — Start-Up Possible Moderate Medium
      Capital Costs — Ongoing Unlikely Minor Low
      Operating Costs Underestimated Possible Moderate Medium
      Project Implementation      
      Critical Path Delays Possible Moderate Medium

      There are five high risk areas identified in Table 1.2. While this approach is necessarily subjective and a number of issues are related, the areas with high risk rating may be summarized as follows:

      •   loss of significant reserve,
      •   significant production shortfalls,
      •   significant unexpected faulting,
      •   significant geological structures, and
      •   excess surface subsidence.

      The areas of high risk, ranked by their importance, should be an important part of technical and valuation reports. Although general areas such as geology, reserve estimation, production, processing, financial issues, social and environmental issues, etc. are common major topics in risk assessments, the specific risks appropriate to each property and each company will differ from property to property and company to company. For a particular property or company, the number and order of risk factors will vary from year to year. In periods of low commodity prices, a risk factor relating to commodity prices will be far more important than during periods when commodity prices are high. Availability of needed equipment (drill rigs, trucks, shovels, etc.) also varies from year to year. The issuer is responsible for ensuring that appropriate risk factor disclosures are made.

    • Publication of Application Proofs and Post Hearing Information Packs (PHIPs)

      The Stock Exchange of Hong Kong Limited

      Practice Note 5

      to the Rules Governing the Listing of Securities on the GEM of The Stock Exchange of Hong Kong Limited (the "GEM Listing Rules")

      Issued pursuant to rule 1.07 of the GEM Listing Rules

      Publication of Application Proofs and Post Hearing Information Packs (PHIPs)

      Definitions and Interpretation

      1. For the purposes of this Practice Note:
       
      "institutional or other professional investors" means the actual or potential investors under the placing tranche of an offer
      "HKEx-ESS" means the Exchange's electronic submission system or by whatever name the system is called for submitting Application Proofs and PHIPs for publication on the GEM website
      "Returned Application" means any application returned by the Listing Division under rule 12.09 where all related review procedures on the Return Decision have been completed or the time for invoking them has lapsed

      Language

      2. Every Application Proof and PHIP for publication must be:
      (a) in English and Chinese; and
      (b) concise, easy to understand and in plain language.

      Content of Application Proofs and PHIPs

      3. For the purpose of publication on the GEM website, an Application Proof and a PHIP should be prepared on the following principles:
      (a) there must not be any information about the offering, price or means to subscribe for equity securities in a new applicant until a final listing document is published;
      (b) there must not be any information regarding the proposed offering or other information that would constitute the Application Proof or PHIP a prospectus under section 2(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance or an advertisement under section 38B(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance or an invitation to the public in breach of section 103 of the Securities and Futures Ordinance as amended from time to time;
      (c) there must be appropriate disclaimer and warning statements to advise readers of the legal status of an Application Proof and PHIP to the effect that:
      (i) it is not an offer to sell or an invitation to induce/solicit an offer to acquire, purchase or subscribe for securities;
      (ii) it is not in a final form and is subject to change;
      (iii) no investment decision should be based on the information contained in the Application Proof and PHIP;
      (iv) there is no guarantee that there will be an offering; any offer of securities will require a final listing document which is the only document investors should rely on to make investment decisions; and
      (v) there is no indication that the application to which the document relates has been approved for listing.
      4. A new 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 (Winding Up and Miscellaneous Provisions) Ordinance or an advertisement under section 38B(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance or an invitation to the public in breach of section 103 of the Securities and Futures Ordinance (unless consent is obtained for further redactions). A new applicant must also include adequate warning and disclaimer statements on the GEM website and in every Application Proof and PHIP published on the GEM website to advise viewers of the legal status of these documents.

