Streamlining on circular and
listing document requirements
Joseph Choi
Senior Manager
Compliance and Monitoring Department
Listing Division, HKEx
1
Background
Purposes
-
Make document contents relevant for shareholders
-
Eliminate unnecessary restrictions or compliance burdens
-
Facilitate timely despatch of circulars
2
Background
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
3
Issues
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
4
Issues
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
5
Issues
C. Despatch of circular
– Transaction / supplementary circulars
6
Financial disclosure
7
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”
8
Accountants’ report requirements for VSD
•
New rule
Assurance level
Review
Financial information
Disposal Target
[R14.68(2)(a)(i)(A)]
Option A
•
Financial information
of disposal target
•
Issuer Group
[R14.68(2)(a)(i)(B)]
•
Accountants’ report on disposal
target
[Note 1 to the rule]
Reviewed by reporting
accountants
Option B
•
Financial information
of issuer group, with
separate note
disclosure on disposal
target
•
Audit
•
Accountants’ report on issuer
group, with separate note
disclosure on disposal target
[Note 1 to the rule]
Reviewed by reporting
accountants
9
Accountants’ report requirements for VSD
• Content requirements
Old 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
New Rule
Option A (Review)
Option B (Review)
The Disposal Target’s
financial information
comprising
The issuer group’s
financial information
comprising
-
-
income statement
balance sheet
cash flow statement
statement on changes
in equity
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
10
Accountants’ report requirements for VSD
• Assurance level requirement
Old Rule
Auditing Guidelines – Prospectus and the
Reporting Accountants (Statement 3.340)
issued by HKICPA
- opine on whether financial information
gives true and fair view
New Rule
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)
11
Accountants’ report requirements for VSD
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]
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)
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]
13
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]
14
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
15
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)]
16
Reporting period of accountants’ report in acquisition circulars
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Oct 09
Old rule
Apr 10
Proposed
Circular date:
Apr 2010
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
18
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)]
19
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)]
20
Reproduction of published financial information
•
New rule
Allow issuer to incorporate those published financial information by
reference [Note 6 to App 1B]
21
Reproduction of published financial information
Documents
Published financial information which can be
incorporated by reference under new rule
[Note 6 to App 1B]
Circulars
• Financial information of
• Major acquisition
• VSA
- 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)
Listing documents
• Rights issue
• Open offer
• 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)]
22
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]
23
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
24
Enlarged group’s combined financial information
31 Dec 09
Year end
Mar 10
Major acquisition
Jun 10
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
25
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)
26
Non-financial disclosure
27
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
28
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.”
29
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.”
30
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
31
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
32
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:
(a) applicability of reporting, disclosure and/or shareholder approval
requirements; and
(b) content requirements for circular, if required
33
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]
34
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
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]
35
Circular content requirements for transaction involving
acquisition and disposal
Old Rule
Classification to determine
applicability of shareholder approval
requirement
New Rule
Major transaction hence whole transaction requires shareholder approval
Classification to determine circular
content requirements
Major disposal
Major acquisition
Major disposal
Discloseable acquisition
Accountants’ report on acquisition target
a
X
a
a
X
Valuation report on acquisition target’s
property interests
Pro forma financial information
X
36
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
37
Despatch of circular
38
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
39
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]
40
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
41
Transaction circular
(excluding information circular)
30 days
15 days
X
14 Jun 10
1. VSA
announcement
date
Old rule
New rule
5 Jul 10
2. Deadline for
notice of
special GM
under
Mandatory
Provision
4 Aug 10
3. Deadline for
notice of special
GM under PRC
Company Law
19 Aug 10
4. Special
GM Date
Circular despatch
deadline
Circular despatch
deadline
42
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]
43
Effective date
New requirements apply to documents issued on or after 3 June 2010
44
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
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
45
Effective date
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
46
Thank you
47