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    Please visit Archive to view marked-up versions and versions that have been superseded or withdrawn.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

      Date
      (dd/mm/yyyy)
      Reference No. Listing Rules/Topics Particulars Document Type Content Category
      05/03/2021 GL110-21 Main Board Rules 2.03(2) and (4)
      Paragraphs 5(1) and 13 of Appendix 6 to the Main Board Rules
      GEM Rules 2.06(2) and (4), 10.12(1A)(a), and note 2 of GEM Rule 10.12(4)
      Pre-vetting for placing to connected clients in an initial public offering Guidance Letter New Applicants
      28/08/2020 GL108-20 Main Board Rules 3.28, 3.29 and 8.17, and Appendix 14 to the Main Board Rules
      GEM Rules 5.14, 5.15 and 11.07, and Appendix 15 to the GEM Rules
      Experience and Qualification Requirements of a Company Secretary Guidance Letter New Applicants / Listed Issuers
      29/04/2020 GL107-20 Main Board Rules 2.13(2), 11.07 and Chapter 18A Disclosure in listing documents for Biotech Companies

      (Updated in February 2021)
      Guidance Letter New Applicants
      26/04/2019 GL103-19 Main Board Rules 2.13 and 11.07
      GEM Rules 14.08(7) and 17.56
      Guidance for applicants on the presentation of the non-GAAP financial measures in a listing document and any relevant documents pursuant to the Exchange’s Listing Rules Guidance Letter New Applicants / Listed Issuers
      26/04/2019 GL102-19 Main Board Rules 4.03, 4.08(3), 4.11, 4.12 and 19.39
      GEM Rules 7.02, 7.08(3), 7.12, 7.13 and 7.16
      Guidance on accounting policies and stock-taking procedures performed by the reporting accountants  Guidance Letter New Applicants
      22/03/2019 GL101-19 Main Board Rules 2.13(2) 8.04
      GEM Rules 11.06
      Guidance on Sanctions Risks Guidance Letter New Applicants
      22/03/2019 GL100-19 Main Board Rules 8.04, 8.10 and Paragraph 27A of Part A of Appendix 1 to the Main Board Rules
      GEM Rules 11.04, 11.06 and Paragraph 27A of Part A of Appendix 1 to the GEM Rules
      Guidance on competition between the businesses of a new applicant and its controlling shareholder Guidance Letter New Applicants
      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)

      (Updated in March 2019)
      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 9.09, 14.20 and 18A.03(1), and Practice Note 18 to Main Board Listing Rules
       
      Suitability for Listing of Biotech Companies

      (Updated in October 2019 and April 2020)
      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, February 2018 and February 2020)
      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 2016, September 2016, August 2017, May 2019,  April 2020 and July 2020)
      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 of 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)
      Placing to connected clients, and existing shareholders or their close associates, under the Rules

      (Updated in February 2018, April 2020 and March 2021)
      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

      (Withdrawn in April 2019, superseded by HKEX-GL45-12)
      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), 8.04 and 11.07
      GEM Rules 14.0814.08(7) and 17.56(2)
      Gambling Activities of New Applicants and/or Listed Issuers

      (Updated in March 2019)
      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 October 2019)
      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 and March 2019)
      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, May 2016 and March 2019)
      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's and/ or Listing Committee's decision to return a listing application

      (Updated in September 2014 and September 2020)
      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)

      (Withdrawn in October 2020)
      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

      (Withdrawn in October 2020)
      Guidance Letter New Applicants
      01/10/2013 GL57-13 Main Board Rules 9.08(2)(a) to 9.08(2)(c), 12.01A, 12.01B, 20.25, 20.26, and Practice Note 22
      GEM Rules 12.10(2)(a) to 12.10(2)(c), 16.01A, 16.01B and Practice Note 5
      Guidance on the logistical arrangements for the submission and publication of Application Proofs, Post Hearing Information Packs ("PHIP") and related materials on the Exchange's Website

      (Updated in February, March, June and September 2014, November 2016, February 2018, and March, July 2019 and November 2020)
      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, July 2018 and October 2020)
      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, July 2018 and November 2020)
      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 Rules 2.03 and 7.15;
      GEM Rules 2.06 and 10.19
      Guidance on liquidity arrangements for issuers seeking to list by introduction where the securities to be listed are al listed on another stock exchange

      (Updated in July 2013 and August 2020)
      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 February 2020)
      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

      (Updated in June 2020)
      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 1.01, 2.13, 4.04(1), 4.11, 8.05 and 8.06
      GEM Rules 1.01, 7.03(1), 7.12, 11.10, 11.11, 11.14, 11.12A and 17.56
      Guidance on trading record and financial eligibility requirements and disclosure of certain financial information

      (Updated in February 2018 and April 2019)
      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

      (Withdrawn in April 2019)
      Guidance Letter New Applicants
      15/06/2012 GL37-12 Main Board Rules 2.03(2), 8.21A, 9.11(17b), 9.11(28) and Paragraphs 32, 36 and 38 of Part A of Appendix 1
      GEM Rules 2.06(2), 12.22(13), 12.23A(1) and Paragraphs 32, 36 and 38 of Part A of Appendix 1
      Guidance on disclosure on financial information and prospects of new applicants

      (Updated in July, September 2013 and January 2014 and April 2019)
      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

      (Updated in February 2020)
      Guidance Letter New Applicants
      08/05/2012 GL35-12 Main Board Rules 2.13(2), 4.04(1), 8.06 and 11.16 to 11.19 and Paragraph 34(2) of Part A of Appendix 1
      GEM Rules 7.03(1), 11.10, 11.11, 17.56(2), 14.28 to 14.31 and Paragraph 34(2) of Part A of Appendix 1
      Guidance on profit forecast and special dividend

      (Updated in July 2013 and April 2019)
      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 acquisitions of subsidiaries and businesses conducted during or after the trading record period

      (Withdrawn in October 2020)
      Guidance Letter New Applicants
      05/03/2012 GL31-12 N/A Typhoon and rainstorm warning arrangements

      (Withdrawn in October 2020)
      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

      (Withdrawn in February 2020)
      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

      (Withdrawn in October 2020)
      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

      (Withdrawn in April 2019)
      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

      (Withdrawn in October 2020)
      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

      (Withdrawn in October 2020)
      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

      • GL110-21

         View Current PDFView Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL110-21 (March 2021)

        Subject    Pre-vetting for placing to connected clients in an initial public offering (“IPO”)
        Listing Rules and Regulations    Main Board Rules 2.03(2) and (4)
        Paragraphs 5(1) and 13 of Appendix 6 to the Main Board Rules
        GEM Rules 2.06(2) and (4), 10.12(1A)(a), and note 2 of GEM Rule 10.12(4)
        Guidance Letter HKEX-GL85-16

        https://en-rules.hkex.com.hk/rulebook/gl85-16
         
        Author    IPO Vetting 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    Guidance Letter HKEX-GL85-16 (“GL85-16”) sets out requirements for lead brokers and distributors (“Distributors”) seeking prior written consent (the “Consent”) under paragraph 5(1) of Appendix 6 to the Main Board Rules (“Placing Guidelines”) (GEM Rule 10.12(1A)(a)) on placing securities of a listing applicant to their connected clients (as defined in paragraph 13 of the Placing Guidelines and note 2 of GEM Rule 10.12(4)) which in turn will hold such securities on behalf of independent third parties1 (other than placing securities of a listing applicant to its existing shareholders or their close associates, which is covered by paragraphs 4.17 to 4.28 of GL85-16).
         
        1.2    To avoid potential delay in the listing timetable and facilitate timely submission of Consent applications as mentioned in GL85-16, Distributors2 are encouraged to submit the Consent applications (“Pre-vetting Application”) with all relevant information for the Exchange’s review after the publication of the listing applicant’s post-hearing information pack. This letter (i) elaborates on why Distributors are encouraged to submit a Pre-vetting Application for the Exchange’s review; and (ii) provides guidance to Distributors on information required for pre-vetting in anticipation of potential placing of securities to connected clients, regardless of whether they are ultimately placed with any securities upon the final allocation of an IPO.
         
        2.    Relevant Listing Rules and Guidance Letter
         
        2.1    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 all holders of listed securities to be treated fairly and equally.
         
        2.2    Paragraph 5(1) of the Placing Guidelines (GEM Rules 10.12(1A)(a)) states that no allocations will be permitted to “connected clients” of any Distributors without Consent.
         
        2.3    Paragraph 13(7) of the 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.
         
        2.4    GL85-16 provides guidance on placing to connected clients, existing shareholders and their close associates.
         
        3.    Guidance
         
        3.1    To improve the efficiency of the IPO vetting process and avoid potential delay in the listing timetable3, a Distributor which intends to place securities of a listing applicant to its connected clients is encouraged to submit a Pre-vetting Application to the Exchange. Distributors can submit the Pre-vetting Application as soon as the post-hearing information pack of the listing applicant has been published on the Exchange’s website.
         
        3.2    The following information, most of which is required under GL85-16, should be included in the Pre-vetting Application submitted by the Distributor:
         
        (i)    the identities of the connected clients and the relationships between the Distributor and each of the connected clients (e.g. whether they are members of the same group of companies and/or are collective investment schemes managed by members of the same group of companies4);
         
        (ii)    where the connected client is a collective investment scheme which is not authorised by the Securities and Futures Commission or is expected to hold the securities on behalf of such a scheme, the background and details of the scheme such as (a) the types and values of assets under management; (b) whether the scheme is publicly marketed; (c) the scheme establishment date; (d) identities of the general partner(s) and 20 largest limited partners5 of the scheme where applicable; (e) the identity of the scheme administrator; and (f) the relationships amongst the scheme, the ultimate beneficial owner(s) of the limited partner(s), the controlling shareholder(s) of the listing applicant, and the listing applicant;
         
        (iii)    where the connected client subscribes for securities on a non-discretionary basis on behalf of specific independent third parties in the client accounts, the identities of the ultimate beneficial owners of the securities or where applicable, details of the structured products under which the subscription by the connected client was made (e.g. OTC total return swaps); and
         
        (iv)    the basis of seeking the Consent, which follows the principles and requirements under GL85-16, and the maximum amount of securities expected to be allocated to the connected client.
         
        3.3    Save for certain information (e.g. number of securities allocated to the connected clients) and confirmations which are available only at later stages of the IPO process (“Outstanding Information”), all information stated in paragraph 3.2 above should be provided in the Pre-vetting Application.
         
        3.4    The Exchange will issue a notification to the sponsor which may set out condition(s) as part of the Consent (“Notification”) after reviewing the Pre-Vetting Application. The listing applicant and its sponsor will not be required to submit another application for Consent with respect to such connected client upon confirming the allocation of securities. The connected Distributor, the listing applicant, the sponsor(s), the bookrunner(s) and the connected client (where applicable) should, as soon as possible, to avoid potential delay in the listing timetable:
         
        (i)    provide the Outstanding Information to the Exchange (see Appendix for the confirmation templates);
         
        (ii)    confirm to the Exchange that the information provided in the Pre-vetting Application remains valid; and
         
        (iii)    satisfy any condition(s) set out in the Notification,

        in order for the Exchange to grant the Consent.
         
        3.5    Where there is any material change to the information submitted in the Pre-vetting Application, the new information must be timely submitted for the Exchange’s consideration.
         
        3.6    The allocation of securities to connected clients should be conducted only after the close of the public offer and Consent has been granted by the Exchange. For a connected Distributor that has not submitted a Pre-vetting Application but intends to place securities to its connected client(s), a Consent application should be made as soon as possible when all information is available to ensure the regulators will have sufficient time to review the information and avoid any delay to the listing timetable.
         
        3.7    For the avoidance of doubt, there is no change in the current practice to apply for Consent in respect of placing securities to existing shareholders or their close associates. The Exchange will continue to consider granting Consent under paragraph 5(2) of the Placing Guidelines (GEM Rule 10.12(1A)(b)) and waiver from Main Board Rule 10.04 (GEM Rules 13.02(1)) on a case-by-case basis having regard to all relevant facts and circumstances disclosed in the waiver/Consent application and the prospectus, in particular, the details of the confirmations to be made pursuant to GL85-16.

        ****

        Appendix

        Confirmation templates in support of the final allocations of securities to a connected client

        Sponsor’s confirmation

        Pursuant to [paragraph 4.9 / paragraph 4.11] of the Guidance Letter HKEX-GL85-16 and paragraph 3.2 of the Guidance Letter HKEX-GL110-21, we hereby confirm to the Exchange that the securities are held on behalf of independent third parties and:
         
         
        applicable if a connected client participates as a placee
         
        (i)    based on (a) the discussions with the listing applicant, the connected Distributor and the bookrunners; (b) the confirmations provided to the Exchange by the listing applicant, the connected Distributor, the bookrunners and the connected client, 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 allocation of securities in the IPO as a placee by virtue of its relationship with the connected Distributor, and details of the allocation will be disclosed in the allotment results announcement.
         
        OR
         
        applicable if a connected client participates as a cornerstone investor
         
        (ii)    based on (a) the discussions with the listing applicant, the connected Distributor and the bookrunners; (b) the confirmations provided to the Exchange by the listing applicant, the connected Distributor, the bookrunners and the connected client, 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 allocation of securities in the IPO as a cornerstone investor by virtue of its relationship with the connected 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 allocation will be disclosed in the listing document and the allotment results announcement.
         
        Listing Applicant’s confirmation
         
        Pursuant to [paragraph 4.9/ paragraph 4.11] of the Guidance Letter HKEX-GL85-16 and paragraph 3.2 of the Guidance Letter HKEX-GL110-21, we hereby confirm to the Exchange that:
         
         
        applicable if a connected client participates as a placee
         
        (i)   
        (a)    no preferential treatment has been, nor will be, given to the connected client in any allocation in the placing tranche; [and]
         
        OR
         
        applicable if a connected client participates as a cornerstone investor
         
        (b)    the cornerstone investment agreement with the connected client does not contain any material terms which are more favourable to the connected client than those in other cornerstone investment agreements; [and]
         
        (c)    no preferential treatment has been, nor will be, given to the connected client other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13; [and]
         
        applicable if a connected client is holding securities on behalf of independent third parties on a discretionary basis
         
        (ii)    the connected Distributor has not participated, and will not participate, in the decision-making process or relevant discussions among the listing applicant, the bookrunners and the underwriters as to whether the connected client will be selected as a cornerstone investor or a placee.
         
        Connected Client’s confirmation
         
        Pursuant to [paragraph 4.9/ paragraph 4.11] of the Guidance Letter HKEX-GL85-16 and paragraph 3.2 of the Guidance Letter HKEX-GL110-21, we hereby confirm to the Exchange that:
         
         
        applicable if a connected client participates as a placee
         
        (i)    to the best of our knowledge and belief, we have not received and will not receive any preferential treatment in the IPO allocation as a placee by virtue of our relationship with the connected Distributor.
         
        OR
         
        applicable if a connected client participates as a cornerstone investor
         
        (ii)    to the best of our knowledge and belief, we have not received and will not receive any preferential treatment in the IPO allocation as a cornerstone investor by virtue of our relationship with the connected Distributor, other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in the Guidance Letter HKEX-GL51-13.
         
        Connected Distributor’s confirmation
         
        Pursuant to [paragraph 4.9/ paragraph 4.11] of the Guidance Letter HKEX-GL85-16 and paragraph 3.2 of the Guidance Letter HKEX-GL110-21, we hereby confirm to the Exchange that:
         
         
        applicable if a connected client participates as a placee
         
        (i)   
        (a)    no preferential treatment has been, nor will be, given to the connected client in any allocation in the placing tranche; [and]
         
        OR
         
         
        applicable if a connected client participates as a cornerstone investor
         
        (b)    no preferential treatment has been, nor will be, given to the connected client other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in the Guidance Letter HKEX-GL51-13; [and]
         
        applicable if a connected client is holding securities on behalf of independent third parties on a discretionary basis
         
        (ii)    we have not participated, and will not participate, in the decision-making process or relevant discussions among the listing applicant, the bookrunners and the underwriters as to whether the connected client will be selected as a cornerstone investor or a placee.
         
        Bookrunner’s confirmation
         
        Pursuant to [paragraph 4.9/ paragraph 4.11] of the Guidance Letter HKEX-GL85-16 and paragraph 3.2 of the Guidance Letter HKEX-GL110-21, we hereby confirm to the Exchange that:
         
         
        applicable if a connected client participates as a placee
         
        (i)   
        (a)    no preferential treatment has been, nor will be, given to the connected client in any allocation in the placing tranche; [and]
         
        OR
         
         
        applicable if a connected client participates as a cornerstone investor
         
        (b)    no preferential treatment has been, nor will be, given to the connected client other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in the Guidance Letter HKEX-GL51-13; [and]
         
        applicable if a connected client is holding securities on behalf of independent third parties on a discretionary basis
         
        (ii)    the connected Distributor has not participated, and will not participate, in the decision-making process or relevant discussion among the listing applicant, the bookrunners and the underwriters as to whether the connected client will be selected as a cornerstone investor or a placee.

        ****


        1 In relation to a connected client who is an individual, an “independent third party” refers to any party other than (i) the connected client itself; and (ii) a close associate of the connected client. In relation to a connected client which is a company or partnership, an “independent third party” refers to any party other than (i) the connected client itself; (ii) any fellow subsidiary of the connected client; (iii) parties which can exert significant influence on the connected client (e.g. the third party is a director of the connected client); and (iv) parties on which the connected client can exert significant influence (e.g. the connected client holds 20% or more shareholdings in the third party).

        2 Distributors should copy the sponsors of the Pre-vetting Application, if they do not submit the Pre-vetting Application to the Exchange through the sponsors.

        3 Early submission of information such as the identities of the connected clients means that the sponsors and/or the connected Distributors may also start preparing at an early stage any additional information requested by the regulators while the regulators are considering the Consent application.

        4 The Exchange normally regards “members of the same group” as including, without limitation, subsidiaries, associates of 20% or more shareholding of the Distributor’s holding companies, and other companies over which the Distributor and/or its subsidiaries, holding companies or fellow subsidiaries could individually or together directly or indirectly exert influence, e.g. by board representation.