      Legal Confirmation

      5. Every new applicant must ensure that the publication of any Application Proof and PHIP on the GEM website complies with paragraphs 3 and 4. Compliance with the Companies (Winding Up and Miscellaneous Provisions) Ordinance, the Securities and Futures Ordinance and other laws and regulations remains the primary responsibility of every new applicant.
      6. To ensure compliance, a new applicant must provide the Exchange with a confirmation from its legal adviser that the new applicant has complied with the Exchange's guidance on redactions in its Application Proof and PHIP and inclusion of appropriate warning and disclaimer statements for publication of these documents.
      7. Where a new applicant is concerned that the publication of any Application Proof and PHIP on the GEM website may violate securities laws in other overseas jurisdictions in which an offer of securities is intended to be marketed, it should include sufficient warning statements in the Application Proof and PHIP to make clear that these documents are intended for access by Hong Kong residents only or that the readers need to confirm prior to reading these documents that there are no laws or regulations prohibiting the readers from gaining access (for viewing and downloading) to the Application Proof and/or PHIP.

      Prescribed Timing for Publishing Application Proofs

      8. A new applicant must submit its Application Proof through HKEx-ESS for publication on the GEM website on the same day it files a listing application with the Exchange.
      9. Where an applicant re-submits its listing application, no Application Proof is required to be submitted for publication on the GEM website if at the time of the submission of the application the following conditions are satisfied:
      (a) a PHIP or a final listing document has been published on the GEM website; and
      (b) the Sponsor provides a written confirmation to the Exchange that the PHIP or the final listing document published on the GEM website does not need to be updated and remains valid.
      10. Where a new Application Proof is submitted for publication on the GEM website, no mark-up against the previous proof is required.

      Prescribed Timing for Publishing PHIPs

      11. A new applicant must at the earliest practicable time submit a PHIP through HKEx-ESS for publication on the GEM website upon the following taking place:
      (a) receipt of a post hearing letter from the Exchange together with a request to post a PHIP; and
      (b) the directors of the new applicant concluding that the material comments of the Exchange have been addressed;
      provided that where the new applicant intends to offer equity securities to the public in Hong Kong, the publication of the PHIP on the GEM website must not be later than the first occurrence of:
      (i) the time at which the new applicant first distributes any red herring document to institutional or other professional investors;
      (ii) the time at which the book-building process commences irrespective of whether the process involves a meeting (whether held physically or by video conference or any other media) between the new applicant and institutional or other professional investors, or whether any red herring document has been distributed; and
      (iii) if a new applicant has also scheduled a listing of its securities on an overseas exchange at or around the time as its prospective listing in Hong Kong, simultaneously with any overseas publication of similar information.
      12. A new applicant does not need to publish its PHIP:
      (a) if it delays its listing plan by informing the Exchange accordingly; or
      (b) if the listing is by way of an introduction and the final listing document is to be issued immediately after the obligation to publish a PHIP arises.
      13. When a new applicant resumes its listing plan after a delay under paragraph 12(a), it must publish a PHIP as set out in paragraph 11.

      Publication of Subsequent PHIPs

      14. If at any time after the issue of a PHIP, a new applicant circulates to institutional or other professional investors an addendum to its red herring document that will be included in its final listing document or a replacement red herring document, the new applicant must, as soon as practicable, re-submit through HKEx-ESS for publication on the GEM website an addendum to the PHIP or a replacement PHIP, as the case may be. The re-submitted PHIP must be marked up against the previous proof and give the same level of detail that are made available to institutional or other professional investors.
      15. For any other cases, whenever a revised PHIP is submitted to replace an existing PHIP after the latter's publication on the GEM website, the replacement PHIP must be marked up against the previous proof to show all changes made.
      16. Where a listing application lapsed after the publication of a PHIP and the new applicant re-submits a new Application Proof, any PHIP that immediately follows the re-submitted Application Proof is not required to be marked up against the previously published PHIP.

      Confidential Filings

      17. A new applicant which has been listed on a recognised overseas exchange for not less than 5 years and has a significantly large market capitalisation (as determined by the Exchange from time to time) at the time of filing its listing application is entitled to make a confidential filing of its Application Proof. The new applicant is not subject to the publication requirements for its Application Proof unless requested to comply with them by the Exchange. All other requirements under the GEM Listing Rules apply unless a waiver is granted.
      18. The Exchange may waive or modify the publication requirements for an Application Proof in a spin-off from an overseas listed parent upon application by a new applicant. A new applicant is encouraged to consult the Exchange if it envisages any difficulties in complying with the publication requirements at least 2 months before the filing of its Application Proof.

