Featured, Ideas & Insights

Spiderweb IPO

Why Go Listed in HK?

  • Better valuation and liquidity
  • Gateway to Mainland China
  • Leveraging Mainland China’s growth
  • Well-established legal system
  • Various acceptable accounting standards
  • Sound regulatory framework
  • Free flow of capital and information
  • Advanced clearing and trading infrastructure

Highlight of The Capital Market in Hong Kong

  • A favourable place for international investors and clients, e.g. the non-intervention government policy, effective and transparent regulations of international standards, low profit tax rate and simple tax system, no foreign exchange control, etc
  • About 2,000 companies listed on HKEX, 50% are China Company
  • 85% Main Board / 15% GEM Board
  • About 100 newly listed companies annually.
  • For international companies which have entered the Chinese market, Hong Kong is also a preferred listing place
  • International equity funding centre, being one of the most active markets globally. HKEX IPO funds raised ranked No.1 in 2015, 2011, 2010 and 2009 Globally

Pros and Cons of Listing

Pros

  • Opportunity for capital growth and new financing
  • Enlargement of shareholder base
  • Increase of shares marketability
  • Realisation of capital gains
  • Diversification of personal portfolios
  • Enhancement of corporate profile
  • Increase of corporate transparency
  • Improvement of employee incentive and commitment
  • Increase of directors’ fiduciary responsibility

Cons

  • Decrease in controlling power over the company and the need to share success with public shareholders
  • Loss of privacy of company and management
  • Time cost and initial IPO expenses during listing
  • Continuing obligations after listing
  • The need to meet shareholders’ expectation (including public minority shareholders)
  • Increase of directors’ fiduciary responsibility

Criteria and Requirements of Listing for Main and GEM Board

Preparatory Work for Listing

Before Listing During Listing
Determine the proposed listing business or scope of the entity Form an internal team responsible for listing
Plan for restructuring of the listing group Appoint external professional parties
Introduce strategic investors Prepare and submit listing documents
Decide to go listed or seek other forms of fund raising Respond to questions raised by SEHK regarding the listing documents
Estimate the amount of funds raised through listing Attend listing hearings and get the approval for listing from the Listing Committee
  Arrange press conference and roadshow
  Issue prospectus

Listing Process

Step 1 Listing Preparation (at least 6 months)

  • Executive pre-listing plans
  • Perform due diligence
  • Prepare prospectus and other listing documents

Step 2 Listing Application and Approval (at least 2 months)

  • Apply and obtain approval of listing

Step 3 Listing Hearing (usually around 1 month)

  • Pass the listing hearing
  • Complete listing procedures

Step 4 Open and Close of Public Offering Subscription (usually around 1 month)

  • Register and distribute prospectus
  • Road show
  • Open and close public offering subscription
  • Be listed on SEHK

Parties Involved in Listing

  • Sponsors
  • Company’s legal advisors as to Hong Kong law
  • Company’s legal advisors as to law of place of registered office
  • Legal advisors as to law of place of registered office
  • Legal advisors of sponsors and brokers as to Hong Kong law
  • Legal advisors of sponsors and brokers as to law of place of registered office
  • Reporting Accountants
  • Tax advisors
  • Valuers
  • Internal control consultants
  • Third-party industry experts
  • Printers (including Chinese and English translation)
  • Public relations firms
  • Share registrars
  • Receiving banks

Major Component of Listing Expenses

  1. Lawyers’ fees (including sponsors’ legal advisors, company’s legal advisors as to Hong Kong law and law of place of registered office)
  2. Underwriting commission
  3. Sponsors’ fees
  4. Reporting Accountants’ fees
  5. Internal control consultant fees
  6. Public relations and roadshow fees
  7. Printing fees
  8. Valuer’s fees
  9. Application fees to HKEX
  10. Others

Key Areas that Management Have to Consider

  • What due diligence procedures are needed?
  • How long does the listing process take?
  • What are the impacts of a private company turning into a listed company?
  • The commitments and responsibilities of the senior management?
  • Does management have sufficient knowledge and experience to manage a listed company (e.g. comply with the requirements of corporate governance and internal controls)?
  • Is it necessary to increase internal resources to cope with the listing process?
  • What is the optimal capital structure?

