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The SFC and the SEHK jointly released their "Joint Consultation Paper on Proposed Changes to Property Valuation Requirements" (Property Valuation Consultation Paper) on 3 December 2010 on proposed changes to the property valuation disclosure requirements to be complied by listing applicants and listed issuers respectively.

PROPOSALS FOR LISTING APPLICANTS

In relation to listing applicants, the Property Valuation Consultation Paper contained proposals which are applicable to property activities and non-property activities respectively.

Property activities

"Property activities" are proposed to be defined as "holding (directly or indirectly) and/or development of properties for letting and retention as investments, or the purchase or development of properties for subsequent sale, or for retention as investments. It does not include holding of properties for own use” and so would include holding property interests for development, sale and/or rental income. In this connection, the regulators are of the view that valuation information is significant to investors and the relevant proposals are summarised as follows:

  1. For all property interests generally - The listing applicant would be required to obtain property valuation reports and disclose valuation information for all property interests in relation to its property activities. However, if a property interest has a carrying amount below 1% of the listing applicant’s total assets, such property interest would not be subject to the valuation requirements. The exemption is subject to a cap pursuant to which the total carrying amount of exempted property interests must not exceed 10% of the listing applicant’s total assets.

In this regard, the listing applicant should identify the carrying amount of each property interest (which is below 1%) and sum up from the lowest values until the 10% limit is reached. Property interests comprising the lowest 10% would be exempted and the remaining property interests would be subject to the valuation requirements. Full text of the valuation reports should be disclosed in the listing document except where summary disclosure is allowed.

  1. For a property interest valued at less than 5% of the listing applicant’s total valued property interests - Summary disclosure of the relevant valuation report in prescribed form (as specified in the Property Valuation Consultation Paper) would be allowed if the market value of a property interest is less than 5% of the listing applicant’s total property interests that are required to be valued under property activities. The detailed valuation report would be required to be made available for public inspection.
  2. For all property interests that have been exempted from the valuation requirements - An overview should be included in the listing document describing the exempted property interests containing relevant information such as geographical location, number, approximate size range, intention of use and how the property interests are held (i.e. owned or leased) (Relevant Information).

Non- property activities

Property interests of a listing applicant’s non-property activities normally refer to properties owned and occupied for its own use and the relevant proposals are summarised as follows:

  1. For a property interest with a carrying amount of 15% or above of the total assets - A full text of the valuation report would be required if the carrying amount of a property interest is or is above 15% of the listing applicant’s total assets. The listing applicant should also include a statement stating that no other single property interest of its non-property activities has a carrying amount of 15% or above of its total assets.
  2. For all property interests which have been exempted from the valuation requirements - An overview containing the Relevant Information should be included in the listing document describing the exempted property interests.

Mining activities

Valuation of property interests ancillary to mining activities, such as buildings and other properties around the mining site, would not be required.

General disclosure obligations

Listing applicants should note that the above specific proposals are only minimum requirements and there are general disclosure obligations in relation to property valuations under the CO and the Listing Rules which might require greater disclosure beyond such minimum proposed requirements. The general disclosure obligations as mentioned above are:

  1. Under the CO, a prospectus must contain “sufficient particulars and information to enable a reasonable person to form…a valid and justifiable opinion of the shares or debentures and the financial condition and profitability of the company at the time of the issue of the prospectus…”2.
  2. Similarly, the Listing Rules provide that a listing document must “contain such particulars and information which...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 securities.”3

PROPOSALS FOR LISTED ISSUERS

In relation to listed issuers, there is no distinction between property activities and non-property activities and the relevant proposals are summarised as follows:

  1. For a major transaction or above in relation to acquisition or disposal of a property - The listed issuer would be subject to the property valuation requirements.
  2. For an acquisition or disposal of an interest in a company listed on the SEHK - The listed issuer would not be subject to the property valuation requirements and only an overview of those property interests not covered by a valuation report would be required to be disclosed in the relevant circular. However, property valuation would still be required if it is a connected transaction.
  3. For a major transaction or above in relation to acquisition or disposal of an unlisted company whose assets consist solely or mainly of property - The listed issuer would be subject to the valuation requirements save as those with a carrying amount below 1% of the listed issuer’s total assets. However, the total carrying amount of property interests not valued must not be more than 10% of the listed issuer’s total assets. Summary disclosure of the relevant valuation report in prescribed form would be allowed if the market value of a property interest is below 5% of the listed issuer’s total valued property interests and the detailed valuation report should be available for public inspection. An overview of those property interests not covered by a valuation report would be required to be disclosed in the relevant circular.

Also, for property interests ancillary to mining activities, valuations would not be required if the relevant circular includes a valuation report by an independent professionally qualified valuer of the associated mineral or petroleum assets or resources.

  1. For a very substantial acquisition - The existing properties of the listed issuer making the acquisition would not be subject to the valuation requirements.

CLASS EXEMPTION NOTICE

Subject to the results of the Property Valuation Consultation Paper, the SFC proposes to issue a class exemption notice under the CO Notice for the purpose of giving effect to the proposals relating to property valuation requirements for listing applicants. The class exemption notice would be subject to negative vetting by the Legislative Council.

In conjunction with the class exemption notice, the SEHK intends to amend the Listing Rules to reflect the relevant proposals. In this connection, the SEHK and the SFC will co-operate to develop the consultation conclusions and the corresponding Listing Rules amendments, although the Property Valuation Consultation Paper does not contain any proposed timetable in relation to the Listing Rules amendments.  

Comments in response to the Property Valuation Consultation Paper should be submitted by 11 February 2011.  

Copies of the Property Valuation Consultation Paper can be downloaded via the link below:

https://www.sfc.hk/sfcConsultation/EN/sfcConsultFileServlet?name=PropertyValuation&type=1&docno=1