      No pre-vetting of Application Proofs or PHIPs

      19. Application Proofs, PHIPs and statements issued under rule 12.10(2)(c) do not require pre-vetting or clearance from the Exchange before their publication on the GEM website.

      Status Marks and Information on the GEM Website

      20. The Exchange will publish the following status marks and information on the GEM website to indicate the status of each listing application:
       
      Status Mark Status of Listing Application Information on the GEM website
      "Active" Any valid listing 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 statements under rule 12.10(2)(c) submitted thereafter
      "Inactive" comprising:
      •   "Lapsed"
      •   "Withdrawn"
      •   "Rejected"
      Any lapsed application

      Any withdrawn application

      Any rejected application
      •   The name of the new 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 but there will be a record of these documents
      "Listed" Any application of which the applicant is subsequently listed on the Exchange
      •   The contents of the latest submitted Application Proof, and any PHIPs and statements under rule 12.10(2)(c) submitted thereafter
      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 Returned Application
      •   The name of the new applicant
      •   The name of the Sponsor or listing agent
      •   The date of the Return Decision
      Note: All other information previously categorised as "Active" will be removed
      21. The status marks are subject to change from time to time as the Exchange considers appropriate.

    • Initial Public Offer of Securities

      The Stock Exchange of Hong Kong Limited

      Practice Note 6

      to the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited (the "GEM Listing Rules")

      Issued pursuant to rule 1.07 of the GEM Listing Rules

      Initial Public Offer of Securities

      Definitions

      1. Terms used in this Practice Notice which are defined or interpreted in the GEM Listing Rules shall have the same meaning as the GEM Listing Rules.

      Introduction

      2. This practice note sets out certain procedures to be adopted in the allocation of shares in initial public offerings.

      Allocation of shares

      3. The total number of securities available for public subscription (taking account of any clawback feature in the case of issues which involve both placement and public subscription tranches) are to be divided equally into pools: pool A and pool B. The securities in pool A should be allocated on an equitable basis to applicants who have applied for securities in the value of HK$5 million or less. The securities in pool B should be allocated on an equitable basis to applicants who have applied for securities in the value of more than HK$5 million and up to the value of pool B. Where one of the pools is undersubscribed, the surplus securities should be transferred to satisfy demand in the other pool and be allocated accordingly. No applications should be accepted from investors applying for more than the total number of shares originally allocated to each pool. Multiple applications within either pool or between pools should be rejected.

      Offers involving a subscription tranche

      4. Where an IPO includes both a placing and a public subscription tranche, the minimum allocation of shares to the subscription tranche shall be as follows:
      - an initial allocation of not less than 10% of the shares offered in the IPO;
      - a clawback mechanism that increases the number of shares to 30% when the total demand for shares in the subscription tranche is 15 times but less than 50 times the initial allocation;
      - a clawback mechanism that increases the number of shares to 40% when the total demand for shares in the subscription tranche is 50 times but less than 100 times the initial allocation; and
      - a clawback mechanism that increases the number of shares to 50% when the total demand for shares in the subscription tranche 100 times or more of the initial allocation.
      Shares may be transferred from the subscription tranche to the placing tranche where there is insufficient demand in the subscription tranche to take up the initial allocation.
      5. Where the issuer has granted the underwriters an over-allotment option this may be divided between the public subscription tranche and placing tranche at the discretion of the underwriters. Underwriters should restrict the extent of any over-allocation of shares to the limit provided under the over-allotment option.
      6. Before trading in the shares commences, issuers should disclose the level of indications of interest for shares in the placing tranche. This may be provided in either a numerical form or by way of a qualitative description.
      7. Investors are free to select whether to apply in the placing tranche or the subscription tranche. Where the placing tranche and the subscription tranche are completed simultaneously an investor may submit an application in one of the pools in the subscription tranche and indicate an interest for shares in the placing tranche. An investor may only receive shares in the placing tranche or the subscription tranche. Any investors which have not received shares in the placing tranche may receive shares from the subscription tranche.
      8. Issuers should reject multiple applications within either pool or between pools. Issuers, their directors, sponsors and underwriters are required to take reasonable steps to identify and reject applications in the subscription tranche from investors that received shares in the placing tranche, and to identify and reject indications of interest in the placing tranche from investors that received shares in the subscription tranche. Investors which have not received shares in the subscription tranche may receive shares in the placing tranche.