Common Problems During Listing

Corporate Structure or Business Issues

  • Determination of the assets, businesses or entities to be included in the listing group
  • Restructuring of the human resources, management, finance and information technology systems
  • Handling of competing businesses
  • Handling of related party transactions
  • Assets valuation
  • Handling of the minority shareholders’ interests

Taxation Issues

  • Review of tax compliance
  • Feasibility of tax planning
  • Handling of the tax of employees’ warrants
  • Contact with tax authorities to confirm corporate tax status and resolve tax disputes
  • Review of the adequacy of the group’s tax reserves, e.g. land appreciation tax, corporate income tax in the business domicile, value added tax, deferred income tax, profits tax in Hong Kong, etc.

Legal Issues

  • Restructuring of the listing group
  • Treatment and disclosure of legal issues and non-compliance issues for the listing group in track record Period
  • Legal titles of assets
  • Litigation and related compensations

Accounting Issues

  • Revenue recognition
  • Cut-off problem of sales and purchases
  • Consolidation of financial statements of listing entities
  • Retirement benefits of employees
  • Depreciation and impairment of fixed assets
  • Capitalisation of interests
  • Valuation and amortisation of intangible assets
  • Bad debts of accounts receivables and other receivables
  • Existence and completeness of inventory records
  • Accounting for financial instruments
  • External guarantee
  • Accounting for leasing contracts
  • Accounting for government grants and subsidies
  • Qualified opinions in track record period statutory audit reports
  • Unrecorded liabilities
  • Accounting for listing expenses

Continuing Obligations after Listing

Upon listed, the listed company must strictly comply with the Securities and futures Ordinance and the Listing Rules to provide the public with accurate information on timely basis. The major requirements include:

  • Disclosure of Inside Information
  • Financial Disclosure
  • Notices, Announcements and Circulars
  • Notifiable Transactions
  • Connected Transactions
  • Corporate Governance Report
  • Environmental, Social and Governance Report

Corporate Teams after Listing

  • Compliance Advisor
  • Company Secretary
  • Qualified Accountant
  • Authorised Representatives
  • Remuneration Committee
  • Audit Committee
  • Authorised Representatives

Our IPO Professional Services

Pre-listing

  • Assess whether the company meets the listing requirements and discuss the potential listing problems
  • Discuss the financial and accounting matters regarding the company’s restructuring
  • Discuss the financial and accounting matters regarding the company’s fund raising strategies and channels
  • Discuss the regulatory requirements and the listing process of IPO
  • Discuss the company’s basic accounting policies, preparation of financial statements, consolidation process, etc.
  • Discuss the company’s financial budget mechanism and guide based on its business development strategy
  • Disclosure of related parties transactions
  • Discuss pre-IPO capital restructuring or dividend distribution to realise the optimal composition of assets and liabilities
  • Provide internal control review services, review and assist in establishing internal control procedures on financial reporting processes
  • Provide corporate training and recommendations on improving internal control environment and procedures
  • Provide recommandations on compliance processes
  • Provide tax services and recommendations, including tax audits, tax restructuring, tax planning, etc.

During Listing

  • Prepare Accountants’ Report of the track record period, in accordance with IFRS or HKFRS and the Listing Rules of HKEX
  • Provide general assistance to the company’s sponsors, legal advisors and underwriters in the role of reporting accountants regarding the preparation of prospectus (including attending the meetings for drafting and planning, helping to review, submitting the required information and handling other matters as instructed)
  • Review the unaudited pro forma financial information
  • Review the statement of indebtedness prepared by the company
  • Review the profit and cashflow forecast prepared by the company
  • Assist the sponsors in solving queries from the regulatory authorities
  • Review the accounting policies and calculation methods adopted by the company in profit forecast
  • Comment on internal control review and corporate governance

Post-Listing

  • Act as an auditor and provide audit services
  • Review the company’s transactions in capital market such as rights issues and major acquisitions and act as reporting accountants for mergers and acquisitions or other projects
  • Review on the disclosure of the company’s financial results regularly
  • Advice on the latest updates on Listing Rules, accounting standards, financial reporting, corporate governance and other regulatory matters
  • Review the company’s internal controls and corporate governance regularly, and provide recommendations for improvement
  • Assist in the preparation of environmental, social and governance report

 

Download PDF