        5 For a collective investment scheme with more than 20 limited partners, none of which holds 30% or more interest in the scheme, the identities of the limited partners of the scheme are normally not required to be provided in the Pre-vetting Application. Instead, the connected client is required to confirm that the scheme is widely held with no single limited partner holding 30% or more interest, and confirm that the limited partners are independent of the listing applicant, its controlling shareholders and the connected Distributor.

      • GL108-20

         View Current PDFView Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL108-20 (August 2020)

        Subject    Experience and Qualification Requirements of a Company Secretary
         
        Listing Rules and Regulations Main Board Rules 3.28, 3.29 and 8.17, and Appendix 14 to the Main Board Rules

        GEM Rules 5.14, 5.15 and 11.07, and Appendix 15 to the GEM Rules
         
        Related Publications HKEX-LD72-1, HKEX-LD72-2 and HKEX-LD46-2013
         
        Author IPO Vetting 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 letter provides (i) information on the policy rationale of Main Board Rule 3.28 (GEM Rule 5.14) with regards to the experience and qualification requirements of a company secretary (“R3.28”); (ii) guidance on factors considered by the Exchange when granting waivers from R3.28 and conditions to be imposed; and (iii) guidance on factors considered by the Exchange in determining whether the Proposed Company Secretary (as defined in paragraph 7) has attained the Relevant Experience (as defined in paragraph 3(ii)) under R3.28 by the end of the Waiver Period (as defined in paragraph 9).
         
        II.    Relevant Listing Rules
         
        2    Section F of the Corporate Governance Code and Corporate Governance Report under Appendix 14 to the Main Board Rules (Appendix 15 to the GEM Rules) states that, among other things, the company secretary plays an important role in supporting the board by ensuring good information flow within the board and that board policy and procedures are followed. The company secretary is responsible for advising the board on corporate governance matters, and should be an employee of the issuer and have day-to-day knowledge of the issuer’s affairs.
         
        3 R3.28 requires a company secretary of an issuer to possess certain academic or professional qualifications, or relevant experience to be considered capable of discharging the functions of company secretary:
         
          (i)    The academic or professional qualifications to be considered acceptable by the Exchange include (a) a member of The Institute of Chartered Secretaries; (b) a solicitor or barrister under the Legal Practitioners Ordinance; and (c) a certified public accountant under the Professional Accountants Ordinance (“Acceptable Qualification”).
         
          (ii)    The Exchange’s assessment criteria for “relevant experience” includes: (a) length of employment with the issuer and other issuers and the roles the company secretary has played; (b) familiarity with the Rules and other relevant laws and regulations; (c) relevant training taken and/ or to be taken in addition to the minimum requirement under Main Board Rule 3.29 (GEM Rule 5.15) (i.e. 15 hours per financial year); and (d) professional qualifications in other jurisdictions (“Relevant Experience”).
         
        4 Main Board Rule 8.17 (GEM Rule 11.07) states that an issuer must appoint a company secretary who satisfies R3.28.
         
        III. Guidance
         
        5 R3.28 was introduced to ensure issuers appointing individuals with the requisite knowledge and experience to assist them in compliance with the Listing Rules and relevant law and regulations in Hong Kong, and to achieve a good corporate governance standard. Individuals can demonstrate compliance with R3.28 by virtue of Acceptable Qualification and/ or Relevant Experience.
         
        6 Issuers tend to appoint senior management members, or other employees that had served related roles for a period of time and are familiar with the issuer’s business and affairs as company secretary. However, these individuals may not possess the Acceptable Qualification nor Relevant Experience as required under R3.28. In addition, issuers with principal business activities outside Hong Kong may have practical difficulties in finding a company secretary who possesses day-to-day knowledge of their affairs and the Acceptable Qualification or Relevant Experience. Under such circumstances, these issuers may prefer a company secretary who meets their specific needs (e.g. with special knowledge or skills in the laws and regulations of the jurisdiction in which the issuer operates) or industry-specific experience or expertise) rather than only being familiar with securities regulation in Hong Kong. This is because while it is important for the company secretary of an issuer to be familiar with the relevant requirements in Hong Kong, he/ she also needs to have experience relevant to the issuer’s industry/ operations, nexus to the board and close working relationship with management of the issuer in order to perform the function of a company secretary and to take the necessary actions in the most effective and efficient manner.
         
        7 In view of the above, the Exchange has in the past granted waivers to issuers proposing to appoint a company secretary who does not have the qualification and experience required under R3.28 (the “Proposed Company Secretary”) for a specified period.
         
          R3.28 waivers
         
        8 The Exchange will consider any R3.28 waiver applications based on the specific facts and circumstances. Factors that will be considered by the Exchange include:
         
          (i) whether the issuer has principal business activities primarily outside Hong Kong;
         
          (ii) whether the issuer was able to demonstrate the need to appoint a person who does not have the Acceptable Qualification nor Relevant Experience as a company secretary; and
         
          (iii) why the directors consider the individual to be suitable to act as the issuer’s company secretary.
         
        9 A R3.28 waiver, if granted, will be for a fixed period of time (“Waiver Period”) and on the following conditions:
         
          (i) the Proposed Company Secretary must be assisted by a person who possesses the qualifications or experience as required under R3.28 (“Qualified Person”) and is appointed as a joint company secretary throughout the Waiver Period; and
         
          (ii) the waiver can be revoked if there are material breaches of the Listing Rules by the issuer.
         
        10 These conditions are intended to ensure (i) the Qualified Person will assist the issuer to comply with relevant Hong Kong law and regulations and to achieve a good corporate governance standard; and (ii) a reasonable time is given to enable the Proposed Company Secretary to acquire the Relevant Experience required under R3.28 (in particular, the familiarity with the relevant regulatory requirements) over time.
         
        11 The length of the Waiver Period will depend on the following factors, but in any case, will not exceed three years as the Proposed Company Secretary is expected to have acquired the relevant qualification or experience required under R3.28 within such period:
         
          (i) the Proposed Company Secretary's experience in handling company secretarial matters and his/ her relevant professional qualifications and/ or academic background;
         
          (ii) the measures and systems in place to facilitate the Proposed Company Secretary in discharging his/ her duties as a company secretary; and
         
          (iii) the issuer’s regulatory compliance and/ or material deficiencies/ weaknesses in internal controls.
         
        12 New applicants and issuers should disclose in the listing document and the announcement (as the case may be) (i) reasons for a R3.28 waiver; (ii) details and conditions of the R3.28 waiver; and (iii) qualification and experience of both the Proposed Company Secretary and the Qualified Person.
         
        13 Before the end of the Waiver Period, the Exchange will not automatically deem the Proposed Company Secretary to be qualified under R3.28. The issuer must demonstrate and seek the Exchange’s confirmation that the Proposed Company Secretary has attained the Relevant Experience and is capable of discharging the functions of company secretary under R3.28. The Exchange will assess each case based on the specific facts and circumstances, taking into consideration the following factors:
         
          (i) compliance history of the listed issuer during the Waiver Period; and
         
          (ii) the relevant training undertaken by the Proposed Company Secretary during the Waiver Period.
         
        14 For clarity, the expectation is that the issuer should be able to demonstrate that the Proposed Company Secretary, having had the benefit of the Qualified Person's assistance during the Waiver Period, would have acquired the Relevant Experience under R3.28 such that a further waiver would not be necessary.

        ****

      • GL107-20

        View Current PDF

         

        HKEX GUIDANCE LETTER
        HKEX-GL107-20 (April 2020) (Updated in February 2021)

        Subject Disclosure in listing documents for Biotech Companies
        Listing Rules and Regulations
         
        Main Board Rules 2.13(2), 11.07 and Chapter 18A
        Related
        Publications
        Listing Decision HKEX-LD43-3 (“LD43-3”)

        Guidance Letter HKEX-GL86-16 – Guidance on Producing Simplified Listing Documents Relating to Equity Securities for New Applications (“GL86-16”)

        Guidance Letter HKEX-GL92-18 – Guidance on Suitability for Listing of Biotech Companies (“GL92-18”)

        Guidance Letter HKEX-GL98-18 – 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 ("GL98-18")
         
        Author IPO Vetting, 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. Unless otherwise specified, defined terms in the Listing Rules shall have the same meanings in this letter.

        1. Purpose
         
        1.1    Chapter 18A of the Main Board Rules (“Chapter 18A”) became effective on 30 April 2018. The Exchange has reviewed the operation of Chapter 18A, and identified certain areas in listing documents of Biotech Companies where disclosure can be enhanced.
         
        1.2 This letter provides guidance aiming to improve drafting of listing documents of Biotech Companies. It supplements guidance which the Exchange has published relating to disclosure in listing documents applicable to all listing applicants. (Updated in February 2021)
         
        1.3 A listing document that does not follow this guidance may be considered not substantially complete as required under the Listing Rules and may be returned.
         
        2.
         
        Relevant Listing Rules
         
        2.1 Main Board Rule 2.13(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 sets out an overriding general principle of disclosure in a listing document.
         
        2.3 Chapter 18A sets out the requirements for Biotech Companies.
         
        3.
         
        Guidance
         

         
        Overall drafting
         

         
        Fair, balanced and accurate disclosure
         
        3.1 Given the business nature of Biotech Companies, there is uncertainty over whether their R&D will lead to commercialisation of their product candidates eventually. As such, it is especially important that Biotech Companies should present fair, balanced and accurate information to potential investors, particularly due to the fact that listings of Biotech Companies in Hong Kong have attracted significant retail participation to date. To facilitate investors in assessing the scientific strengths and developments of Biotech Companies (compared to their peers), applicants are also expected to provide clear, precise disclosure on, among other things, their business models and products without compromising the scientific accuracy. (Added in February 2021)
         
        3.2 Set out below are non-exhaustive examples where the disclosure was considered misleading and failed to present a fair and balanced position of the applicants and their businesses:
         

         
        (a)    an applicant described itself as “global” where its products only target a particular jurisdiction, or it has only limited operation overseas while the majority of its operation (e.g. R&D) is located in one particular jurisdiction;
         

         
        (b)    an applicant which had yet to commercialise any of its product candidates described itself as “a company with robust execution capabilities” and/or “having a proven track record”; and
         

         
        (c)    an applicant did not state specifically at which stage its clinical trials were and used vague and unsubstantiated language such as “late-stage and near late-stage clinical trials”, “near commercialisation”, and “a great pipeline” (when the majority of the products are at an early stage). (Added in February 2021)
         

         
        Avoid marketing language, emotional expressions and unsubstantiated descriptions
         
        3.3 As an overriding principle, all applicants should avoid marketing language in the listing documents according to GL86-161, and emotional expressions and unsubstantiated descriptions should not be used. Non-exhaustive guidance include:
         

         
        (a)    a letter from chairman/management team which contains visionary and aspirational language and/or unsubstantiated projections should be avoided;
         

         
        (b)    overly emotional language or aggrandised marketing statement (e.g. “the goal is to give life a second chance”) should be avoided; and
         

         
        (c)    the use of descriptions such as “novel”, “top-notch”, “a leading company”, “blockbuster potentials”, “state-of-the-art technologies”, and “first-in-class/best-in-class products” for their products or the use of descriptions such as “completed a number of landmark investments” and “investing in high-quality middle-market companies” for the background of pre-IPO investors should be specific and substantiated with basis or evidence. (Added in February 2021)
         

         
        Use of diagrams and flowcharts for illustration purposes
         
        3.4 In view of the complexity and technicality involved in Biotech Companies’ businesses, applicants are encouraged to use diagrams or flowcharts to explain their business models, and Core Products and key non-Core Products (e.g. mechanisms of action (“MOA”)).

        Risk factors
         
        3.5 To fully apprise the investors of the risks associated with investing in Biotech Companies, applicants are urged to (a) arrange risk factors in the order of significance, disclose upfront the risk factors that are specific and critical to Biotech Companies generally and the applicants specifically (e.g. rights to develop and commercialise in-licensed products are subject to terms and conditions of the licensing agreements (including termination events), competitive landscape of specific relevant product, the risks on infringement and expiry of intellectual property (“IP”) rights, potential investors may lose all their investments in case of failure of R&D or regulatory approval not forthcoming); (b) include a summary of the key risk factors in the Summary section; and (c) disclose the details of major adverse events, their actual and potential impact and the applicant’s mitigating measures, where applicable (e.g. interruptions on clinical trials as a result of COVID-19, legal proceedings involving rights of the applicant’s key products). (Added in February 2021)
         
        3.6 The Exchange further suggests that the following disclosure be made in the listing documents which fall under Chapter 18A, where applicable.
         
        Key areas Disclosure recommendations
        Summary Section (Updated in February 2021) Reference should be made to GL86-16 and GL98-182 which set out basic requirements for all applicants. As Biotech Companies have attracted significant retail investor interest and they may not possess deep knowledge of biotechnology and medical science, applicants should take the following into consideration when drafting the Summary section (including the scientific description of the applicant’s R&D):
        •    use simple/plain language to the extent that scientific accuracy is not compromised
        provide full terms, explain them using plain language when a key abbreviation first appears in the Summary section, and cross-refer to the Business section for highly technical content or detailed description of sciences, such as MOA and full clinical data
        use meaningful headings and sub-headings to highlight the content
        disclose a clear and accurate summary of:
          −    the business model (see “Business model” subsection below) and where applicable, state clearly the division of responsibilities between the applicant and external parties such as collaborative partners, contract research organisation (CRO), contract manufacturing organisation (CMO) or other players
          Core Products and other key non-Core Products (including indication, prevalence/ incidence rates) (see “Products” subsection below)
          competitive landscape of Core Products and other key non-Core Products (see “Industry Overview” subsection below)
          key risks of the applicant and its products
        disclose development timetable of the products in a fair and balanced manner and avoid presenting favourable possibilities as certain or as more probable than is likely to be the case
        highlight any expected material increase in costs or expenses (such as R&D expenses and marketing expenses in connection with its biotech products) during the period covered by the working capital forecast
        Business model (Added in February 2021)
        •    disclose clearly the business model(s) of the applicant in the Summary and Business sections. Business models adopted by Biotech Companies may include one of the following, or a combination of them and we expect applicants to disclose key aspects of their models (including a fair and balanced disclosure on the level of R&D undertaken and to be undertaken, which should correspond to the business model and the market potential, e.g. high market potential yet prone to more challenges and competition and higher uncertainty):  
          in-licensing model
          self-developed model
        In-licensing arrangements  
          −    the stage of development of its in-licensed products and the post-licensing R&D activities performed and to be performed by the applicant for such products (including actual and anticipated expenses and funding, research expertise required) and the product’s latest development status by the licensor, if relevant (including without limitation any adverse information about the scientific validity or safety of the product)
          the material terms of relevant arrangements (e.g. licensing of specific patents and territories, milestone payments and their triggering events, termination events, key respective rights and obligations (including royalties and IP rights) of the applicant and the licensors, future related IP and residual IP rights arrangement, etc.) and whether any licensing payments will be paid out of listing proceeds
          the background and independence of the counter-parties to the in-licensing arrangements (including without limitation their operational scale)
          the clinical trial results and rights that belong to the applicant, and not to mix up with those attributable to the licensors / collaborative partners
        Out-licensing arrangements  
          the major terms of the collaboration agreement, including the rights the applicant retains in relation to the out-licensed products, any material restriction on the applicant’s right to R&D and commercialise such products, upfront, milestone and royalty payments and triggering points etc., which are similar to our recommendations on in-licensing arrangements
        Products (Updated in February 2021)
        •    specify the origins (i.e. in-licensing or internally-developed) and the jurisdiction rights pertaining to the Core Products and key non-Core Products  
        ensure clear and accurate description of the products and their respective market opportunities in the Summary and other relevant sections, including indications of the products, target patient population (e.g. first-line/second-line treatment, etc.) and if applicable, prevalence and incidence rates of the disease in the corresponding jurisdiction where the applicant is conducting the clinical trials and plans to launch its products (e.g. available information on genetic or ethnic subgroups if the applicant’s product is specific to a mutation), available treatment options, and current cost of treatment of the comparable product in the target market and other markets  
        ensure a balanced disclosure of material information on relevant studies (e.g. relevant and up-to-date preclinical/clinical data, and development progress and future development plan) for each Core Product and key non-Core Product, and summarise such information in the pipeline table  
        highlight the strategies implemented/to be implemented by the applicant in relation to:  
          R&D, for example (1) self-developed innovative products based on novel or differentiated MOA where significant amount of R&D by the applicant is required; (2) self-developed products based on well-established MOA, including “me-too” or “me-better” products, where less R&D by the applicant may be required; and (3) in-licensed products where limited R&D may be required
          commercialisation, including timeline of the next regulatory milestones leading up to the filing of new drug applications or device registrations and key differences between the primary market and other markets, if applicable
        define the calibre and experience of participating research institutions and their access to human subjects for clinical trials, if any, and disclose the material terms and conditions of the collaboration and who will own the IP rights, patent and sub-licensing rights, if applicable (see “Business model – In-licensing arrangements” subsection above)  
        for products which the applicant has recorded sales during and/or after the track record period, the applicant should disclose information on such sales, including the information on the products sold, the background of the customers and the distribution channels used  
        if applicable, highlight the non-Core Product that is strategically or commercially critical to the applicant, or for which the applicant intends to apply a significant portion of listing proceeds. Disclosure on such non-Core Products should be comparable to those on Core Products covering, for example, MOA, clinical data and competitive landscape  
        for products which are at very early preclinical stage and the applicant does not have any meaningful preclinical research data, or the data is deemed scientifically sensitive, the applicant should consider excluding them from the listing document  
        for products classified and regulated as orphan medicines and/or innovative therapies, the applicant should disclose (1) the basis for drug candidates to qualify in a particular regulatory pathway; (2) the exemptions granted during the regulatory process (if any) by the relevant Competent Authorities; and (3) the advantages for drug products admitted, reviewed and potentially approved under such designation  
        for a Core Product which has been commercialised in a given market for specified indication and the applicant intends to apply a portion of the listing proceeds for further developing that product such as expanding the indications of the commercialised Core Product, launching it in another regulated market, or conducting further clinical trials required by the Competent Authority, the applicant should disclose:
          (1) an overview of the strategies on the Core Product, including therapeutic and regional priorities
          (2) the objective of further studies in advancing the Core Product, with a breakdown of the funds to support such further R&D and other development activities. Non-exhaustive examples include resources required to support further post-approval R&D required by a Competent Authority or further R&D with concrete plans for new indication/market
        R&D team (Updated in February 2021)
        •    disclose the size, experience, qualifications and areas of specialisation of the R&D team, and how long they have been working on similar products
        Industry Overview (Updated in February 2021)
        •    applicants and their sponsors are reminded to ensure the accuracy of industry data and statistics. Sources of data relied on by industry consultants (e.g. interview with experts) should be clearly disclosed. For example, if official data on certain target markets is not available, summaries of the bases and assumptions used by the industry consultants in deriving the industry data should be clearly disclosed. Sponsors are reminded that they need to check the reasonableness of such assumptions and bases
        Competitive landscape and addressable market
        clearly define addressable markets of the Core Products and key non-Core Products (e.g. products that are only restricted to limited pool of patients for third-line treatment) rather than only the overall market and disclose material information of such markets (e.g. size, value and growth rates)
        disclose competitive landscape of the Core Products’ and key non-Core Products’ respective therapeutic areas and, to the extent applicable, include the following information of the competing or potentially competing commercialised or pipeline products: (1) the name, line of treatment, price (including similar products launched in other jurisdictions and factors that may affect pricing in the target market) and reimbursement coverage; (2) expiration dates of key IP rights; (3) technologies; and (4) addressable markets
        statements that the applicant’s products are likely to be more competitive or better3 should be substantiated
        IP (Added in February 2021)
        •    include in the Summary section the material IPs of the products, disclose the tenure and material payment obligations associated with such IP rights and residual IP rights, and whether such rights are in-licensed or self-owned
        clearly disclose (1) the part of the Core Product or key non-Core Product to which the material IPs are attributing or protecting (for example whether key technology or product packing); and (2) the extent and form to which such IPs are protected (e.g. whether patent is in the process of application, or patent has al been registered)
        highlight any risk of IP infringements in the Summary and Risk Factors sections, and disclose a positive statement by the directors (supported by the sponsor’s due diligence) as to whether the applicant had any instances of infringement of third parties’ IP rights and, if so, the relevant details and potential impact on the applicant’s operation
        Communication with Competent Authorities (Updated in February 2021) Competent Authorities have adopted different procedures in interphase clinical trial approval. For example, China's National Medical Products Administration (“NMPA”), a Competent Authority, has adopted a one-time umbrella approval procedure since 2015 for any new drug’s clinical trial application (i.e. including Phase I to Phase III) and may not grant phase-by-phase approval or issue further confirmation. In order to meet Rule 18A.04(2)(c) which requires Biotech Companies to disclose a summary of material communication with relevant Competent Authorities in relation to their Core Products:
        •    an applicant should disclose all material interactions with the Competent Authorities and the results of such interactions, whether the NMPA has raised material concerns or objections towards the completed or ongoing clinical trials4 or it has “no objection” to the applicant’s commencement of phase II (or later) clinical trials (if any), or a negative statement if there is no communication between the applicant and the relevant Competent Authority
        Valuation (Updated in February 2021)
        •    disclose valuation of each round of pre-IPO investments in a table, and reasons for material fluctuations in valuation (1) as compared to the immediate previous round of pre-IPO financing; and (2) between the proposed IPO valuation and the valuation in the latest round of pre-IPO financing, such as key development of the products and business milestones
        Sophisticated Investors (Updated in February 2021)
        •    disclose material information on Sophisticated Investors (e.g. fund’s background and track record in the relevant biotech or healthcare industries) (see GL92-185 for the indicative benchmark of a “meaningful investment” by Sophisticated Investors)
        Net liabilities6
        •    disclose in the Summary and Risk Factors sections if the applicant incurred net liabilities during the Track Record Period as a result of significant fair value change of convertible financial instruments and that they will be fully converted upon listing, therefore turning into a net assets position, if applicable
        Burn rate (Updated in February 2021)
        •    disclose in the Summary and other relevant sections:
          −   a reasonable period of time, with basis, that the applicant can maintain its viability with existing cash balance with the IPO proceeds
          when the applicant expects to raise its next round of financing based on its burn rate
          an applicant should have reasonable assumptions in relation to the burn rate taking into account specific facts and circumstances
        Contractual arrangements
        •    LD43-3 on contractual arrangements sets out that contractual arrangements should only be adopted to meet foreign ownership restrictions and this position also applies to Biotech Companies. Biotech Companies should therefore refer to LD43-3 if they adopt contractual arrangements