      Disclosure

      9. Sponsors should ensure that details of these procedures are included in prospectuses.

    • Arrangements for Applicants During Bad Weather Signals

      The Stock Exchange of Hong Kong Limited

      Practice Note 7

      to the Rules Governing the Listing of Securities on GEM of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”)

      Issued pursuant to rule 1.07 of the GEM Listing Rules

      ARRANGEMENTS FOR APPLICANTS DURING BAD WEATHER SIGNALS
       
      1.    This Practice Note sets out the arrangements in relation to dealings with the Exchange regarding a listing document that constitutes a prospectus under the Companies (Winding Up and Miscellaneous Provisions) Ordinance and related announcements when a No. 8 typhoon warning signal or above, “extreme conditions” caused by a super typhoon and/ or a black rainstorm warning signal (collectively, “Bad Weather Signals”) is issued during the period from the registration of a prospectus to the commencement of dealing of shares.
       
      Note:    According to the “Code of Practice in Times of Typhoons and Rainstorms”, the Hong Kong Government may issue an announcement on “extreme conditions” in the event of, for example, serious disruption of public transport services, extensive flooding, major landslides or large-scale power outage after super typhoons. When “extreme conditions” are in force (i.e. the two-hour period after cancellation of typhoon warning signal no. 8), the Hong Kong Government will review the situation and further advise the public by the end of the two-hour period whether “extreme conditions” will be extended or cancelled.
       
      2.    Applicants should ensure their prospectuses set out the arrangements in the event of bad weather which may disrupt their listing timetable in order to have greater clarity on the arrangements and to avoid market confusion.
       
      Issue of certificate for registration of prospectus
       
      3.    On the day of the publication of a prospectus (“P Day”), an electronic copy of the prospectus and application forms will be published on the GEM website in accordance with Chapter 16 and hardcopies will be available for distribution to the public.
       
      4.    An applicant must submit documents under rule 12.25 to the Exchange by 11 a.m. on the date of the registration of a prospectus, which is the business day before the P Day (“P-1 Day”) in order to obtain a certificate from the Exchange for prospectus registration with the Companies Registry under the Companies (Winding Up and Miscellaneous Provisions) Ordinance. It is the responsibility of the applicant to deliver the prospectus and any ancillary documents to the Companies Registry for registration. The applicant should receive a written confirmation from the Companies Registry of the registration on P-1 Day.
       
      5.    If a Bad Weather Signal is issued on P-1 Day, the arrangements with the Exchange are as follows:
       
      Time when a Bad Weather Signal is issued Status of the Bad Weather Signal Arrangements
      Before 9 a.m. Cancelled at or prior to 12:00 noon The Exchange will review relevant documents and issue the registration certificate on P-1 Day.
      Before 9 a.m. Remains in force at and after 12:00 noon The Exchange will review relevant documents on the business day after the Bad Weather Signal is lowered or cancelled, and issue the registration certificate as soon as possible.
      At or after 9 a.m. Business as usual The Exchange will review relevant documents and issue the registration certificate on P-1 Day.
       
      6.    If a Bad Weather Signal causes a delay in the registration of a prospectus with the Companies Registry whereby:—
       
      (a)    the offer period becomes less than 3 days as required under the Companies (Winding Up and Miscellaneous Provisions) Ordinance, the applicant must revise its listing timetable to ensure compliance with the requirement and make an announcement of the revised timetable on the business day after the Bad Weather Signal is lowered or cancelled. The announcement is not required to be reviewed by the Exchange, and the applicant is not required to amend its prospectus or issue a supplemental prospectus for this purpose; and/ or
       
      (b)    the prospectus would be published later than the date of the prospectus, the applicant should prepare a letter to the Companies Registry stating that the reason for the delay in publishing, circulating or distributing prospectus for the purpose of registration with the Companies Registry. The applicant is not required to amend the date of the prospectus.
       
