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Streamlining on circular and listing document requirements. Joseph Choi Senior Manager Compliance and Monitoring Department Listing Division, HKEx. Background. Purposes - Make document contents relevant for shareholders - Eliminate unnecessary restrictions or compliance burdens
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Streamlining on circular and listing document requirements Joseph Choi Senior Manager Compliance and Monitoring Department Listing Division, HKEx
Background Purposes - Make document contents relevant for shareholders - Eliminate unnecessary restrictions or compliance burdens - Facilitate timely despatch of circulars
Issues • Financial disclosure • Accountants’ report requirements for VSD • Reporting period of accountants’ report in acquisition circulars • Statement of sufficiency of working capital • Reproduction of published financial information • Enlarged group’s combined financial information
Issues • Non-financial disclosure • Directors’ responsibility statement • Board minutes for connected transactions • Circular content requirements for transaction involving acquisition and disposal • Disclosure for Overseas / PRC issuers
Issues • Despatch of circular • Transaction / supplementary circulars
Accountants’ report requirements for VSD • Old rule On disposal of company or business (Disposal Target), circular must contain • accountants’ report on issuer group, with note on Disposal Target as “discontinuing operation”
New rule Accountants’ report requirements for VSD Assurance level Financial information 9
Accountants’ report requirements for VSD • Content requirements
Accountants’ report requirements for VSD • Assurance level requirement
Accountants’ report requirements for VSD No. The circular must state that financial information has been reviewed by auditors / reporting accountants, and contain details of any qualification / modification in review report [FAQ series 11, No. 7] 12
Accountants’ report requirements for VSD Jan 07 Dec 07 Dec 08 Dec 09 Jun 10 Sept 10 VSD circular date Issuer Group with separate note on Disposal Target (Option B) Disposal Target(Option A) No. Adopt one option for entire reporting period (i.e. 3 financial years and stub period) [FAQ series 11, No. 4]
Accountants’ report requirements for VSD Possible exemption if Disposal Target’s assets are not consolidated in issuer’s accounts before disposal (e.g. associates / investments) [Note 2 to R14.68(2)(a)(i)] Factors include: - accessibility to Disposal Target’s books and records - whether circular contains sufficient information for shareholders [Note: if exemption granted, must still provide pro forma financial information on remaining group]
Reporting period of accountants’ report in acquisition circulars • Old rule For major (or larger) acquisition, circular must contain accountants’ report on • Target’s results for 3 financial years immediately before circular date and, if reporting period ends more than 6 months before circular date, a stub period Reporting period must have ended not more than 6 months before circular date
Reporting period of accountants’ report in acquisition circulars • New rule If Target’s audited accounts for latest completed financial year not ready on circular date • can include Target's results for 3 consecutive financial years and a stub period Reporting period must have ended not more than 6 months before circular date [Note 2 to R4.06(1)(a)]
Reporting period of accountants’ report in acquisition circulars Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Apr 10 Oct 09 Proposed Circular date: Apr 2010 Old rule New rule 17
Statement of sufficiency of working capital • Old rule MT / VSA / VSD circular must contain • directors’ statement on whether working capital available to issuer group is sufficient and, if not, how issuer proposes to provide additional necessary working capital
Statement of sufficiency of working capital • New rule Clarify that the working capital statement in circular must take into account effect of the transaction [R14.66(10)]
Reproduction of published financial information • Old rule Major (or larger) acquisition circular / listing document (i.e. rights issue or open offer) must disclose • previously published financial information of issuer group and any acquisition target [App 1B, para 31(3)]
Reproduction of published financial information • New rule Allow issuer to incorporate those published financial information by reference [Note 6 to App 1B]
Reproduction of published financial information How to incorporate by reference? Issuer should identify - financial information; and - published document (with document name and date; relevant pages; and where to access it e.g. website address) [FAQ series 11, No. 13]
Enlarged group’s combined financial information • Old rule Major (or larger) acquisition circular / listing document (i.e. rights issue or open offer) must disclose • pro forma statement, combining assets and liabilities and profits or losses of issuer and companies it acquired since date of its last published accounts (the Combined Pro forma Statement) [App 1B, para 31(3)(b)] Issue This conflicts with general disclosure standard for pro forma information (R4.29(6)(b)) which requires any adjustments in pro forma statement to be directly attributable to the transaction concerned
Enlarged group’s combined financial information 31 Dec 09 Mar 10 Jun 10 Year end Major acquisition VSA Pro forma financial information in VSA circular Old App 1b, para 31(3)(b) Issuer + Major target + VSA target R4.29(6)(b) Issuer + VSA target
Enlarged group’s combined financial information • New rule No longer require Combined Pro forma Statement[App 1b, para 31(3)(b)] Note: any pro forma statement must still comply with R4.29(6)(b)
Directors’ responsibility statement Issuers must include directors’ responsibility statement in MB • notifiable / connected transaction circular • listing document GEM • announcement • notifiable / connected transaction circular • listing document
Directors’ responsibility statement • Old rule “This document includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the issuer. The directors collectively and individually accept full responsibility for the accuracy of the information contained in this document and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.”