        ****


        1 Guide on Producing Simplified Listing Documents Relating to Equity Securities for New Applications.

        2 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.

        3 For example, a product being first-in-class may simply mean that it has a new MOA, but does not necessarily mean that the product is better.

        4 For the avoidance of doubt, where clinical trials are conducted and regulated by other Competent Authorities, their communication with Biotech Companies on the Core Products are required to be disclosed under Rule 18A.04(2)(c).

        5 Guidance on Suitability for Listing of Biotech Companies.

        6 This is applicable to all listing applicants (see GL86-16).

      • GL103-19

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        HKEX GUIDANCE LETTER
        HKEX-GL103-19 (April 2019)

        Subject Guidance for applicants on the presentation of the non-GAAP financial measures in a listing document and any relevant documents pursuant to the Exchange’s Listing Rules
        Listing Rules Main Board Rules 2.13 and 11.07

        GEM Rules 14.08(7) and 17.56
        Relevant 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. 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 presentation of the non-GAAP financial measures in a listing document.
        2. Relevant Listing Rules
        2.1 Main Board Rule 11.07 and GEM Rule 14.08(7) state 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.
        3. Non-GAAP financial measures and common types of non-GAAP financial measures
        3.1 A non-GAAP financial measure is a numerical measure of a listing applicant’s current, historical or future performance, financial position or cash flow that is not a GAAP measure1. Listing applicants often disclose non-GAAP financial measures in sections such as ‘Summary’ and ‘Financial information’ of a listing document.
        3.2 Common types of non-GAAP financial measures presented by listing applicants include earnings before interest, taxes, depreciation and amortisation (“EBITDA”); adjusted EBITDA; and adjusted net profit (that is, net profit excluding one or more expense items such as add back of listing expenses, etc.).
        4. Guidance
        4.1 Sponsors should ensure the presentation of the non-GAAP financial measures is not misleading. Reference can be made from the below principles and the IOSCO’s ‘Statement on Non-GAAP Financial Measures'2. The following elements, if present, would contribute to the reliability and comparability over time of non-GAAP financial measures and reduce the potential for misleading disclosure.
        (a) Defining the Non-GAAP Financial Measure
        (i) Define each non-GAAP financial measure presented and provide a clear explanation of the basis of calculation.
        (ii) Non-GAAP financial measures should be clearly labelled in a way such that they are distinguished from GAAP measures. Labels should be meaningful and should reflect the composition of the measure.
        (iii) When labeling a non-GAAP financial measure, a listing applicant must not use titles or descriptions that are the same as, or are confusingly similar to, titles or descriptions used for GAAP measures. It would be inappropriate to label a non-GAAP financial measure with a name that may convey a measure that it does not actually represent.
        (iv) To avoid investors’ confusion, a listing applicant should not characterise or label the non-GAAP financial measure as earnings before interest and taxes (“EBIT”) and EBITDA if the measure does not meet these traditional definitions. Instead, the listing applicant should distinguish the measure from EBIT or EBITDA by using a title such as “adjusted EBITDA”.
        (v) Explain the reason for presenting the non-GAAP financial measure including an explanation of why the information is useful to investors, and for what additional purposes, if any, management uses the measure. A listing applicant should avoid providing boilerplate disclosures related to the usefulness and purpose of the measure.
        (vi) Explicitly state that the non-GAAP financial measure does not have a standardised meaning prescribed by the listing applicant’s GAAP and therefore may not be comparable to similar measures presented by other issuers.
        (b) Unbiased Purpose
        (i) Non-GAAP financial measures should not be used to avoid presenting adverse information to the market.
        (ii) A listing applicant should not exclude certain non-recurring charges but do not exclude non-recurring gains (for example, “cherry picking” non-GAAP adjustments to achieve the most positive measure).
        (iii) A listing applicant should not use individually tailored accounting principles, including certain adjusted revenue measures (for example, a non-GAAP financial measure that reflects revenue recognised over the service period under GAAP on an accelerated basis as if the listing applicant earned revenue when it billed its customers).
        (c) Prominence of Presentation of GAAP Measures versus Non-GAAP Financial Measures
        (i) When a listing applicant presents non-GAAP financial measures, those measures should not be presented with more prominence than the most directly comparable measure calculated and presented in accordance with GAAP. Presentation of non-GAAP financial measures, including information provided for reference, should not in any way confuse or obscure the presentation of the GAAP measures.
        (ii) If GAAP and non-GAAP financial measures are presented in a particular section of a document, the GAAP measures should be presented before the non-GAAP financial measures. For example, if a listing applicant wants to use certain non-GAAP financial measures in its discussion of results of operations, it should discuss the GAAP results before the non-GAAP financial measures.
        (iii) A listing applicant should not present a non-GAAP financial measure in more detail, or emphasise it more, than the comparable GAAP measure. For example, use of phrases such as “exceptional” or “record” in a discussion of the non-GAAP financial measure would place undue emphasis on that measure if such phrases were not used to describe the comparable GAAP measure.
        (iv) The disclosures related to non-GAAP purpose and use should not state or imply that the non-GAAP financial measures are superior to, provide better information about, or more accurately represent the results of operations than GAAP measures.
        (v) Certain presentations that give undue prominence to non-GAAP financial measures, such as a full non-GAAP income statement, are prohibited.
        (d) Reconciliation to Comparable GAAP Measures
        (i) Provide a clear and concise quantitative reconciliation from the non-GAAP financial measure to the most directly comparable GAAP measure presented in the financial statements. The adjustments should be explained.
        (ii) If the reconciling items are derived from items reported in the GAAP measures, they should be reconcilable to the financial statements. When a reconciling item cannot be extracted directly from the financial statements, the reconciliation should show how this figure is calculated.
        (iii) Such reconciliation should be quantitative and is generally presented as a table, although it may be disclosed in another clearly understandable format.
        (iv) The reconciliation should begin with the GAAP measure and be reconciled to the non-GAAP financial measure, rather than the other way around.
        (v) Reconciling adjustments from the GAAP measure to the non-GAAP financial measure should be separately quantified and appropriately labeled.
        (e) Presentation of Non-GAAP Financial Measures Consistently Over Time
        (i) If a listing applicant chooses to present non-GAAP financial measures, it should provide the measure for comparative periods.
        (ii) The non-GAAP financial measures presented by a listing applicant should generally be presented consistently from period to period. Further, if a listing applicant chooses to change the composition of the non-GAAP financial measure, the listing applicant should explain any changes and the reason for making them, and provide comparative figures for the prior period with such figures adjusted to reflect the change in composition.
        (iii) If a listing applicant determines it will no longer present a particular non-GAAP financial measure, the reason for this determination should be explained.
        (iv) A listing applicant should consider whether its non-GAAP financial measures are consistent with standard measures used in its industry or by its peers and, if they are not, how the differences may affect comparability with other companies. A listing applicant’s non-GAAP financial measures may differ from those used in its industry or of its peer companies. However, the listing applicant should consider explaining such differences.
        (f) Recurring Items
        (i) In presenting non-GAAP financial measures, listing applicants sometimes seek to adjust for items that are reasonably likely to recur in the foreseeable future, or are activities that affected the entity in the recent past. Such items should not be described as non-recurring, infrequent or unusual without sufficient explanation.
        (ii) A listing applicant should not remove costs necessary to generate revenues or normal, recurring charges.
        (iii) The following items3 should not be described as non-recurring, infrequent or unusual without sufficient explanation:
        a. Restructuring and acquisition costs for a listing applicant with recurring restructuring charges or frequent business acquisitions;
        b. Pre-opening costs incurred in certain industries, such as the restaurant and retail industries;
        c. Certain marketing expenses that were considered normal recurring operating expenditures;
        d. Expenses that a listing applicant has incurred over several successive quarters or years that appear to be necessary for operating its business;
        e. Share of profits or losses of associates and joint ventures when they relate to the normal activities of the listing applicant; and
        f. Impairment of trade receivables relating to a listing applicant’s normal business.
        (iv) A listing applicant should use judgement in determining what constitutes a normal, recurring operating expense.
        (g) Treatment of Tax Adjustments
        (i) A listing applicant should present its reconciling adjustments on a gross basis before tax. The overriding objective is to avoid double counting of any amount. Income taxes should be shown as a separate adjustment and clearly explained.
        (h) Access to Associated Information
        (i) The information that listing applicants provide regarding non-GAAP financial measures should be readily and easily accessible to investors and other users of financial information. Information is readily and easily accessible if it accompanies the non-GAAP financial measure or a reference is provided to where the information is available.
        4.2 In vetting a listing document, the Listing Department may raise the following comments when non-GAAP financial measures are presented by a listing applicant:
        (i) Is the measure misleading?
        (ii) Is the non-GAAP financial measure presented necessary and appropriate for investors to understand the performance of the listing applicant?
        (iii) Is the measure presented with the most directly comparable GAAP measure and with no greater prominence than the GAAP measure?
        (iv) Is the measure appropriately defined and described, and is it clearly labeled as non-GAAP financial measure?
        (v) Does the reconciliation between the GAAP and non-GAAP financial measure clearly label and describe the nature of each adjustment, and is each adjustment appropriate? The reconciliation should begin with the GAAP measure (such as, profit for the year) and be reconciled to the non-GAAP financial measure.
        (vi) Is there transparent and company-specific disclosure of the substantive reason(s) why management believes that the measure is useful for investors and the purpose for which management uses the measure?
        (vii) Is the measure balanced (that is, does it adjust not only for non-recurring expenses but also for non-recurring gains)?
        (viii) Does the measure appropriately focus on material adjustments and not include immaterial adjustments that would not seem to be a focus of management?
        (ix) Do other listing applicants present this measure or similar measures? If not, why is this measure important to the listing applicant but not its peers?
        5. Responsibilities of sponsors, reporting accountants and other experts on the presentation of non-GAAP financial measures
        5.1 Sponsors, reporting accountants and other experts are reminded to perform appropriate level of due diligence to ensure accurate presentation of non-GAAP financial measures in a listing document, including but not limited to, the accuracy of the reconciling items and the reasonableness of the adjustments (for example, whether the adjustments would result in double counting).
        6. Application of the principles in this letter to listed issuers
        6.1 With reference to Main Board Rule 2.13 and GEM Rule 17.56, the above-mentioned guidance should also be applied when listed issuers present non-GAAP financial measures in any documents pursuant to the Exchange’s Listing Rules (such as financial reports, announcements and circulars).

        ****


        1 GAAP measures are based on Hong Kong Financial Reporting Standards ("HKFRS") or International Financial Reporting Standards ("IFRS") or China Accounting Standards for Business Enterprises ("CASBE")
        2 The "Statement on Non-GAAP Financial Measures" was published by the International Organisation of Securities Commissions (the "IOSCO") in June 2016, available at: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD532.pdf
        3 This list is not exhaustive

      • GL102-19

        View Current PDFView Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL102-19 (April 2019)

        Subject Guidance on accounting policies and stock-taking procedures performed by the reporting accountants
        Listing Rules Main Board Rules 4.03, 4.08(3), 4.11, 4.12 and 19.39

        GEM Rules 7.02, 7.08(3), 7.12, 7.13 and 7.16
        Related Publications Joint policy statement regarding the listing of overseas companies published by the Exchange and the SFC in September 2013 (updated in April 2018) (“JPS”)
        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 Exchange’s approach with respect to (i) change of accounting standard/ policy; (ii) adoption of accounting standards other than those as set out in Main Board Rule 4.11 (GEM Rule 7.12); and (iii) stock-taking procedures performed by the reporting accountants.
        2. Guidance
        2.1 The information disclosed in the listing document of a new applicant must enable investors to easily understand its business, financial position, management and prospects, etc.. Accordingly, irrespective of how certain matters/ transactions are accounted for, the Exchange encourages new applicants to disclose information in listing documents beyond those required under the applicable accounting standards to the extent necessary to fulfil the above purpose.

        Change of accounting standard/ policy

        2.2 If a material change in accounting standard/ policy is expected, new applicants should disclose in the listing document sufficient and meaningful information on the effect of the adoption of such change to enable investors to assess its financial results. Such information should not be a restatement of financial statement information in a narrative form or a tabulation of financial data without analysis, and should include the following, where applicable:
        (i) in the “Summary”, “Risk Factors” and “Financial Information” sections of the listing document, any announced/ possible amendments to the accounting standard1/ policy and the expected effective date; underlying reasons for the change in the applicant’s accounting policy; and qualitative and quantitative assessment on the potential impact of the changes; and
        (ii) in the management discussion and analysis section and/ or notes to the financial information in the applicant’s annual or interim report after listing, an analysis of the relevant financial results at a level of details similar to what would be presented in the listing document.