      Publication of a prospectus
       
      7.    If a Bad Weather Signal is in force at 9:00 a.m. on P Day, the applicant must take necessary actions to ensure the offer period is at least 3 days as required under the Companies (Winding Up and Miscellaneous Provisions) Ordinance. If as a result the applicant amends its listing timetable set out in the prospectus, an announcement in relation to the revised timetable must be made on the business day after the Bad Weather Signal is lowered or cancelled. The announcement is not required to be reviewed by the Exchange, and the applicant is not required to issue a supplemental prospectus.
       
      Opening or closing of the application lists in a public offer
       
      8.    If a Bad Weather Signal is in force at any time between 9:00 a.m. and 12:00 noon on the scheduled date of the opening of the application lists (“A Day”), the application lists will not be opened on A Day but instead be opened between 11:45 a.m. and 12:00 noon on the next business day when no Bad Weather Signal is in force between 9:00 a.m. and 12:00 noon (“A+1 Day”).
       
      9.    An applicant is not required to make an announcement on the change of opening of the application lists only if the arrangement in paragraph 8 above is included in the prospectus. Otherwise, the applicant is required to make an announcement on the change of the opening of the application lists as a result of the Bad Weather Signal on A+1 Day, and such announcement is not required to be reviewed by the Exchange.
       
      Vetting of an allocation announcement under rule 16.13
       
      10.    Depending on the applicant’s intended date of listing (“L Day”), an allocation announcement is normally approved by the Exchange by the close of business on the second business day before listing (“L-2 Day”). The allocation announcement must be published on the GEM website no later than 8:30 a.m. on the business day before listing (“L-1 Day”).
       
      11.    If a Bad Weather Signal is issued on L-2 Day, the arrangements with the Exchange are as follows:
       
      Time when a Bad Weather Signal is issued Status of the Bad Weather Signal Arrangements
      Before 9 a.m. Cancelled at or prior to 12:00 noon The Exchange will review the allocation announcement on L-2 Day.
      Before 9 a.m. Remains in force at and after 12:00 noon The allocation announcement must be published before 8:30 a.m. on L-1 Day on the GEM website and will be post-vetted by the Exchange on the same day.

      If the Exchange considers the published allocation announcement omits material information, or contains inaccurate information, the applicant will be required, on L-1 Day, to publish a supplemental allocation announcement and may be required to take other actions to ensure the omitted or inaccurate information in the published allocation announcement will not result in a disorderly market on the L Day. Otherwise, the applicant may be required to delay its listing timetable and make an announcement in relation to the revised timetable on L-1 Day.

      If the applicant is unable to publish the allocation announcement before 8:30 a.m. on L-1 Day on the GEM website, or if the Exchange cannot post-vet the allocation announcement because a Bad Weather Signal is issued before 9 a.m. and remains in force at and after 12:00 noon on L-1 Day, it must revise its listing timetable and make an announcement in relation to the revised timetable on L-1 Day.
      At or after 9 a.m. Business as usual The Exchange will review the allocation announcement on L-2 Day.
       
      Issue of a listing approval letter
       
      12.    The Exchange normally issues the listing approval letter by close of business on L-1 Day.
       
      13.    If a Bad Weather Signal is issued on L-1 Day, the arrangements with the Exchange are as follows:
       
      Time when a Bad Weather Signal is issued Status of the Bad Weather Signal Arrangements
      Before 9 a.m. Cancelled at or prior to 12:00 noon The Exchange will issue the approval letter by close of business on L-1 Day.
      Before 9 a.m. Remains in force at and after 12:00 noon If a Bad Weather Signal was anticipated, the Exchange will issue the approval letter on L-2 Day. Otherwise, the Exchange will issue the approval letter before 9:15 a.m. on L Day if the Bad Weather Signal is no longer in force.
      At or after 9 a.m. Business as usual The Exchange will issue the approval letter by close of business on L-1 Day.
       
      Commencement of dealings in shares
       
      14.    Dealings of an applicant’s shares will only commence when trading on the Exchange resumes, even if trading is only for half-day. The applicant shall refer to the “Trading Hours & Severe Weather Arrangements” on the Exchange’s website for details of the trading arrangement.
       
      15.    Applicants are not required to make any announcement on the trading arrangements in the event of Bad Weather Signal as this is on the GEM website.
       
      16.    This Practice Note takes effect from 1 October 2020.
       
      Hong Kong, 1 October 2020