1 streamlining on circular and listing document requirements joseph choi senior manager compliance...

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Streamlining on circular and listing document requirements

Joseph ChoiSenior Manager

Compliance and Monitoring DepartmentListing Division, HKEx

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Purposes

- Make document contents relevant for shareholders

- Eliminate unnecessary restrictions or compliance burdens

- Facilitate timely despatch of circulars

Background

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September 09 Consultation paper on “Proposed Changes to Requirements for Circulars and Listing Documents of Listed Issuers”

November 09 Consultation period end

May 10 Consultation conclusions

3 June 10 Effective date of new Rules

Background

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A. 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

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B. 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

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C. Despatch of circular

– Transaction / supplementary circulars

Issues

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Financial disclosure

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• 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”

Accountants’ report requirements for VSD

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• New rule

Review Audit

Disposal Target[R14.68(2)(a)(i)(A)]

Option A• Financial information

of disposal target

• Reviewed by reporting

accountants

• Accountants’ report on disposal target

[Note 1 to the rule]

Issuer Group[R14.68(2)(a)(i)(B)]

Option B• Financial information

of issuer group, with separate note disclosure on disposal target

• Reviewed by reporting accountants

• Accountants’ report on issuer group, with separate note disclosure on disposal target

[Note 1 to the rule]

Assurance level

Fin

anci

al in

form

atio

n


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Old Rule New Rule

Complete set of issuer group’s financial statement (MB Chapter 4, App. 16; and HKAS 1)

No specific requirement for note disclosure on Disposal Target’s financial information. In practice, the note includes the Disposal Target’s information included in the issuer group’s

- income statement- balance sheet- cash flow statement

In some cases, also includes- statement on changes in equity - explanatory notes

Option A (Review) Option B (Review)

The Disposal Target’s financial information comprising - income statement - balance sheet- cash flow statement- statement on changes in equity

The issuer group’s financial information comprising - income statement- balance sheet- cash flow statement- statement on changes

in equity For separate disclosure on Disposal Target, should include at least the Disposal Target’s information included in the issuer group’s - income statement- balance sheet - cash flow statement

• Content requirements


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Old Rule New Rule

Auditing Guidelines – Prospectus and the Reporting Accountants (Statement 3.340) issued by HKICPA

- opine on whether financial information gives true and fair view

As an alternative:

HKICPA or IAASB review standard

(i.e. HKSRE 2400/2410 or ISRE 2400/2410)

- opine on whether financial information is free from material misstatement (in form of negative assurance)

• Assurance level requirement


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Does issuer need to disclose auditors’ or reporting accountants’ review report in VSD circular?

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]


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Is a combination of options acceptable?

No. Adopt one option for entire reporting period (i.e. 3 financial years and stub period) [FAQ series 11, No. 4]

Dec 07Jan 07 Dec 08 Dec 09 Jun 10

Issuer Group with separate note on Disposal Target (Option B)

Disposal Target(Option A)


Sept 10

VSD circular date

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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]


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• 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

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• 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)]


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Dec 06 Dec 07 Dec 08 Dec 09

Apr 10

Dec 05

Proposed Circular date:

Apr 2010 Old rule

New rule

Oct 09


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• 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

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• New rule

Clarify that the working capital statement in circular must take into account effect of the transaction [R14.66(10)]

Statement of sufficiency of working capital

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• 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

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• New rule

Allow issuer to incorporate those published financial information by reference [Note 6 to App 1B]


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Documents Published financial information which can be incorporated by reference under new rule

[Note 6 to App 1B]

Circulars• Major acquisition• VSA

Listing documents• Rights issue• Open offer

• Financial information of- issuer group; and- any company acquired since issuer’s last published

audited accounts (if the company’s accountants’ report has been submitted to shareholders or the company was a listed issuer during the last 12 months)

• Financial information include- profits and losses, financial record and position for last 3

financial years - latest published audited balance sheet - notes on annual accounts for last financial year

[App 1B, para 31(3)]

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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]


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• 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 tobe directly attributable to the transaction concerned

Enlarged group’s combined financial information

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Mar 1031 Dec 09 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


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• 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)


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Non-financial disclosure

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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

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• 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.”


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• 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.”


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• 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

included in announcement

(b) INED’s views included in announcement

(c) whether any directors have material interest in the transaction and have abstained from voting at board meeting

not included in announcement

Board minutes for connected transactions

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• 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

Board minutes for connected transactions

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• Old rule

Classify transaction involving acquisition and disposal by reference to the larger of the acquisition or disposal, to determine:

(a) applicability of reporting, disclosure and/or shareholder approval requirements; and

(b) content requirements for circular, if required

Circular content requirements for transaction involving acquisition and disposal

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• 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]


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Does Listco’s circular need to include:

(a) accountants’ report on acquisition target;

(b) valuation report on acquisition target’s property interests; and / or

(c) pro forma financial information? [FAQ series 11, No. 10]

Listco Buyer

Listco sells Subsidiary to Buyer; consideration includes cash and Target

• Sale of subsidiary : Major disposal

• Acquisition of target : Discloseable transaction


Subsidiary Target

(property company)

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Old Rule New Rule

Classification to determine applicability of shareholder approval requirement

Major transaction -

hence whole transaction requires shareholder approval

Classification to determine circular content requirements

Major disposalMajor acquisition

Major disposalDiscloseable acquisition

Accountants’ report on acquisition target X

Valuation report on acquisition target’s property interests X

Pro forma financial information X


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• 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

Disclosure for Overseas / PRC issuers

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Despatch of circular

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• 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

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• 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)

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• 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


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1. VSA announcement

date

2. Deadline for notice of

special GMunder

Mandatory Provision

3. Deadline for notice of special GM under PRC Company Law

4. SpecialGM Date


30 days 15 daysX

Old rule

New rule

Circular despatch deadline

14 Jun 10 5 Jul 10 4 Aug 10 19 Aug 10

Circular despatch deadline

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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]

Information / supplementary circular

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New requirements apply to documents issued on or after 3 June 2010

Effective date

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Will issuer be required to seek waiver of the old 21 day requirement from the Exchange if it expects a delay in despatch?

No, but publish further announcement as soon as practicable, disclosing expected delay with reasons and new expected despatch date

1 Jun 10 3 Jun 10 22 Jun 10 30 Jun 10

VSA announcement

date

Deadline for circular

despatch under old rule

New expected circular

despatch date

New rule effective

Effective date

Delay in despatch

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If issuer publishes an announcement about a non-exempt

connected transaction on 2 June 2010, is it required to

- state in circular to be published after 3 June 2010 whether directors have material interest in the transaction and, if so, whether they have abstained from voting?

Yes

Effective date

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Thank you

1 streamlining on circular and listing document requirements joseph choi senior manager compliance...

Documents

disposal disclosure

financial disclosure

disposal targets information

financial information

business disposal target

disposal of company

vsd slide

separate note disclosure