        Adoption of accounting standards other than those as set out in Main Board Rule 4.11 (GEM Rule 7.12)

        2.3 New applicants that are applying for a secondary listing on the Main Board or seeking dual primary listing on GEM and NYSE or NASDAQ are allowed to use US GAAP2. New applicants incorporated in acceptable overseas jurisdictions are allowed to adopt other accounting standards as set out in paragraph 64 of the JPS.
        2.4 Other new applicants that propose to adopt accounting standards other than those as set out in Main Board Rule 4.11 (GEM Rule 7.12) (“R4.11 Accounting Standards”) would need to apply for a waiver from the Exchange, which is only granted in exceptional circumstances and on a company-specific basis. The Exchange will impose, at a minimum, the following conditions for such waiver:
        (i) the applicant’s annual/ interim/ quarterly reports (where applicable) after listing must include a reconciliation statement showing the financial effect of the use of different accounting standards (“Reconciliation Statement”), which should be audited (for accountants’ report and annual reports) or reviewed (at least equivalent to International Standard on Assurance Engagements 3000 or Hong Kong Standard on Assurance Engagements 3000) (for interim/ quarterly reports); and
        (ii) the new applicant must revert to R4.11 Accounting Standards as soon as practicable if there is a change in the circumstances under which the waiver was granted (e.g. a Main Board applicant adopted US GAAP at the time of listing because it was dual listed in Hong Kong and U.S. but was subsequently delisted from the US stock exchange).
        2.5 In all cases where a new applicant’s accounting reports are drawn up in conformity with accounting standards other than the R4.11 Accounting Standards, the new applicant should disclose in the listing document, where applicable, (i) a description of the material differences between the accounting standard adopted and the R4.11 Accounting Standards; and (ii) a Reconciliation Statement3.
        2.6 In case of a spin-off, if the new applicant’s parent is a listed issuer on the Exchange and the new applicant adopts different accounting standards (e.g. US GAAP and IFRS) from its parent, the parent should include a Reconciliation Statement in its circular, if any, in connection with the spin-off proposal.

        Stocktaking procedures performed by the Reporting Accountants

        2.7 The Exchange expects the reporting accountants appointed for the purpose under Main Board Rule 4.03 (GEM Rule 7.02) to conduct significant and substantive work in the preparation of the accountants’ report for the purpose of listing. This work would necessarily entail the reporting accountants gathering sufficient and appropriate evidence to support their opinion through a variety of procedures including inspection, observation and direct confirmation.
        2.8 If the reporting accountants were appointed during or after the trading record period, they are not able to perform physical count of inventory to ascertain the inventory balances at particular dates prior to their engagement. In those circumstances, it is acceptable for the reporting accountants to adopt roll-back procedures to ascertain inventory balances for the periods prior to their engagement. The directors of the new applicant and the sponsors must be satisfied that it is justifiable for the reporting accountants to adopt the alternative auditing procedures.
        2.9 The Exchange usually does not find it compelling for the reporting accountants to adopt roll-forward procedures to ascertain the inventory level as at the end of the stub period/ financial year after they were appointed, as it is within the reporting accountants’ control to attend/ schedule stocktakes. Even if, for whatever reason, a stocktake could not be arranged on those dates, the reporting accountants should (i) attend one additional stocktake after the end of the relevant period; (ii) perform roll-back procedures to ascertain the inventory balance as at the end of the relevant period; and (iii) compare the stocktake records as at end of the relevant period to the roll-back analysis.

        ****


        1 New applicants should refer to paragraphs 30 and 31 of International Accounting Standards 8/ Hong Kong Accounting Standards 8 which relates to new and revised standard that has been issued but is not yet effective.
        2 Main Board Rule 19.39 and GEM Rule 7.13, respectively.
        3 Main Board Rule 4.12 (GEM Rule 7.16).

      • GL101-19

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        HKEX GUIDANCE LETTER
        HKEX-GL101-19 (March 2019)

        Subject Guidance on Sanctions Risks
        Listing Rules and Regulations Main Board Rules 2.13(2) and 8.04
        GEM Rule 11.06
        Relevant Publications HKEX-GL96-18
        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 Certain overseas jurisdictions may from time to time impose trade or economic sanctions on specific countries, governments, entities or persons by restricting their nationals from making assets or services available, directly or indirectly, to them, dealing with their assets or otherwise conducting commercial transactions with them. Some sanctions may even have (i) extra-jurisdictional effect, i.e. are imposed on persons who are not nationals of the relevant jurisdiction or entities which are not incorporated or located in the relevant jurisdiction, and do not otherwise have any nexus with that jurisdiction; and/or (ii) implications on activities or investments which may be regarded as financing, facilitating or contributing to the enhancement of the ability of a sanctioned country, government, entity or person to develop certain specific products or industries.
        1.2 This letter provides guidance on actions required to be taken by a listing applicant if its activities expose the Relevant Persons (as defined below) to any risk as a result of sanctions under any law or regulation of any Relevant Jurisdiction (as defined below) and how such risk may affect its suitability for listing and should be dealt with.
        2. Relevant Listing Rules
        2.1 Main Board Listing Rule 2.13(2) requires that the listing applicant must not, among other things, omit material facts of an unfavourable nature or fail to accord them with appropriate significance in the listing document.
        2.2 Main Board Listing Rule 8.04 (GEM Listing Rule 11.06) requires that both the listing applicant and its business must, in the opinion of the Exchange, be suitable for listing.
        3. Guidance
        Definitions
        3.1 For the purposes of this Guidance Letter, the following terms are defined as follows:

        “Primary Sanctioned Activity” means any activity in a Sanctioned Country or (i) with; or (ii) directly or indirectly benefiting, or involving the property or interests in property of, a Sanctioned Target by a listing applicant incorporated or located in a Relevant Jurisdiction or which otherwise has a nexus with such jurisdiction with respect to the relevant activity, such that it is subject to the relevant sanctions law or regulation.

        “Relevant Jurisdiction” means any jurisdiction that is relevant to the listing applicant and has sanctions related law or regulation restricting, among other things, its nationals and/or entities which are incorporated or located in that jurisdiction from directly or indirectly making assets or services available to or otherwise dealing in assets of certain countries, governments, persons or entities targeted by such law or regulation.

        “Relevant Persons” means a listing applicant, together with its investors and shareholders and persons who might, directly or indirectly, be involved in permitting the listing, trading, clearing and settlement of its shares, including the Exchange and related group companies.

        “Sanctioned Activity” means Primary Sanctioned Activity and Secondary Sanctionable Activity.

        “Sanctioned Country” means any country or territory subject to a general and comprehensive export, import, financial or investment embargo under sanctions related law or regulation of the Relevant Jurisdiction.

        “Sanctioned Target” means any person or entity (i) designated on any list of targeted persons or entities issued under the sanctions-related law or regulation of a Relevant Jurisdiction; (ii) that is, or is owned or controlled by, a government of a Sanctioned Country; or (iii) that is the target of sanctions under the law or regulation of a Relevant Jurisdiction because of a relationship of ownership, control, or agency with a person or entity described in (i) or (ii).

        “Sanctioned Trader” means any person or entity that does a material portion (10% or more) of its business with Sanctioned Targets and Sanctioned Country entities or persons.

        “Secondary Sanctionable Activity” means certain activity by a listing applicant that may result in the imposition of sanctions against the Relevant Person(s) by a Relevant Jurisdiction (including designation as a Sanctioned Target or the imposition of penalties), even though the listing applicant is not incorporated or located in that Relevant Jurisdiction and does not otherwise have any nexus with that Relevant Jurisdiction.

        Three scenarios

        3.2 This Guidance Letter considers three different scenarios:
        (a) listing applicant has engaged in Primary Sanctioned Activity;
        (b) a listing applicant has engaged in Secondary Sanctionable Activity; and
        (c) a listing applicant is a Sanctioned Target, is located, incorporated, organised or resident in a Sanctioned Country, or is a Sanctioned Trader.
        It also sets out certain circumstances under which the Exchange may find an applicant not suitable for listing.

        Primary Sanctioned Activity

        3.3 The listing applicant must obtain a reasoned analysis from its legal adviser on whether each Primary Sanctioned Activity conducted by the listing applicant (i) violates any applicable law or regulation in the Relevant Jurisdiction(s); and/or (ii) results in any material sanctions risk1 to the Relevant Persons. The listing applicant must also assess the impact of any cessation of Primary Sanctioned Activity on its financial position and business operations. The listing applicant must cease all Primary Sanctioned Activities prior to listing if its legal adviser has confirmed that such activities violate applicable law or regulation.

        Depending on the facts and circumstances, the listing applicant should adopt appropriate measures to deal with any material sanctions risk identified (see paragraphs 3.6 and 3.7 below).

        Secondary Sanctionable Activity

        3.4 The listing applicant must obtain a reasoned analysis from its legal adviser on whether each Secondary Sanctionable Activity conducted by the listing applicant would likely result in the imposition of any sanctions against the Relevant Persons (including designation as a Sanctioned Target and/or the penalties which might be imposed).

        Depending on the facts and circumstances, the listing applicant should adopt appropriate measures to deal with any material sanctions risk identified (see paragraphs 3.6 and 3.7 below).

        Applicant is a Sanctioned Target, is located, incorporated, organised or resident in a Sanctioned Country or is a Sanctions Trader

        3.5 Depending on the facts and circumstances, the Exchange may determine that such a listing applicant is not suitable for listing due to reputational risk or impose other restrictions (e.g. the listing applicant might be required to ensure that its shares are not offered to nationals of the Relevant Jurisdictions).

        Measures to be adopted

        Listing applicant subject to material sanctions risk

        3.6 The listing applicant which is subject to material sanctions risk should implement effective and adequate internal control measures before listing to control and monitor its and other Relevant Persons’ exposure to sanctions risks. Depending on the specific nature of the sanctions risk involved and the materiality of the Sanctioned Activity to the listing applicant’s business, these measures might include an undertaking from the listing applicant and/or its shareholders to the Exchange:
        (a) not to directly or indirectly apply the IPO proceeds and any other funds raised through the Exchange to (i) finance or facilitate any Sanctioned Activity; or (ii) pay any damages for terminating or transferring the relevant contracts that constitute Sanctioned Activity;
        (b) to terminate before listing all obligations under the relevant contracts that constitute the Sanctioned Activity and have measures in place to ensure compliance with the Undertakings; and/ or
        (c) to disclose in its annual, interim and quarterly reports (if any) (i) details of any new and/ or existing Sanctioned Activity; (ii) its efforts in monitoring its business exposure to sanctions risks; and (iii) the current status of, and the anticipated plans for, any new and/ or existing Sanctioned Activity.
        Any breach of such undertaking may lead to a possible delisting of the listing applicant’s securities from the Exchange.
        3.7 Depending on the specific nature of the sanctions risk involved and the materiality of the Sanctioned Activity to the listing applicant’s business, the listing applicant may be required to prominently disclose the following in the “Summary”, “Risk Factors” and “Business” sections of its listing document:
        (a) details of the Sanctioned Activities, including but not limited to (i) the nature and size of the listing applicant’s projects/ businesses involved in the Sanctioned Activities; (ii) whether the listing applicant and/ or its counterparties were or have reasons to believe they will be deemed to be Sanctioned Targets; and (iii) background of the counterparties, the revenue recognized from Sanctioned Activities during the track record period and the current status of such activities;
        (b) the legal adviser’s reasoned analyses under paragraphs 3.3 and 3.4 above;
        (c) a description of any known material contingent liabilities in relation to the Sanctioned Activities in accordance with the applicable accounting and legal standards;
        (d) if it has engaged in Primary Sanctioned Activities that violate any applicable law or regulation, (i) when such activities ceased; (ii) details of the financial and operational impact; (iii) any disclosure made to the relevant governments and responses to, and the status of, any such disclosure; and (iv) the legal consequences (including maximum penalties (if any)) on the Relevant Persons as a result of such cessation;
        (e) if it intends to undertake any new Sanctioned Activity after listing, details of such intention and the parameters or criteria that the listing applicant will consider when determining whether to undertake such venture; and
        (f) (i) the internal control measures and the views of its sponsor(s) and directors on the adequacy and effectiveness of the internal control measures to protect the interests of the Relevant Persons; (ii) the Undertakings; and (iii) a risk factor on the possible delisting of the listing applicant’s securities if any undertaking to the Exchange as described in paragraph 3.6 is breached.

        Circumstances which may render an applicant not suitable for listing

        3.8 The Exchange is unlikely to approve the listing if (a) any sanctions risks to or sanctions imposed on the applicant materially undermine its ability to continue its operations; (b) an applicant states that the funds are raised to finance Sanctioned Activities; or (c) its listing would cause a significant risk to the Relevant Persons or reputational risk to the Exchange (see also paragraph 3.5 above). Whether a listing would cause a significant risk to the Relevant Persons depends on the specific facts and circumstances.

        No current Sanctioned Activity or no material sanctions risk

        3.9 If there is no apparent or material sanctions risk, no specific risk mitigating measures need to be adopted and no disclosure on sanctions is required.

        Suitability for continued listing

        3.10 Please refer to paragraphs 25-28 of GL96-18 regarding the Exchange’s guidance on listed issuer’s suitability for continued listing due to trade or economic sanctions.

        Latest developments

        3.11 Since sanctions-related laws and regulations change from time to time, whether a listing applicant is subject to any sanctions risk depends on the facts and circumstances at any particular point in time. A listing applicant should therefore obtain legal advice as necessary to ensure it is kept abreast of all the latest developments.

        ****


        1 When assessing materiality, both the likelihood of the imposition of potential sanctions and the severity of the potential sanctions are taken into account.

      • GL100-19

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        HKEX GUIDANCE LETTER
        HKEX-GL100-19 (March 2019)

        Subject Guidance on competition between the businesses of a new applicant and its controlling shareholder
        Listing Rules Main Board Rules 8.04, 8.10 and Paragraph 27A of Part A of Appendix 1 to the Main Board Rules

        GEM Rules 11.04, 11.06 and Paragraph 27A of Part A of Appendix 1 to the GEM Rules
        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 how the Exchange assesses competition between a new applicant and its controlling shareholder, including any business in which the controlling shareholder has an interest in (other than the new applicant and its subsidiaries) (collectively, the “Controlling Shareholder Group”).

        Guidance

        2. Main Board Rule 8.10 (GEM Rule 11.04) does not set a materiality threshold on the level of competition. As such, regardless the extent of competition, the new applicant is required to (i) disclose the information as required under Main Board Rule 8.10(1)(a) (GEM Rule 11.04) in its listing document, which should include relevant financials and operating data (e.g. revenue, gross and net profit, gross and net profit margins, number of stores, etc.) to give investors a sense as to the extent and materiality of the competing business to both the Controlling Shareholder Group and the new applicant; and (ii) demonstrate that it is capable of carrying on its business independently of, and at arms’ length from, the excluded business under Main Board Rule 8.10(1)(a)(iii) (the “R8.10 Independence Requirement”)1.
        3. In most cases, the new applicant and the Controlling Shareholder Group have directors and/ or senior management in common; therefore, we look at how actual or potential conflicts of interest are managed in assessing the R8.10 Independence Requirement.
        4. Where measures to manage such conflicts of interest are not effective, they can give rise to concerns on the new applicant’s ability to make commercial decisions independently and in the interests of its shareholders as a whole, which will affect the suitability of the new applicant pursuant to Main Board Rule 8.04 (GEM Rule 11.06).
        5. Examples of how conflicts of interest may be effectively managed if there is competition and how the new applicant’s business can be delineated from the Controlling Shareholder Group’s businesses to avoid competition are discussed below. Readers should note that the guidance and examples provided herein are purposely broad. There may be facts and circumstances specific to a new applicant, although not stated or stated to the contrary in this guidance letter, that would result in different conclusions on the effectiveness of conflict of interest management measures or bases for delineation, as the case may be.

        Effective conflicts of interest management
        6. If the new applicant’s business competes or is likely to compete, directly or indirectly, with those of the Controlling Shareholder Group, there will be conflict of interest between the parties. The greater the possibility of actual or potential conflicts2 of interest, the greater the need for enhanced conflicts of interest management measures to ensure management independence. Non-exhaustive examples of conflict of interest management measures include:
        (a) restricting the members of senior management of the new applicant from participating in the management of the competing business, and vice versa;
        (b) limiting the number of overlapping directors holding executive roles in both the new applicant and the Controlling Shareholder Group;
        (c) having a sufficient number of independent directors, who have requisite knowledge, industry experience and expertise, on the new applicant’s board to advise on the conflicted transactions and business decisions, as overlapping directors would abstain from voting; and
        (d) engaging additional independent consultants to provide advice to the independent non-executive directors where needed.
        Business Delineation and Non-Compete Undertakings
        7. If the businesses of the Controlling Shareholder Group are clearly delineated from those of the new applicant, there is no competition and the risk of potential conflicts of interest is comparatively low. For clarity, if the new applicant’s business competes or is likely to compete, directly or indirectly, with those of the Controlling Shareholder Group, the new applicant must fulfil the R8.10 Independence Requirement.
        8. With respect to a spin-off (as defined in Practice Note 15 to the Main Board Rules (Practice Note 3 to GEM Rules)), a new applicant’s business should be clearly delineated from the remaining business of the parent3.
        9. The following are non-exhaustive examples of ways past applicants have distinguished themselves from the excluded business(es) of the Controlling Shareholder Group:
        (a) different business models under which the new applicant and the Controlling Shareholder Group sell same/ similar products but to different customers (manufacturing vs. retail of same products, or wholesalers selling to distributors vs. retailers selling to end customers);
        (b) produces non-substitutable products or provides non-substitutable services in the same industry (e.g. highly specialised bespoke products vs. mass-produced standardised products; foundation construction company vs. decoration and fitting out company). In contrast, companies selling substitutable products via different channels (e.g. online vs. physical stores) or platforms (e.g. e-commerce vs. social media) are not considered fully delineated as their products are substitutes for each other and their potential customers have a high degree of overlap; or
        (c) operates in different geographical locations (e.g. waste treatment plants in different locations; power generation companies in different municipalities selling to the same power grid; or drugs approved and sold in the PRC vs. drugs approved and sold outside PRC).
        10. To delineate the business of the new applicant from that of the Controlling Shareholder Group, controlling shareholders of some new applicants have (i) provided an enforceable4 non-competition undertaking in favour of the new applicant; (ii) granted a right of first refusal to the new applicant if it is aware of a new business opportunity relating to the new applicant’s business or intends to dispose of the competing business; and/ or (iii) granted a call option to the new applicant to acquire the competing business in the future (the “Undertakings”).
        11. The Undertakings are not mandatory, but may be helpful to ensure continued delineation of the Controlling Shareholder Group from the competing business or limit the extent of competition between the new applicant and the Controlling Shareholder Group after the listing and is one way to address potential conflict of interest between the Controlling Shareholder Group and the new applicant.