Directors’ responsibility statement • New rule “This document, for which the directors of the issuer collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the issuer. The directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this document is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this document misleading.”
Board minutes for connected transactions • Old rule For non-exempt connected transaction, file with Exchange copy board minutes stating (a) whether directors consider the transaction to be on normal commercial terms and in ordinary and usual course of issuer’s business g included in announcement (b) INED’s views g included in announcement (c) whether any directors have material interest in the transaction and have abstained from voting at board meeting g not included in announcement
Board minutes for connected transactions • New rule Instead of the board minute filing requirement, circular must state whether directors have material interest in the transaction and, if so, whether they have abstained from voting [R14A.56(9),14A.59(18)] Note: If no circular required, state it in announcement
Circular content requirements for transaction involving acquisition and disposal • Old rule Classify transaction involving acquisition and disposal by reference to the larger of the acquisition or disposal, to determine: • applicability of reporting, disclosure and/or shareholder approval requirements; and • content requirements for circular, if required
Circular content requirements for transaction involving acquisition and disposal • New rule Allow each of the acquisition and disposal to comply with content requirements applicable to its respective transaction classification, as opposed to the larger classification [R14.24]
Circular content requirements for transaction involving acquisition and disposal Listco Buyer Subsidiary Target (property company) Listco sells Subsidiary to Buyer; consideration includes cash and Target • Sale of subsidiary : Major disposal • Acquisition of target : Discloseable transaction
Circular content requirements for transaction involving acquisition and disposal
Disclosure for Overseas / PRC issuers • New rule Listing documents (e.g. rights issue, open offer, bonus issue, scrip dividend) no longer need to disclose • provisions in constitutional documents • statutory / regulatory provisions of place of incorporation • for PRC issuer only, - description of PRC company law and its material differences with Hong Kong requirements - quorum and voting requirements for general meetings - sufficiency of foreign exchange - risk factors and differences in legal, economic and financial systems - warning statement
Transaction circular • Old rule Despatch major (or larger) transaction or connected transaction circular: • within 21 days after publishing announcement (21 day deadline) • on or before notice of general meeting
Transaction circular (excluding information circular) • New rule For all issuers • Instead of 21 day deadline, disclose - expected despatch date and • if more than 15 business days, why [R14.60(7), 14A.56(10)] • Further disclose any expected delay, with reasons and new expected despatch date [R14.36A,14A.47A]
Transaction circular (excluding information circular) • New rule For PRC issuers only • can send circular after issuing notice of general meeting • new deadline for circular: deadline for giving such notice under PRC Company Law (i.e. 20 days for general meeting; 15 days for special general meeting) [R19A.39A, 19A.39B] Note: non-PRC issuers must still despatch major (or larger) transaction or connected transaction circular on or before notice of general meeting
Transaction circular (excluding information circular) 30 days 15 days X 14 Jun 10 5 Jul 10 4 Aug 10 19 Aug 10 1. VSA announcement date 2. Deadline for notice of special GM under Mandatory Provision 3. Deadline for notice of special GM under PRC Company Law 4. Special GM Date Circular despatch deadline Old rule Circular despatch deadline New rule
Information / supplementary circular Information circular • Change from 21 calendar days to 15 business days [R14.41(a), 14A.49(a)] Supplementary circular • Change from 14 calendar days to 10 business days [R13.40, 13.70, 13.73, 14.42, 14.43, 14.52, 14.53, 14A.49]
Effective date New requirements apply to documents issued on or after 3 June 2010
Effective date 1 Jun 10 3 Jun 10 22 Jun 10 30 Jun 10 Delay in despatch VSA announcement date New rule effective Deadline for circular despatch under old rule New expected circular despatch date No, but publish further announcement as soon as practicable, disclosing expected delay with reasons and new expected despatch date
Effective date Yes