        1 Note to Main Board Rule 8.10(1)(a) (Note 4 to GEM Rule 11.04) refers to paragraph 27A of Part A of Appendix 1 to the Main Board Rules (and the GEM Rules), which requires a statement explaining how the issuer is satisfied that it is capable of carrying on its business independently of the controlling shareholder and its close associate after listing, and particulars of the matters that it relied on in making the statement.
        2 The assessment of the possibility of actual or potential conflicts of interest will depend on facts and circumstances, including the extent of competition between the new applicant’s business and its Controlling Shareholder Group’s businesses, and the industry in which the new applicant and the Controlling Shareholder Group operate.
        3 New applicants listing under spin-off proposals pursuant to Practice Note 15 to the Main Board Rules (Practice Note 3 to GEM Rules) should also comply with the requirements set forth therein.
        4 We assess enforceability of the Undertakings on a number of other factors, including (i) the effect of exemption clauses on the Undertakings; (ii) how independently a new applicant can exercise its right to enforce the Undertakings in light of its own corporate governance; and (iii) the degree to which the management of the new applicant and its controlling shareholders are closely connected.

      • 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

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        HKEX GUIDANCE LETTER
        HKEX-GL97-18 (July 2018) (Updated in March 2019)

        Subject Guidance for new applicants in the internet technology sector or have internet-based business models (collectively, Relevant Sectors)
        Listing Rules 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-GL68-13 – Guidance on suitability for listing for new applicants (“GL68-13”)
        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. 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 (Deleted in March 2019)
        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 matter of disclosure and requires a new applicant to disclose in its listing document details of its material reliance on various parties, such as a substantial shareholder, connected persons, a major supplier or a major customer. (Updated in March 2019)
        3.3 (Deleted in March 2019)
        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 the sales and marketing of 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 reliance on their parent company or another connected person’s platform.  Given the nature of their industry and businesses, new applicants are usually unable to reduce their level of reliance in the foreseeable future.  Further, such reliance is typically not mutual and complementary and is usually more important to the new applicant than the parent company at the time of listing.  It is also unlikely that the new applicant will be able to switch to using another platform, given the competition in the industry.
        3.5 Notwithstanding the above, the Exchange will not consider such new applicant to be unsuitable for listing if there are no red flags indicating its relationships with the parent company or another connected person are likely to be terminated or otherwise materially adversely change.  New applicants should refer to GL68-13 for factors the Exchange considers in evaluating whether operational reliance on another party would affect the new applicant’s suitability and relevant disclosure requirements. (Updated in March 2019)
        3.6 (Deleted in March 2019)
        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 sales and marketing of their own products or services.  Such an arrangement constitutes a continuing connected transaction under the Listing Rules, for which issuers are required to set a monetary annual cap.  However, in such cases it is common for the new applicant to structure the payment for the use of such services as a percentage of the new applicant’s revenue generated through the connected person’s platform.  The Exchange evaluates connected transactions carefully on a case-by-case basis. (Updated in March 2019)

        Quantifying Caps for Continuing Connected Transactions
        3.8 There may be cases in which it is impractical for the new applicant to accurately estimate the amount of payment required under a cooperative agreement for the use of the platform of its parent company or another connected person where the payment is based on transaction volume as it may have a short operating history or be in a growth phase such that historical revenues would not be 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 new 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 new 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 (e.g. 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 Main Board 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 new 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 A new 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 a new 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 new 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 a new 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 a new applicant's legal opinion regarding the new applicant's compliance with local laws and regulations to cover its 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 new applicant's business will be promulgated in the near future, the Exchange would normally expect the new 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

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        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) (Updated in October 2019 and April 2020)

        Subject Suitability for Listing of Biotech Companies
         
        Listing Rules and Regulations
         
        Main Board Listing Rules 9.09, 14.20 and 18A.03(1), and Practice Note 18 to Main Board Listing Rules
         
        Related Publications Guidance Letter HKEX-GL43-12 – Guidance on Pre-IPO investments (“GL43-12”)

        Guidance Letter HKEX-GL85-16 – Guidance on Placing to connected clients, and existing shareholders or their close associates, under the Rules (“GL85-16”)

        Guidance Letter HKEX-GL107-20 – Guidance on Disclosure in listing documents for Biotech Companies (“GL107-20”)
         
        Author IPO Vetting, 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. 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 Rules ("Chapter 18A") and, after its listing, the application of certain rules on notifiable transactions and connected transactions to such issuers listed under Chapter 18A.
         
        2. Relevant Listing Rules
         
        2.1 Main Board Listing Rule 14.20 states that where any calculation of the percentage ratio produces an anomalous result or is inappropriate to the sphere of activity of the listed issuer, the listed issuer may apply to the Exchange to disregard the calculation and/or apply other relevant indicators of size, including industry specific test(s). The listed issuer must seek prior consent of the Exchange if it wishes to apply this rule and must provide alternative test(s) which it considers appropriate to the Exchange for consideration. The Exchange may also require the listed issuer to apply other size test(s) that the Exchange considers appropriate.
         
        2.2 Main Board Listing Rule 18A.03(1) states that an applicant that has applied for listing under Chapter 18A 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 engaged in R&D of its Core Product(s) for a minimum of 12 months prior to listing. Non-exhaustive examples include the following:
         
            (i) 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. For example, the applicant’s in-licensed or acquired products (1) progressed from preclinical stage to clinical stage, (2) progressed from one clinical phase to the next phase of clinical trial, or (3) obtained regulatory approval from the Competent Authority to market the Core Product; and
         
            (ii) in the case of a Core Product which has been commercialised in a given market for specified indication(s) and the Biotech Company intends to apply a portion of the listing proceeds to, for example, (1) expand the indications of the commercialised Biotech Product, or (2) launch it in another market, the Exchange would expect further R&D expended on the Core Product in connection with the clinical trials required by the Competent Authority to either bring the Core Product for (1) a new indication; or (2) commercialisation in a new regulated market (Added in April 2020);
         
          (d) it must have as its primary reason for listing raising funds for R&D to bring its Core Product(s) to commercialisation. For Biotech Companies that develop medical devices which have a short development cycle, the Exchange may take into account these Biotech Companies’ business plan and development stage of the pipeline products such that they may allocate a portion of listing proceeds to, for example, set up production facilities that will be primarily used for the manufacturing of Core Product(s) to bring it to commercialisation, and establish sales, marketing and medical teams to commercialise its Core Product(s) (Added in April 2020);
         
          (e) it must have registered patent(s), patent application(s)1 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 I2 clinical trials and that the relevant Competent Authority has no objection for it to commence Phase II3 (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 II3 (or later) clinical trials.
         
            (iii) For an in-licensed or acquired Core Product, the Exchange expects the Biotech Company to complete at least one clinical trial regulated by the relevant Competent Authority on human subjects since the in-licensing or acquisition. If the applicant has not completed at least one clinical trial for the in-licensed or acquired Core Product, the Exchange will evaluate why no clinical trial has been completed and whether substantive R&D work and process(es) equivalent to the completion of one clinical trial on human subjects have been performed by the Biotech Company. The Exchange will not consider any administrative process as substantive R&D work and process(es) (Added in April 2020).
         
          (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 I2 clinical trials and the relevant Competent Authority has no objection for it to commence Phase II3 (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.
         
            (iii) For an in-licensed or acquired Core Product, the Exchange has the same expectation as set out in paragraph 3.3(a)(iii) above (Added in April 2020).
         
          (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 Institution4); 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.
         
          (a) The Exchange will categorise a Biotech Product as it is categorised by its Competent Authority. If a Biotech Product is regulated as a pharmaceutical, biologics, or medical device, a Biotech Company cannot re-classify such products as “Other Biotech Product” because it is unable to fulfil any of the requirements of the relevant category (Added in April 2020);
         
          (b) Where there is no regulatory regime which sets out external milestones or an objective framework to assess the development progress, market and clinical relevance of a product under the “Other Biotech Product” category, the Exchange will consider, for example (Added in April 2020):
         
            (i) the number, selection process and diversity of the test sampling population, and availability of data from pre-clinical and clinical trials;
         
            (ii) time-frame and impediments to commercialisation;
         
            (iii) whether the pre-clinical and clinical results have been published in medical/scientific journals. The Exchange will take into account the impact factor of the journals; and
         
            (iv)    where Competent Authorities have published relevant guidelines, their views and aspects of a comparable framework and/ or objective indicators of “Other Biotech Products”.
         
        3.5 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 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, existing shareholders are allowed to participate in the IPO of a Biotech Company provided that the applicant complies with Main Board Listing Rules 8.08(1) and 18A.07 in relation to shares held by the public. For the avoidance of doubt, the Existing Shareholders Conditions in GL85-16 do not apply to Biotech Companies. For example:
         
          (i) an existing shareholder holding less than 10% of shares in the Biotech Company may subscribe for shares in the IPO as either a cornerstone investor or as a placee. In the case of subscription as a placee, the applicant and its sponsor must confirm that no preference in allocation was given to the existing shareholder. In the case of subscription as a cornerstone investor, the applicant and its sponsor must confirm that no preference was given to the existing shareholder other than the preferential treatment of assured entitlement at the IPO price and the terms must be substantially the same as other cornerstone investors.
         
          (ii) an existing shareholder holding 10% or more of shares in the Biotech Company may subscribe for shares in the IPO as a cornerstone investor. (Added in April 2020)
         
        5.3 An existing shareholder with a contractual anti-dilution right may exercise such right and subscribe for shares in the IPO in accordance with the existing requirements under paragraph 3.10 of GL43-12. (Added in April 2020)
         
        5.4 Where allocations will be made to core connected persons, the Biotech Company must apply for, and the Exchange will ordinarily grant, a related Rule 9.09 waiver, if applicable. (Added in April 2020)
         
        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
         
        7.1 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).
         
        8. Clawback mechanism
         
        8.1    Biotech Companies potentially carry additional risks to retail investors. Where Biotech Companies wish to propose any modification to the minimum public subscription requirement under Practice Note 18 of the Rules in an IPO, they must provide compelling reasons for such modification to the Exchange, which will be considered on a case-by-case basis. (Added in April 2020)
         

        ****


        1 For registered patents and applications, Rule 18A.04(2)(h) requires a Biotech Company to disclose in its listing document details of any patent(s) granted and applied for in relation to the Core Product(s) (unless the applicant is able to demonstrate to the satisfaction of the Exchange that such disclosure would require the applicant to disclose highly sensitive commercial information), or an appropriate negative statement. (Added in April 2020)

        2 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.

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

        4 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
        (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
        PN18/ GR PN6 clawback or a modified PN18/ GR PN6 clawback applies

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

      • GL90-18

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        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 PDFView Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL89-16 (November 2016) (Updated in October 2017, February 2018 and February 2020)

        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 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 Division 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" 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". When there is no controlling shareholder or a group of controlling shareholders, references to “controlling shareholder” or “a group of controlling shareholders” in this Guidance Letter, where applicable, would be to the single largest shareholder or the group of shareholders being considered as the single largest shareholder, as the case may be; (Updated in February 2020)
        (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 PDFView Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL86-16 (February 2016) (Updated in May 2016, September 2016, August 2017, May 2019, April 2020 and July 2020)

        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 Division 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
         
        listing applicants which recorded net liabilities during the track record period as a result of significant fair value change of convertible financial instruments and will turn into a net assets position upon listing due to full conversion of such instruments, and should make relevant disclosure in the “Risk Factors” section, if applicable (Updated in April 2020)
         
        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);
         
        - a statement on the applicant’s compliance culture (including measures and processes to ensure such culture is embedded into everyday workflow and set the expectations for individual behaviour across the organisation); and (Updated in July 2020)
         
        - 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.
         
        3.7     (a)  It is important for applicants to put in place mechanisms that enable them to meet the Exchange’s requirements on corporate governance (“CG”) and environmental, social and governance (“ESG”) well in advance so that they are in compliance upon listing. The board of directors of an applicant is collectively responsible for its management and operations, including the establishment of such mechanisms. Directors are expected to be involved in the formulation of such mechanisms and related policies. (Updated in July 2020)
         
          (b) Applicants are therefore recommended to appoint directors (including independent non-executive directors) as early as possible so that directors can engage in the formulation of the necessary mechanisms and policies on CG and ESG. (Updated in July 2020)
         
        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
         
         
        Environmental and Social matters
        Environmental
         
        •    Material information about an applicant’s environmental policies (including climate-related policies) and compliance with relevant environmental laws and regulations that have or may have a significant impact on the applicant (including the annual cost of compliance with applicable rules and regulations during the track record period and the expected cost of compliance going forward)
         
        A description of the significant impacts of the applicant’s activities on the environment and natural resources and the action taken to manage them
         
        Social
         
        Material information about an applicant’s policies on compensation and dismissal, equal opportunities, diversity, anti-discrimination, and other benefits and welfare
         
        Occupational safety measures, 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, and whether they resulted in any claims for personal or property damages or compensation paid to employees
         
        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 process used to identify, evaluate and manage significant risks such as market, credit,operational, environmental (including climate-related), social and governance 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, 11.07 and 13.92, and Paragraph 41 of Part A of Appendix 1
         
        - GEM Rules 5.01, 5.02, 14.08(7), 17.56, and 17.104 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.

        Board diversity and policy
         
        3.5 Applicants should disclose a policy on board diversity (including gender).
         
        3.6 Where an applicant has a single gender board, it should disclose and explain:
         
        (a)    how and when gender diversity of the board will be achieved after listing;
         
        (b) what measurable objectives it has set for implementing gender diversity (for example, achieving a specific numerical target for the proportion of the absent gender on its board by a certain year); and
         
        (c) what measures the applicant has adopted to develop a pipeline of potential successors to the board that could ensure gender diversity of the board.
         
        Overboarding and time commitment (Updated in July 2020)
         
        3.7 Applicants should ensure that each director can give sufficient time and attention to the applicants’ affairs.
         
        3.8 Where an applicant identifies an independent non-executive director who will be holding their seventh (or more) listed company directorships, the applicant should disclose why its board believes the individual would be able to devote sufficient time to the board.
         
        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 II, IIII and IIIIII.
         
        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
        6                 HKEX-GL107-20 04/2020 Biotech Companies
        Other guidance letters on disclosure in a Listing Document
        7                 HKEX-GL8-09 07/2009 Disclosure of statistics and data quoted in listing documents
        8                 HKEX-GL24-11 03/2011 Disclosure requirements for IPO cases - Formal Notice
        9                 HKEX-GL30-12 02/2012 Disclosure of intellectual property rights
        10                 HKEX-GL34-12 04/2012 Disclosure of hard underwriting
        11                 HKEX-GL38-12 06/2012 Latest practicable date and the latest date for liquidity disclosure
        12                 HKEX-GL37-12 06/2012 Indebtedness, liquidity, financial resources and capital structure disclosure
        13                 HKEX-GL41-12 08/2012 Disclosure of material changes in financial, operational and/ or trading position after trading record period
        14                 HKEX-GL63-13 07/2013 Disclosure of material non-compliance incidents
        15                 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

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        HKEX GUIDANCE LETTER
        HKEX-GL85-16 (January 2016) (Updated in February 2018, April 2020, and March 2021)

        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 of 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 Letters HKEX-GL51-13, HKEX-GL92-18 and HKEX-GL110-21
        Listing Decision HKEX-LD44-2

        Guidance Letter HKEX-GL75-14 and Listing Decision HKEX-LD90-1 (superseded by this letter)
        Author    IPO Vetting 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 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 (“Distributors”) (as defined in the Main Board Placing Guidelines and with the same meaning under the GEM Rules) place securities of a listing 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) a listing 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 a listing 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 parties2. 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)    a listing applicant’s existing shareholders or their close associates, the Existing Shareholders Conditions should be complied with (see paragraph 4.20). The Existing Shareholders Conditions are not applicable to (i) Biotech Companies set out in paragraph 4.27; and (ii) 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 4.28. (Updated in February 2018 and April 2020)
         
        2.4    You can refer to paragraph 4.29 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 same group of companies as a 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 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 a listing 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 Distributors, and listing applicants’ existing shareholders or their close associates, unless the conditions set out in Main Board Rules 10.03 and 10.04 (GEM Rules 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 a listing 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 a listing 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 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 a listing 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 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 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 sponsor shall confirm3 to the Exchange in writing that the securities allocated to the connected client are held on behalf of independent third parties, and that based on (i) its discussions with the listing applicant, the connected Distributor and the bookrunners; and (ii) the confirmations provided to the Exchange by the listing applicant, the connected Distributor, the bookrunners and the connected client (confirmations (c) and (g) mentioned below), 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 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 allocation4 will be disclosed in the listing document and/ or the allotment results announcement, as the case may be; (Updated in March 2021)
         
        (b)    the listing applicant shall confirm3 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 listing applicant, connected Distributor and, to the best of the bookrunners’ knowledge and belief, the bookrunners shall confirm3 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 other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13; or (Updated in March 2021)
         
        (ii)    in the case of participation as a placee, no preferential treatment has been, nor will be, given to the connected client in any allocation in the placing tranche; (Updated in March 2021)
         
        (d)    the sponsor shall provide the identities of the connected clients and the relationships between the Distributor and each of the connected clients (e.g. whether they are members of the same group of companies and/or are collective investment schemes managed by members of the same group of companies5); (Added in March 2021)
         
        (e)    the sponsor shall provide the identities of the ultimate beneficial owners of the securities or where applicable, details of the structured products under which the subscription by the connected client was made (e.g. OTC total return swaps); (Added in March 2021)
         
        (f)    where the connected client is a collective investment scheme which is not authorised by the Securities and Futures Commission or is expected to hold the securities on behalf of such a scheme, the sponsor shall provide in the consent application the background and details of the scheme such as (i) the types and values of assets under management; (ii) whether the scheme is publicly marketed; (iii) the scheme establishment date; (iv) identities of the general partners and the 20 largest limited partners6 of the scheme where applicable; (v) the identity of the scheme administrator; and (vi) the relationships amongst the scheme, the ultimate beneficial owner(s) of the limited partner(s), the controlling shareholder(s) of the listing applicant, and the listing applicant; and (Added in March 2021)
         
        (g)    the connected client shall confirm3 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 Distributor, other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13 (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 authorised to make the investment decisions for the independent third parties. Discretionary asset managers usually charge performance-based management fees which may incentivise them to use their relationship with the connected 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 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 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 sponsor shall confirm3 to the Exchange in writing that the securities placed to the connected client are held on behalf of independent third parties, and that based on (i) its discussions with the listing applicant, the connected Distributor and the bookrunners; and (ii) the confirmations provided to the Exchange by the listing applicant, connected Distributor, the bookrunners and the connected client (confirmations (c) and (f) mentioned below), 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 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 allocation4 will be disclosed in the listing document and/ or the allotment results announcement, as the case may be; (Updated in March 2021)
         
        (b)    the listing applicant shall confirm3 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 listing applicant, connected Distributor and, to the best of the bookrunners’ knowledge and belief, the bookrunners shall confirm3 to the Exchange in writing that:
         
        (i)    the connected Distributor has not participated, and will not participate, in the decision-making process or relevant discussions among the listing applicant, the bookrunners and the underwriters as to whether the connected client will be selected as a cornerstone investor or a placee7;
         
        and
         
        (ii)    in the case of participation as a cornerstone investor, no preferential treatment has been, nor will be, given to the connected client other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13; or (Updated in March 2021)
         
        (iii)    in the case of participation as a placee, no preferential treatment has been, nor will be, given to the connected client in any allocation in the placing tranche; (Updated in March 2021)
         
        (d)    the sponsor shall provide the identities of the connected clients and the relationships between the Distributor and each of the connected clients (e.g. whether they are members of the same group of companies and/or are collective investment schemes managed by members of the same group of companies5); (Added in March 2021)
         
        (e)    where the connected client is a collective investment scheme which is not authorised by the Securities and Futures Commission or is expected to hold the securities on behalf of such a scheme, the sponsor shall provide in the consent application the background and details of the scheme such as (i) the types and values of assets under management; (ii) whether the scheme is publicly marketed; (iii) the scheme establishment date; (iv) identities of the general partners and the 20 largest limited partners6 of the scheme where applicable; (v) the identity of the scheme administrator; and (vi) the relationships amongst the scheme, the ultimate beneficial owner(s) of the limited partner(s), the controlling shareholder(s) of the listing applicant, and the listing applicant; and (Added in March 2021)
         
        (f)    the connected client shall confirm3 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 Distributor, other than the preferential treatment of assured entitlement under a cornerstone investment following the principles set out in HKEX-GL51-13 (together, the “Discretionary Basis Conditions”).
         
        4.12    As compared with the Non-discretionary Basis Conditions, the Discretionary Basis Conditions require the listing applicant, connected Distributor and bookrunners to confirm that the connected Distributor has not participated, and will not participate, in the decision-making process or relevant discussions among the listing 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 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 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 same group of companies as the 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 Distributor. (Updated in March 2021)
         
        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 of 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 may not apply if the securities are under-subscribed at the low end of the IPO price. The sponsor will demonstrate to the Exchange that the price of the securities was determined by a genuine price discovery process when securities are taken up by any connected clients. (Updated in March 2021)
         
        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 a listing applicant depends on the existing shareholder’s interest, including 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 listing applicant8. The greater the existing shareholder’s interest, the greater the risk of the existing shareholder having and using its influence over the listing 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 a 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 the relevant conditions set out in paragraph 4.20 are met. (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 a listing 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 listing 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 a listing applicant’s existing shareholders or their close associates by virtue of their relationship with the listing 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 (Updated in March 2021):
         
        (a)    the sponsor shall confirm that the existing shareholder is interested in less than 5% of a listing applicant’s voting rights before listing on the Exchange;
         
        (b)    the sponsor shall confirm that the existing shareholder is not a core connected person or its close associate;
         
        (c)    the sponsor shall confirm that the existing shareholder does not have the power to appoint directors or any other special rights;
         
        (d)    the sponsor shall confirm that allocation to the existing shareholder or its close associates will not affect the listing 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 listing applicant and the bookrunners; and (ii) the confirmations provided to the Exchange by the listing 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 listing 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 allocation4 will be disclosed in the listing document and/ or the allotment results announcement, as the case may be;
         
        (f)    the listing applicant shall confirm3 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 listing 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; 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 listing applicant in any allocation in the placing tranche; and
         
        (g)    in the case of participation as a placee, the bookrunners shall confirm3, 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 listing applicant in any allocation in the placing tranche (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 a listing 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 listing 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 first filing of the listing application to the Exchange. (Updated in March 2021)
         
        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. The sponsor will demonstrate to the Exchange that the price of the securities was determined by a genuine price discovery process when securities are taken up by any existing shareholders. 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). (Updated in March 2021)
         
        4.26    Notwithstanding the condition set out in paragraph 4.20(a) that an existing shareholder is interested in less than 5% of a listing applicant’s voting rights, the Exchange may consider granting Consent for the existing shareholder interested in 5% or more of a listing 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 investor9.
         
        4.27    For the avoidance of doubt, the Existing Shareholder Conditions do not apply to Biotech Companies. Given the likely significant funding needs of Biotech Companies and the importance of existing shareholders in meeting the funding needs of these companies, existing shareholders are allowed to participate in the IPO of a Biotech Company provided that the listing applicant complies with Main Board Rules 8.08(1) and 18A.07 in relation to shares held by the public (see Guidance Letter HKEX-GL92-18). (Updated in April 2020)
         
          Existing Shareholders who are PRC Governmental Bodies
         
        4.28    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 IPO10. The Exchange will look into the relationship between the close associates and the listing applicant, and will assess whether to recommend Consent to them on a case-by-case basis. (Updated in February 2018)
         
        4.29    A summary of the parties and confirmations to be provided to the Exchange is set out below: (Updated in March 2021)

         

        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
          - sponsor

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

        3. No preferential treatment
         
          - listing applicant

          - connected Distributor

         
         
          - bookrunners

          - connected client

         
         
          - sponsor

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

         
         
          - connected Distributor
         
         

         
         
          - bookrunners
         
         

         
         
        5. Identities of the ultimate beneficial owners of the securities or where applicable, details of the structured products under which the subscription by the connected client was made
         
          - sponsor

         
         
         
         
        6. Where the connected client is a collective investment scheme which is not authorised by the Securities and Futures Commission or is holding the securities on behalf of the scheme, the background and details of the scheme.
         
          - sponsor

         
         
        7. Existing shareholder (a) is interested in less than 5% of a listing applicant’s voting rights; (b) is not a core connected person or its close associate; (c) does not have the power to appoint directors or any other special rights; and (d) allocation to the existing shareholder or its close associates will not affect the listing applicant’s ability to satisfy the public float requirement.
         
          - sponsor
         
         
         
         

         

        Other matters
         
        4.30    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 a listing 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 In relation to a connected client who is an individual, an “independent third party” refers to any party other than (i) the connected client itself; and (ii) a close associate of the connected client. In relation to a connected client which is a company or partnership, an “independent third party” refers to any party other than (i) the connected client itself; (ii) any fellow subsidiary of the connected client; (iii) parties which can exert significant influence on the connected client (e.g. the third party is a director of the connected client); and (iv) parties on which the connected client can exert significant influence (e.g. the connected client holds 20% or more shareholdings in the third party). (Added in March 2021)

        3 All syndicate members are required to identify to the listing 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 facilitate the process of seeking Consent. Confirmations by the listing applicant, connected Distributor, bookrunners and connected client must be copied to the sponsor. This confirmation does not preclude the 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 listing applicant. Confirmations by the listing applicant, connected Distributor and connected client must be copied to the bookrunners.

        4 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) the basis for cornerstone investor/ placee being regarded as a connected client under the Main Board Placing Guidelines (GEM Rule 10.12(1A)) and the name of the connected Distributor; and (c) lock-up arrangement, where applicable. (Updated in February 2018)

        5 The Exchange normally regards “members of the same group” as including, without limitation, subsidiaries, associates of 20% or more shareholding of the Distributor’s holding companies, and other companies over which the Distributor and/or its subsidiaries, holding companies or fellow subsidiaries could individually or together directly or indirectly exert influence, e.g. by board representation. (Added in March 2021)

        6 For a collective investment scheme with more than 20 limited partners, none of which holds 30% or more interest in the scheme, the identities of the limited partners of the scheme are normally not required to be provided in the consent application. Instead, the connected client is required to confirm that the scheme is widely held with no single limited partner holding 30% or more interest, and confirm that the limited partners are independent of the listing applicant, its controlling shareholders and the connected Distributor. (Added in March 2021)

        7 For the avoidance of doubt, connected Distributors may participate in all other discussions on unconflicted allocations.

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

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

        10 For the avoidance of doubt, even if Consent is granted, where the close associates of the existing shareholder who is a PRC governmental body are core connected persons of the listing applicant, they will not be counted towards the public float under Main Board Rule 8.24 (GEM Rule 11.23). (Added in March 2021)

      • GL81-15

        View Current PDFView 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 PDFView 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 Head of IPO Vetting Team, 12th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong (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 " -to-publish" electronic copy of the CIS Disclosure Document for publication through HKEX-EPS Rule 2.07C(1)(b)(ii)
        16 Submission of a " -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) (Updated in March 2019)

        Subject Gambling Activities of New Applicants and/ or Listed Issuers
        Listing Rules Main Board Rules 2.13(2), 8.04 and 11.07

        GEM Rules 11.06, 14.08(7) and 17.56(2)
        Related Publication HKEX News Release (11/3/2003) ("March 2003 HKEX News Release")
        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 for companies that undertake gambling activities and incorporates relevant information from the March 2003 HKEX News Release. (Updated in March 2019)
        2. Guidance
        2.1 (Deleted in March 2019)
        2.2 It would not be contrary to public interest if a new applicant or listed issuer's operations involve gambling activity that is not unlawful under the Gambling Ordinance (Cap. 148)1 and under the laws of the jurisdictions in which it takes place. (Updated in March 2019)
        2.3 (Deleted in March 2019)
        2.4 (Deleted in March 2019)
        2.5 Additional relevant disclosure would be required in the prospectus, announcement or circular with a view to ensuring transparency of the specific gambling activities and the associated risks. Such disclosure would include:
        •   the type(s) of gambling activities;
        •   the applicable regulatory or licensing requirements, government policies that regulate the gambling activities, and relevant anti-money laundering laws (the "Applicable Laws");
        •   how the Applicable Laws are administered and enforced;
        •   the controls implemented by the new applicant to comply with the Applicable Laws;
        •   confirmations from independent professional parties regarding the new applicant or listed issuer's compliance with all Applicable Laws, and adequacy and effectiveness of its internal control measures implemented with respect to the operations of gambling activities and anti-money laundering; and
        •   specific risks in relation to its gambling operations (including the risk of suspension and cancellation of listing should such gambling operations become illegal). (Updated in March 2019)
        2.6 For listed issuers acquiring or investing in a gambling business, such disclosure would be required in addition to the disclosure requirements under Chapters 14 and/ or 14A or Rule 13.09 (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 disclosure would depend on the materiality of the transaction to the listed issuer. (Updated in March 2019)
        A. New Applicants
        2.6.1 Where a new applicant engages in gambling activities, it must use its best endeavours to ensure that its gambling activities comply with the Applicable Laws and operate in a jurisdiction with an established licensing regime for gambling activities. (Updated in March 2019)
        2.6.2 If a new applicant's operation of gambling activities (i) fails to comply with the applicable laws in the jurisdictions where such activities take place; and/ or (ii) contravenes the Gambling Ordinance (Cap. 148), it will be considered unsuitable for listing under Main Board Rule 8.04 (GEM Rule 11.06). (Updated in March 2019)
        2.6.3 (Deleted in March 2019)
        B. Listed Issuers
        2.6.4 Where a listed issuer invests directly or indirectly in gambling activities, it must use its best endeavours to ensure that, so long as its shares are listed on the Exchange, such gambling activities must comply with the Applicable Laws. (Updated in March 2019)
        2.6.5 Should the operation of such gambling activities (i) fail to comply with the applicable laws in the jurisdictions where such activities take place; and/ or (ii) contravene the Gambling Ordinance (Cap. 148), the listed issuer may be considered unsuitable for listing under Main Board Rule 8.04 (GEM Rule 11.06). Depending on the circumstances of the case, the Exchange may direct the issuer to take remedial action, suspend dealings in, or may cancel the listing of, its securities pursuant to Main Board Rule 6.01 (GEM Rule 9.01). (Updated in March 2019)
        2.6.6 Any announcement and/or circular of the listed issuer on its 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.

        ****


        1 Such gambling activity has the following features: (i) it takes place outside Hong Kong; and (ii) the bookmaking transactions and the parties to the transactions are outside Hong Kong.

      • GL68-13A

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        HKEX GUIDANCE LETTER
        HKEX-GL68-13A (June 2016) (Updated in April 2018 and October 2019)

        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 Rules 14.06B to 14.06E, our Guidance Letters HKEX-GL104-19 on reverse takeovers, and HKEX-GL105-19 on large scale issues of securities. (updated in October 2019)
         
        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-GL68-13 "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

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        HKEX GUIDANCE LETTER
        HKEX-GL68-13 (December 2013) (Updated in June 2015 and March 2019)

        Subject Guidance on suitability for listing for new applicants
        Listing Rules Main Board Rules 2.06, 3.08, 3.09, 8.04 and Chapter 14A

        GEM Rules 2.09, 5.01, 5.02, 11.06 and Chapter 20
        Related Publications

        Listing Decision HKEX-LD43-3 (“LD43-3”)
        Guidance Letter HKEX-GL63-13 - Guidance on disclosure of non-compliance incidents in listing documents ("GL63-13")

        Guidance Letter HKEX-GL73-14- Guidance on pricing policies for continuing connected transactions and their disclosure ("GL73-14") 
        Guidance Letter HKEX-GL96-18 – Guidance on listed issuer’s suitability for continued listing (“GL96-18”)
        Guidance Letter HKEX-GL97-18 – Guidance for new applicants in the internet technology sector or have internet-based business models (“GL97-18”)

        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 non-exhaustive factors that the Exchange would take into consideration when assessing whether (i) non-compliances that involve fraud, deceit or dishonesty (such as tax evasion or bribery) (the “Integrity Non-compliances”); (ii) material non-compliances1 by a new applicant, its director(s) or controlling shareholder(s) (the “Material Non-compliances”); (iii) uncertainties regarding business sustainability; and (iv) the use of contractual arrangements would affect a new applicant’s suitability for listing under Main Board Rule 8.04 (GEM Rule 11.06). (Updated in March 2019)
        1.2 (Deleted in March 2019)
        1.3 (Deleted in March 2019)
        2. Relevant Listing Rules (Deleted in March 2019)2
        3. Guidance
        3.1 As stated under Main Board Rule 2.06 (GEM Rule 2.09), there is no bright line test in determining what would render an issuer and its business unsuitable for listing. Applicants for listing should appreciate that compliance with Listing Rules may not of itself ensure an applicant’s suitability for listing. The following sets out non-exhaustive examples of factors that the Exchange takes into consideration when assessing a new applicant’s suitability for listing pursuant to Main Board Rule 8.04 (GEM Rule 11.06). They should not be construed as being definitive and applicable to all cases as we consider all relevant facts and circumstances in each case. New applicants should also refer to the listing decisions and guidance letters published by the Exchange from time to time which explain how the Exchange assesses the suitability requirement in different cases. (Updated in March 2019)
        3.2 In general, the Exchange expects all professional parties and experts named in the listing document to have performed sufficient due diligence to support their views on the relevant matters in relation to the listing application. Where there are red flags identified during the vetting process (e.g. materially inconsistent disclosure or submissions), the Exchange will apply a higher standard of review and expect the sponsors and experts (as the case may be) to provide a higher level of assurance on the relevant matters to ensure the new applicant’s compliance with the Listing Rules. (Added in March 2019)

        Integrity Non-compliances (Updated in March 2019)
        3.3 Integrity Non-compliances will likely render the new applicant, as well as the culpable director, being not suitable for listing or not suitable to be a director of a listed company, as the case may be. Integrity Non-compliances impugn a culpable director’s character and integrity in contravention of the standards required under Main Board Rules 3.08 and 3.09 (GEM Rules 5.01 and 5.02).
        3.4 If a controlling shareholder is culpable for the Integrity Non-compliances, so long as such controlling shareholder has the ability to exert substantial influence over the new applicant, the new applicant will not be suitable for listing because it would be subject to substantial influence by such controlling shareholder. The assessment of substantial influence will be determined on a case-by-case basis, taking into account non-exhaustive factors such as the controlling shareholder’s (i) economic interest in the new applicant; (ii) relationship with the other shareholders, directors and members of senior management of the new applicant; or (iii) involvement in the operation and management of the new applicant’s business.
        3.5 The Exchange will take into account all relevant facts and circumstances (including the underlying reasons for the Integrity Non-compliances and relevant mitigating factors, their operational and financial impact, the culpable person’s influence on the new applicant’s operations, internal controls and trading record results, and whether any effective internal control measures have been implemented (and for how long) to avoid re-occurrence of similar Integrity Non-compliances) in determining whether such Integrity Non-compliances would render the new applicant unsuitable for listing. Where Integrity Non-compliances are involved, the Exchange expects the culpable director or controlling shareholder to cease being a director or controlling shareholder of the new applicant, as the case may be, before listing. Such culpable director or controlling shareholder should seek guidance from the Exchange before they become the controlling shareholder or accept the nomination to be a director of a listed issuer. Listed issuers should refer to GL96-18 on suitability issues concerning directors or persons with substantial influence.
        3.6 With respect to the operational and financial impact of the Integrity Non-compliances, the Exchange may request the new applicant to demonstrate that it could still meet the relevant eligibility requirements under the Listing Rules after adjusting its trading record results for the impact of the Integrity Non-compliances, and that there would not have been any material adverse impact on its business and financial performance had it complied with the relevant rules or regulations and going forward.

        Material Non-compliances (Updated in March 2019)
        3.7 Material Non-compliances that raise concerns regarding the competency of any director who was involved in the Material Non-compliances or was on the board when such non-compliances occurred, leading to issues of his/ her suitability as a director which cannot be addressed by disclosure may also affect a new applicant’s suitability for listing.
        3.8 With respect to revenue/ profit/ cash flow generated from activities that constitute Material Non-compliances, on a case-by-case basis, the Exchange may request the new applicant to demonstrate that it could still meet the relevant eligibility requirements under the Listing Rules after adjusting its trading record results for the impact of such Material Non-compliances, and that there would not have been any material adverse impact on its business and financial performance had it complied with the relevant rules or regulations and going forward.

        Sustainability of business (Updated in March 2019)
        3.9 There are many factors that affect a new applicant’s sustainability and the Exchange considers the facts and circumstances of each applicant in determining the materiality and the likelihood of the adverse factors. We set out below examples from past cases we have encountered. We emphasize that these examples are non-exhaustive, and may not be applicable to every new applicant.

        Deteriorating financial performance
        3.10 Even if a new applicant meets the relevant eligibility requirements under Main Board Rule 8.05 (GEM Rule 11.12A) at the time of filing, if it recorded deteriorating revenue and profit, and/ or material losses during or after the trading record period, there may be concerns on the sustainability of its business. Factors we consider include:
        (a) how susceptible the new applicant’s financial performance is to changes beyond its control (e.g. any small increases in operating costs, such as raw material costs, which cannot be fully passed on to their customers may result in net losses). This is particularly relevant for new applicants that marginally meet the minimum profit requirement under the Main Board Rules (minimum cash flow requirement under GEM Rules), have no-recurring revenue source and a thin profit margin, or have large cash flow mismatch and have not gone through a full collection cycle;
        (b) the underlying causes of the deteriorating financial performance and whether such downward trend is expected to continue (e.g. change in consumer preferences or sunset industries), or whether it is the cyclical nature of the industry; and
        (c) whether the new applicant had demonstrated that it is able to effectively mitigate its exposure to the relevant risks or to turn around the business (e.g. by diversifying its revenue sources, expanding its customer base, or cutting costs).
        Material reliance on various parties
        3.11 Material reliance on another party (a "Relevant Counterparty")3 may threaten a new applicant’s business sustainability if it is likely that the relationship with such party may materially adversely change or terminate. Examples of material reliance include:
        (a) high customer or supplier concentration, or both (e.g. captive business model);
        (b) dependence on a limited number of distribution channels, such as through an e-commerce site or social media platform, to market its products (see paragraph 3.13 below for exceptions); or
        (c) dependence on another party, such as the controlling shareholder and its close associates (the "Controlling Shareholder Group") for critical functions, such as sales/ distribution/ procurement.
        3.12 If a new applicant materially depends on a Relevant Counterparty, we will assess the likelihood that the relationship with the Relevant Counterparty will materially adversely change/ terminate. Some non-exhaustive factors that we consider are:
        (a) whether the Relevant Counterparty is mutually dependent on the new applicant. For example, if the new applicant is (i) the sole supplier of the Relevant Counterparty for a highly bespoke product; or (ii) the sole/ major customer of the Relevant Counterparty, the risk is lower that the Relevant Counterparty will terminate the relationship; or
        (b) whether the new applicant has an established relationship/ long-term agreement with the Relevant Counterparty.
        3.13 Some Relevant Counterparties dominate the industries in which they operate due to regulatory restrictions, high entry barriers or other factors. As applicants that operates in such industries are unlikely to diversify or reduce its reliance on the Relevant Counterparties (i.e. such reliance is an industry norm), the Exchange will examine whether there are any red flags indicating its relationships with the Relevant Counterparties are likely to be terminated or otherwise materially adversely change, as stated above. New applicants in the internet technology sector or that have internet-based business models should also refer to GL97-18 for further assessment on the nature of reliance on the Relevant Counterparties and other matters for companies in this sector.
        3.14 A new applicant may be able to demonstrate that despite its material reliance on a Relevant Counterparty, any change in the relationship will not have a material adverse impact on its business because it is/ will be able to effectively mitigate its exposure (e.g. decrease in sales, increase in raw material costs and/ or production time, cost of business disruption). For example, if the Relevant Counterparty is a supplier for raw materials that are readily available or for which there are reasonable substitutes, the new applicant may easily procure such raw materials from a different supplier at a similar price or substitute with another product.
        3.15 A new applicant’s material reliance on a Relevant Counterparty is a matter of disclosure if, absent red flags to indicate otherwise, (i) the relationship with the Relevant Counterparty is unlikely to materially adversely change or terminate; or (ii) new applicat is/ will be able to effectively mitigate its exposure to any material adverse changes to or termination of its relationship with the Relevant Counterparty. The disclosure in the listing document should, as relevant, include:
        (a) the background of the Relevant Counterparty;
        (b) the business relationship, the nature of reliance and details of the arrangements between the new applicant and the Relevant Counterparty;
        (c) basis that the likelihood that the relationship with the Relevant Counterparty will materially adversely change/ terminate is low; or
        (d) basis that the new applicant is/ will be able to effectively mitigate its exposure to any material adverse changes to or termination of the relationship with the Relevant Counterparty.
        Financial assistance from its Controlling Shareholder Group
        3.16 A new applicant may receive material financial assistance (e.g. loans, guarantees or other forms of collateral or security) from the Controlling Shareholder Group ("Financial Support")4 . Given the practical difficulty in assessing to what extent the Controlling Shareholder Group’s incentive to provide Financial Support will be reduced after listing, the Exchange will presume such Financial Support will be withdrawn (absent evidence to the contrary) in assessing the sustainability of the new applicant.
        3.17 To demonstrate that its business is sustainable without Financial Support, some new applicants in the past have chosen to settle all loans or release all guarantees from the Controlling Shareholder Group at listing. To be clear, settlement of Financial Support is not required. The Exchange has also taken into account the following non-exhaustive factors to assess whether the new applicant’s business will be sustainable without Financial Support:
        (a) whether the new applicant is able to obtain independent financing (e.g. without Financial Support) on comparable terms; or
        (b) whether the new applicant has sufficient liquid assets on hand to meet its financial needs.
        Material changes that may adversely affect the company’s prospect
        3.18 Concerns on a new applicant’s sustainability of business will also arise if it faces changes which imminently threatens its operations, such as:
        (a) changes in regulatory requirements which may result in the new applicant being unable to continue to operate its business in its current form or at its current profitability level; or
        (b) development of new technology which renders its business obsolete.
        3.19 To address these concerns, the Exchange expects the new applicant to affirmatively demonstrate that such changes are unlikely to materialize or will not affect the sustainability of the new applicant’s business.

        Substantial reliance by property companies on fair value gains on investment properties
        3.20 Fair value gains may be included in profit calculations of a property company for the purposes of satisfying the minimum profit requirement under the Listing Rule 8.05(1)(a) (the "Profit Test"). However, if a substantial portion of a new applicant’s profit is derived from fair value gains arising from its investment properties, there are concerns on the practical sustainability of such new applicant. For example, in a market downturn, its properties may record fair value losses which may result in the new applicant becoming loss making. As such, the Exchange considers the business of a new applicant in the property business unsustainable and not suitable for listing if it:
        (a) cannot satisfy the Profit Test after excluding unrealised gains of its investment properties; and
        (b) did not have any substantial business during its trading record period (e.g. sales of properties or recurring rental income).
        3.21 In all cases that give rise to sustainability concerns, the Exchange will closely scrutinise the new applicant’s profit and cash flow forecasts, applicable sensitivity or breakeven analysis, and any inconsistent growth with the industry and/ or peers. We also expect the sponsors to provide details of their due diligence work that satisfy themselves on the reasonableness of the underlying assumptions.

        Contractual arrangements (Updated in March 2019)
        3.22 A new applicant is only permitted to use contractual arrangements due to foreign ownership restrictions and if the related risks of contractual arrangements are sufficiently mitigated. Otherwise, it may not be suitable for listing. New applicants should refer to LD43-3 for relevant guidance.

        ****


        1 As defined in GL63-13, these refer to the non-compliance incidents which, individually or in aggregate, have had or are reasonably likely to have in the future, a material financial or operational impact on the new applicant.
        2 This section has been deleted to avoid duplication of the relevant Main Board and GEM Rules. Reference to the relevant Listing Rules is included in the body of the guidance letter.
        3 If the Relevant Counterparty is a connected personas defined under the Listing Rules, new applicants must comply with the relevant requirements on continuing connected transactions in Chapter 14A of Main Board Rules (Chapter 20 of GEM Rules) and should also refer to GL73-14 for relevant guidance.
        4 We have come across situations where Financial Support was provided by a director of the new applicant (who is not a controlling shareholder) or an independent third party such as a customer or supplier. However, such situations are not common and therefore, not meaningful as guidance.

      • GL63-13

        View Current PDFView Current PDF

        HKEX GUIDANCE LETTER
        HKEX-GL63-13 (July 2013) (Updated in September 2013, May 2014, May 2016 and March 2019)

        Subject Guidance on disclosure of non-compliance incidents in listing documents
        Listing Rules 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 Guidance Letter HKEX-GL68-13 – Guidance on suitability for listing for new applicants (“GL68-13”)

        Guidance Letter HKEX-GL86-16 – Guide on Producing Simplified Listing Documents Relating to Equity Securities for New Applications (“GL86-16”)
        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 categorisation and disclosure of non-compliance incidents in listing documents. (Updated in March 2019)
        1.2 The Exchange expects new applicants to follow this letter when preparing their listing documents. 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, among other things, potential investors are given sufficient information to enable them to make a properly informed assessment of an issuer.
        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 issuer 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, among other things, 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 issuer 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 addresses three types of non-compliance incidents:
        (a) Material Non-compliances: Non-compliance incidents which, individually or in aggregate, have had or are reasonably likely to have in the future, a material financial or operational impact on the new 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 Non-compliances, but their recurring nature may reflect negatively on the new applicant’s or its directors’/ senior management’s ability or tendency to operate in a compliant manner.
        (c) Immaterial Non-compliances: Non-compliance incidents which are neither Material Non-compliances nor Systemic Non-compliances. (Updated in March 2019)
        3.2 New applicants should refer to GL68-13 for relevant guidance regarding (i) a Material Non-compliance that raises concern regarding a director’s competency leading to issues of his/ her suitability as a director which cannot be addressed by disclosure; and (ii) certain non-compliances that may affect a new applicant’s suitability for listing under Main Board Rule 8.04 (GEM Rule 11.06). (Updated in March 2019)
        Disclosure and rectification
        3.3 New applicant should refer to paragraphs 3.4 to 3.10 below regarding the disclosure and rectification of each type of non-compliance incidents. (Updated in March 2019)

        Material Non-compliances
        3.4 The Exchange expects the new applicant to have implemented enhanced internal control measures to prevent the recurrence of Material Non-compliances, and the following to be disclosed in the listing document:
        (a) reasons for, nature and extent of the non-compliance incidents, corresponding risk factors, and the identity and position of the director(s)/ senior management involved in the non-compliance incidents (if any);
        (b) whether the new applicant has been penalised for the non-compliance incidents during the trading record period and up to the latest practicable date or is likely to be penalised in the future, with confirmation from the competent authorities (and a legal opinion confirming the competence of the relevant authorities). If applicable, disclose the actual or maximum penalty (including the amounts), any provisions made (if not, reasons therefor), and the potential operational and financial impact on the new applicant (if material);
        (c) details of the enhanced internal control measures implemented to prevent their recurrence, including when they were implemented and the identity, position, qualification and experience of the personnel who are responsible for ensuring compliance, the directors’ and the sponsor(s)’ view on the adequacy and effectiveness of the enhanced internal control measures and basis thereof. If an independent internal control expert has been separately engaged to review the internal controls1, disclose the identity and the scope of review of the internal control expert, its major findings and recommendations, and the new applicant’s timing of implementation of such recommendations (and the internal control expert’s follow-up review, if any);
        (d) the Exchange normally expects the Material Non-compliances to be fully rectified before listing unless the rectification is not applicable or possible. Where applicable, the new applicant should disclose (1) detailed explanations on why rectification is not applicable or possible; (2) where the new applicant is able to demonstrate that Material Non-compliance incidents can only be rectified shortly after listing, a legal adviser’s confirmation that there is no impediment to the rectification of the Material Non-compliances and a statement that the new applicant will disclose the progress of the rectification in the interim/ annual reports and detailed explanation for any delay in the rectification; or (3) what and when the rectification actions were taken/ will be taken;
        (e) why the directors and the sponsor(s) believe the directors are suitable to act as the new applicant’s director under Main Board Rules 3.08 and 3.09 (GEM Rules 5.01 and 5.02), and why the new applicant’s is suitable for listing under Main Board Rule 8.04 (GEM Rule 11.06); and
        (f) a brief summary of the non-compliance incidents in the “Summary and Highlights” section of the new applicant’s listing document with appropriate cross reference. (Updated in March 2019)
        3.5 (Deleted in March 2019)
        3.6 (Deleted in March 2019)
        3.7 Material Non-compliances that involve bill financing from banks2 and interest rate/ loan arbitrage3 that are not criminal in nature may be addressable by disclosure. The new applicant will be required to:
        (a) cease all non-compliant bill financing and for a period of at least 12 months demonstrate that its business is sustainable when it is in compliance; and
        (b) disclose in its listing document (i) the information required in paragraph 3.4 above; (ii) the amount of gains from the non-compliant bill financing; (iii) an unqualified audited financial results covering at least one complete 12-month period after the cessation of the non-compliant bill financing; and (iv) the independent internal control expert’s review and conclusions at the end of a 12-month audited period on the new applicant’s enhanced internal control measures indicating that there are no major negative findings on the new applicant’s internal control system during such 12-month audited period.
        (Updated in March 2019)

        Systemic Non-compliances
        3.8 The Exchange expects the new applicant to disclose information set out in paragraph 3.4 above, except that no rectification (i.e. paragraph 3.4(d)) is required. (Updated in March 2019)
        3.9 (Deleted in March 2019)

        Immaterial Non-compliances
        3.10 The Exchange does not require the disclosure or rectification of Immaterial Non-compliances. (Updated in March 2019)
        3.10A To be clear, the decision to rectify any Systemic or Immaterial Non-compliance rests with the new applicant’s directors and its sponsor(s). (Added in March 2019)
        Guidance on suitability and disclosure requirements
        3.11 In addition to the guidance on general disclosure of non-compliance incidents in this Guidance Letter and GL86-16, please also refer to GL68-13 for further guidance on suitability. (Updated in March 2019)

        ****


        1 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 new 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 new 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.

        If the interest rate for trade financing is lower than the market interest for commercial loans, a borrower may obtain trade financing even if it is not supported by actual underlying transactions.

        3 For example, if the interest rate in Hong Kong is lower than that in the PRC, a borrower with an RMB deposit in a PRC bank may obtain an RMB-denominated letter of credit guaranteed by its deposit, and then use such letter of credit to pay its subsidiary in Hong Kong for fictitious purchases. The Hong Kong subsidiary then obtains this letter of credit and uses it as collateral to obtain a foreign currency loan from a Hong Kong bank.

      • GL61-13

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        HKEx GUIDANCE LETTER
        HKEx-GL61-13 (July 2013) (Updated in September 2014 and September 2020) — effective for applications submitted on or after 1 October 2013

        Subject Guidance on accelerated procedures for reviewing a Listing Division's and/ or 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 Vetting 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 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 Division'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 Division
        After receipt of the listing application (Updated in September 2014)
        -   The Listing Division 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 Division 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 members of the Main Board or GEM Listing Committee (the "Listing Committee") or the Thursday thereafter that is not a public holiday
         
        At least two business days before the First Review Hearing
        -   The Listing Division submits a report to the Secretary to LC
        -   The Listing Division'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 Division's report and agenda to 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 Division (IPO Vetting Department); 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 Division (the "LC Decision")
        -   The 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 Division 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 members of the Main Board or GEM Listing Review Committee ("Listing Review Committee")) 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 Division submits a report to the Secretary to LRC
        -   The Listing Division'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 Division's report and agenda to the 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 Division (IPO Vetting Department); 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 Division 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 Division 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 2020)

         


        1 The Accelerated Review Procedures do not apply to a Listing Division'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

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        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

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        HKEX GUIDANCE LETTER
        HKEX-GL58-13 (July 2013) (Updated in September and October 2014 and February 2019)

        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 Publication 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

        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-GL56-13, 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:

        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"1 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

        1 Auditing Guideline 3.340 was superseded by Hong Kong Standard on Investment Circular Reporting Engagements 200 "Accountants' Reports on Historical Financial Information in Investment Circulars" (HKSIR 200), which became effective for engagements where the investment circular is dated on or after 1 July 2017. (Added in February 2019)

      • GL57-13

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        HKEX GUIDANCE LETTER
        HKEX-GL57-13 (July 2013) (Updated in February, March, June and September 2014, November 2016, February 2018, and March, July 2019 and November 2020)

        Subject    Guidance on the logistical arrangements for the submission and publication of Application Proofs, Post Hearing Information Packs (“PHIPs”) and related materials on the Exchange’s website
        Listing Rules    Main Board Rules 9.08(2)(a) to 9.08(2)(c), 12.01A, 12.01B, 20.25, 20.26 and Practice Note 22 ("PN22")

        GEM Rules 12.10(2)(a) to 12.10(2)(c), 16.01A, 16.01B and Practice Note 5 ("PN5")
        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 (“GL56-13”)
        Author     IPO Vetting 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.

        Purpose (Updated in March 2019)
         
        1.    This letter provides guidance on the logistical arrangements for the submission and publication of Application Proofs, PHIPs and the statements stating that no reliance should be placed on any media reports about the new applicant subsequent to the publication of its Application Proof or PHIP (as the case may be) under Main Board Rule 9.08(2)(c) (GEM Rule 12.10(2)(c)) (the “Statements”) for Main Board and GEM applications on the Exchange’s website. New applicants1 and their sponsors2 must follow these arrangements and such others as may from time to time be prescribed by the Exchange.
         
        Relevant Listing Rules (Updated in March 2019)
         
        2.    Main Board Rules 9.08(2)(a) to 9.08(2)(c) (GEM Rules 12.10(2)(a) to 12.10(2)(c)) provide, among other things, that: (a) an Application Proof, (b) a PHIP, and (c) any Statement published on the Exchange's website need not be submitted to the Exchange for prior review.
         
        3.    Main Board Rules 12.01A and 12.01B (GEM Rules 16.01A and 16.01B) require that a new applicant3 must publish its Application Proof and PHIP on the Exchange's website in accordance with Main Board Rule 2.07C (GEM Rule 16.17) and PN22 to the Main Board Rules (PN5 to the GEM Rules).
         
        4.    Main Board Rules 20.25 and 20.26 require a CIS applicant with a listing agent appointed to discharge the functions of a sponsor must publish its Application Proof and PHIP on the Exchange's website in accordance with Main Board Rule 2.07C and PN22 to the Main Board Rules.
         
        5.    PN22 to the Main Board Rules (PN5 to the GEM Rules) provides detailed submission and publication requirements for Application Proofs and PHIPs, including language requirements, content requirements, prescribed timing for submission and publication, and the relevant legal confirmations.
         
        General (Updated in March 2019)
         
        6.    For the purposes of publication on the Exchange’s website, an Application Proof (“AP-Publication”) and a PHIP must, among other things, be accompanied by appropriate disclaimer and warning statements and not contain any information regarding the proposed offering or other information that would result in the AP-Publication or the PHIP being deemed as (i) a prospectus under section 2(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance as amended from time to time (Cap. 32) (the “CWUMPO”); (ii) an advertisement under section 38B(1) of the CWUMPO; or (iii) an invitation to the public in breach of section 103(1) of the Securities and Futures Ordinance (Cap. 571) as amended from time to time (the “SFO”) (CWUMPO and SFO collectively, the “Relevant Laws”).
         
        7.    The Securities and Futures Commission (the “SFC”) is of the view that so long as an AP-Publication or a PHIP published on the Exchange’s website adheres to the guidance set out in paragraphs 8 and 9 below, it will not constitute a prospectus, an advertisement or an invitation to the public under the Relevant Laws (collectively, the “Offering Materials”).
         
        Warning and Disclaimer Statements
         
        8.    Appendices I and II set forth examples of the minimum content requirements for the warning and disclaimer statements. They are for reference only and are not intended to be prescriptive. New applicants can adopt statements that contain elements additional to but not detracting from those set out in Appendices I and II.
         
        Redactions in AP-Publication and PHIP to be published on the Exchange’s Website (Updated in March 2019)
         
        9.    Please refer to GL56-13 for guidance on what information must be redacted in the AP-Publication and PHIP. The new applicant's legal adviser must provide a confirmation to the Exchange in relation to the redactions of these documents following the wording set out in paragraph 7 of PN22 to the Main Board Rules (paragraph 6 of PN5 to the GEM Rules). Inadequate redaction of information in the AP-Publication and PHIP may render the AP-Publication and PHIP constituting Offering Materials, and the publication of such AP-Publication or PHIP is likely to condition the market ahead of the publication of a properly authorised prospectus and affect market perceptions of an upcoming offer. We will take strict measures against such publication to "cool off" any undesirable impact on the market, including immediate removal of the AP-Publication or PHIP from the Exchange's website and/ or suspension of the vetting of the listing application for up to a month from the date of such withdrawal.
         
        Exemptions from Publication of AP-Publication (Updated in March 2019)
         
        10.    Paragraph 18 of PN22 to the Main Board Rules (paragraph 17 of PN5 to GEM Rules) permits a new applicant to submit confidential filing (i.e. no publication of an AP-Publication on the Exchange's website is required). For the purposes of the relevant practice notes, "significantly large market capitalisation" shall mean a market capitalisation of not less than US$400 million at the time of listing application, and a "recognised overseas exchange" shall mean the main market on any one of the exchanges as set out in section 5 of the Joint Policy Statement Regarding the Listing of Overseas Companies4 (which may be subject to change as the Exchange considers appropriate).
         
        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; if the Application Proof contains price sensitive information (“Price Sensitivity Concern”) on the applicant, its related listed parties and/or its financial instruments/derivatives listed on a recognised overseas exchange, or in addition to the Price Sensitivity Concern, the applicant is also making a parallel confidential filing to a recognised overseas exchange and would like to maintain information parity between the two markets as long as there is no requirement by the recognised overseas exchange to disclose material information and confidentiality can be maintained).
         
        12.    In the case of a spin-off from an overseas listed parent, the Exchange or the SFC (as the case may be) will only consider a waiver from the publication requirements for AP-Publication on a case-by-case basis, taking into account whether a new applicant can generally satisfy (i), (ii) or (iii) below:
         
        (i)    the new applicant’s application for listing in Hong Kong constitutes price-sensitive information to its overseas listed parent under the applicable rules of its primary listing venue; the overseas listed parent is not required under the applicable rules of its primary listing venue to disclose the new applicant’s listing in Hong Kong (e.g. safe harbour provisions are available under the rules of its primary listing venue); and the overseas listed parent keeps and undertakes to keep the new applicant’s application for listing in Hong Kong confidential before the issue of the PHIP;
         
        (ii)    the AP-Publication contains price-sensitive information to the overseas listed parent under the applicable rules of its primary listing venue; 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 AP-Publication; and the extent of the proposed redactions will make the content of the AP-Publication meaningless; or
         
        (iii)    the overseas listed parent’s jurisdiction or the relevant stock exchange on which it is listed has requirements or regulations that prohibit the overseas listed parent or the new applicant from publishing a draft listing document relating to the spin-off.
         
        13.    In the case of a spin-off from a parent listed on the Exchange, the Exchange and/ or the SFC (as the case may be) will only consider a waiver from the publication requirements for an AP-Publication on a case-by-case basis in light of the relevant application of the inside information requirements under Part XIVA of the SFO.
         
        The Statements (Updated in March 2019)
         
        14.    A new applicant at its own discretion may publish the Statements on the Exchange’s website stating that no reliance should be placed on any media reports about the new applicant subsequent to the publication of its Application Proof/ PHIP5. The Exchange does not review the Statements, but new applicants must submit a copy to the Exchange for its record prior to publication. New applicants must ensure that each Statement does not include information that (i) would result in the Statement being deemed to be Offering Materials; (ii) discusses its proposed issue of securities; or (iii) promotes its securities to be issued or its listing. A recommended template for the Statements is set out in Appendix III.
         
        Publication of AP-Publications, PHIPs and the Statements (Updated in November 2020)
         
        15.    The AP-Publications, PHIPs, and the Statements must be submitted through HKEX-ESS6 and will be published on a designated webpage of the Exchange’s website (“Designated Webpage”). New applicants must upload the AP-Publication through the HKEX-ESS on the same day when the listing application7 is submitted to the Exchange. A new applicant’s directors should form their own views to conclude that the material comments raised by the Exchange have been addressed before a PHIP is published.
         
        16.    A new applicant’s sponsor must arrange on behalf of the new applicant for the publication of these documents. A sponsor must:
         
        (i)    register with the Exchange’s Primary Market Information Team as a HKEX-ESS user at least three business days before any submission. We will assign a user account to each applying sponsor. If a sponsor is al a HKEX-ESS user, no re-registration is required and the previously allocated user account can be used for submission of AP-Publications, PHIPs and the Statements through the HKEX-ESS; and
         
        (ii)    obtain a company case number from the Listing Division – IPO Vetting Department for the new applicant by filing a request form as set out in Appendix IV at least three business days before the filing of the listing or authorisation application. This case number is specific to a new applicant and it must be used for submissions of all materials under the same application.
         
        17.    Every AP-Publication, PHIP and Statement must be:
         
        (i)    prepared in both English and Chinese;
         
        (ii)    in a -to-publish electronic version (see paragraph 23 below for guidance on file size); and
         
        (iii)    accompanied by a written confirmation from each sponsor to the Listing Division – IPO Vetting Department that the submission of the AP-Publication, PHIP or Statement is under the new applicant’s authority (see Form M115 (for Main Board applicants) or Form G115 (for GEM applicants)).
         
        18.    AP-Publications, PHIPs and the Statements will be published on the Designated Webpage in a straight-through manner once submitted through HKEX-ESS. The HKEX-ESS operations hours is from 6:00 a.m. to 11:00 p.m. on business days, and 6:00 p.m. to 8:00 p.m. on a non-business day that is immediately before a business day8. However, if AP-Publications or PHIPs are submitted through CD ROMs (see paragraph 23 below), the publication time on the Designated Webpage will be subject to the time of submission9.
         
        19.    Priority is usually given to PHIPs as it is not anticipated that AP-Publications and Statements will have the same time pressure for publication. If a PHIP is intended to be submitted on a day where no HKEX-ESS service is available, the new applicant and its sponsor should consult the Exchange in advance (in any case no later than 2:00 p.m. on the business day immediately before the day of submission) on whether any special arrangement can be made.
         
        File Specifications (Updated in July 2019)
         
        20.    Every file comprising an AP-Publication, PHIP or the Statement submitted for publication must adhere to the file specifications set out in the e-Submission System User Manual for Publication Related Matters (“User Manual”).
         
        21.    A warning statement as set out in Appendix I in English and Chinese contained in separate files must be submitted together with the AP-Publication. A new applicant is not required to submit any warning statement subsequently for the PHIPs and Statements of the same application, although it is allowed to revise the warning statement from time to time as it considers appropriate.
         
        22.    Every AP-Publication and a PHIP submitted through HKEX-ESS (or on CD ROM for large files, see paragraph 23 below) must contain the following:
         
        (i)    a single file containing an AP-Publication or a PHIP with bookmarks to enable readers to navigate easily between chapters of the document; and
         
        (ii)    a multi-file of the same AP-Publication or PHIP divided into different chapters as in the recommended contents layout in Appendix V.
         
        23.    Each AP-Publication, PHIP and Statement submitted through HKEX-ESS must NOT be larger than 40MB and must not be in a compressed format (e.g. a “zip” file). If any file exceeds 40 MB, the new applicant must submit the file on a CD ROM (together with the Form M115 (for Main Board applicants) or Form G115 (for GEM applicants)). The new applicant must send the CD ROM to the collection box located at the following address during the operational hours of HKEX-ESS (see paragraph 18) as soon as other files (e.g. warning statements) where applicable are submitted through HKEX-ESS:

        Primary Market Information Team,
        Listing Division,
        Hong Kong Exchanges and Clearing Limited,
        11th Floor, Two Exchange Square
        8 Connaught Place,
        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.
         
        24.    User Manual includes the procedures on the submission of AP-Publications, PHIPs and Statements, and can be accessed through the link at http://www2.hkexnews.hk/Listed-Company-Publications/Enhanced-ESS?sc_lang=en. Please refer to the following headings of the User Manual for the file specifications:
         
        (i)    “File Name Convention and Recommended File Size” section of Appendix G; and
         
        (ii)    “Excel Spreadsheet” section of Appendix G (applicable to multi-file submission through CD ROM only).
         
        Further, relevant training materials which cover major HKEX-ESS user functions, are also provided.
         
        AP-Publications, PHIPs and the Statements on the Designated Webpage (Updated in March 2019)
         
        25.    AP-Publications, PHIPs and Statements are displayed at: http://www.hkexnews.hk/app/sehkappmainindex.htm (for Main Board applicants) or http://www.hkgem.com/newlistings/e_app.htm (for GEM applicants). The Exchange will publish status marks and information on the Designated Webpage to indicate the status of each listing application in accordance with paragraph 21 of PN22 to the Main Board Rules and paragraph 20 of PN5 to the GEM Rules.
         
        26.    AP-Publications, PHIPs and the Statements can be searched by headline categories10, year or consolidated excel index at the Designated Webpage.
         
        27.    If a listing application is subsequently returned by the Exchange under Main Board Rule 9.03(3) (GEM Rule 12.09(2)), the AP-Publication will remain on the Designated Webpage until completion of all the review procedures for the return decision, or the time for invoking such review has lapsed. All information relating to the new applicant originally under the "Active" status mark on the Designated Webpage will be removed, and the Exchange's website will only publish the name of the new applicant and its sponsor and the date of the return.

        ****

        Appendix I

        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 new 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 new 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.

        Appendix II

        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 new 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
         

        Appendix III

        Recommended Template for the 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 new applicant must ensure that the statement does not (i) include information that will constitute a prospectus under section 2(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance as amended from time to time (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 as amended from time to time (Cap. 571), (ii) discusses the new applicant's proposed issue of securities; or (iii) promotes its securities to be issued or its listing. (Updated in March 2014)

        * delete as appropriate

        Appendix IV

        CN001

        COMPANY CASE NUMBER REQUEST FORM

        Date of Request DD MM YYYY
        I.  Subject Matter*
          For initial listing application
          For renewal of application
            Filling date of the latest application: DD MM YYYY
        II.  New Listing Applicant information*
          Name of applicant (in English): Input the English name of the applicant
          Name of applicant (in Chinese)1: Input the Chinese name of the applicant
          Board of listing: Choose an item
          Expected submission date of listing application: DD MM YYYY
          Case no. of sponsor engagement2: e.g. 2020XXXX-I13000-XXXX
        III.  Sponsor information*
          Name of sponsor(s): Input the name of Sponsor
          Project email(s)3: Input the email address
          Contact person and telephone4: Input the name and phone number of the contact person
        IV.  Other Sponsor information (where applicable)5
          Name of sponsor(s): Input the name of Sponsor
          Project email(s)3: Input the email address
          Contact person and telephone4: Input the name and phone number of the contact person
        Notes:
        *    All fields under this section are mandatory.
          1.    Input N/A if the applicant does not have a Chinese name.
          2. Upon the receipt of Sponsor Engagement Notification e-Form, the Exchange will assign a case number for the sponsor engagement which is quoted in the subject of the Mixed Media Offer (the “MMO”) letter. The sponsor still needs to submit this form to obtain a company case number for the submission of the listing application and the Application Proof.
          3. Input the project emails in this field.
          4. This is use for communication with IPO Administrative Team on case number and document submission matters only.
          5. Input the information for ALL sponsors in this section. Please add rows if more than two sponsors are engaged.

        Appendix V

        Recommended Content Layout of an Application Proof and a PHIP

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

        Sections/ Chapters
        Warning statement (see Appendix II 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 in the global offering
        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 new 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 For the purpose of this guidance letter, this includes a Collective Investment Scheme ("CIS") applicant which is required to publish an Application Proof and a PHIP under Main Board Rules 20.25 and 20.26.

        2 For the purpose of this guidance letter, this 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.

        3 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).

        4 https://www.hkex.com.hk/-/media/HKEX-Market/Listing/Rules-and-Guidance/Other-Resources/Listing-of-Overseas-Companies/A-List-of-Acceptable-Overseas-Jurisdictions/jps_20180430.pdf?la=en

        5 For example, if there are complaints/ allegations in media reports made against a new applicant after its Application Proof/ PHIP is published on the Exchange's website.

        6 e-Submission System ("HKEX-ESS") is the Exchange's system to enable registered users to submit documents electronically to the Exchange.
        https://www1.esubmission.hkex.com.hk (Updated in July 2019)

        7 Refers to the date on which the signed listing application form and all other documents required by the Listing Rules and in the prescribed format as set out in Guidance Letter GL55-13 are submitted to the Exchange. (Added in November 2020)

        8 Saturdays are usually closed for maintenance.

        9 Usually, if a submission is made on a business day and (a) before 6:00 p.m., it can be published before 11:00 p.m. on the same day; (b) after 6:00 p.m. and the following day is a business day, it can be published before noon on the following day; or (c) after 6:00 p.m. and the following day is not a business day, it can be published between 6:00 p.m. and 8:00 p.m. on the next non-business day (except for Saturdays). If a submission is made on a non-business day between 6:00 p.m. and 8:00 p.m. (except for Saturdays), it can be published before midnight on the same day. The publication time for AP-Publication could be different subject to processing time.

        10 Please refer to Appendix 24 of the Main Board Rules (Appendix 17 of the GEM Rules).

      • GL56-13

        View Current PDFView 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, July 2018 and October 2020)

        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 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 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    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)
         
        2.7    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 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 Division'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/node/4422)

        http://en-rules.hkex.com.hk/node/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 Division 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. The TRP will be determined by the listing timetable stated in the listing application1. This is subject to the following information 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    (Moved to paragraph 3.9 in October 2020)
         
        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")3, 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), unless the applicant's TRP (as defined in paragraph 3.9) covers the Acquisition, in which case the requirements under Main Board Rule 4.05A (GEM Rule 7.04A) will apply to the Acquisition instead. 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 redacted4. (Updated in July 2018 and October 2020)

        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 brackets5 Information permitted to be omitted6 Information must be redacted4
        Warning
        •   Disclaimer and warning statements to advise readers of the legal status of an AP-Publication (Appendix II 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
        7
        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 shares8
        •   offer price8
        •   stock code
        •   identities of lead managers/ coordinators/ book runners/ underwriting syndicate
        •   number of offer shares8
        •   offer price8
        •   stock code
        •   identities of lead managers/ coordinators/ book runners/ underwriting syndicate
        •   number of offer shares8
        •   offer price8
        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 (Guidance Letter HKEX-GL35-12)
             
        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 Division 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-LD60-1), guidance letters (e.g. Guidance Letters HKEX-GL9-09, HKEX-GL11-09, HKEX-GL25-11, HKEX-GL42-12); and any guidance by the Listing Division 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
        •   licenses 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 disclosure on financial information and prospects of new applicants
        •   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 (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. Guidance Letter HKEX-GL68-13)
             
        •   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) (Guidance Letter HKEX-GL100-19)
             
        •   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 ha