In May, the Exchange considered whether a listing applicant’s non-compliance incidents, uncertainties over its principal retail stores, and its deteriorating financial performance would render it unsuitable for listing.

The applicant was a retailer and had three principal retail stores (Stores A, B and C), all of which were leased properties. The three stores contributed around 80% of its revenue during the track record period.

The Exchange noted the following material issues in its listing application:

•          Store A required rectification of unauthorized building works, and surrender of several floors owing to their use for purposes the occupation permit did not allow. The rectification required approval by the authorities and would involve delay, impaired performance and, if not approved, a move to another location;

•          The applicant’s financial performance deteriorated significantly subsequent to Year 3 of the track record period, and the revenue and net profit in Year 4 were expected to decrease by over 10% and over 30%, respectively, compared to Year 3;

•          Store C’s rental cost would increase by 10% to 20% upon a forthcoming lease renewal; and

•          The directors’ conduct was a factor for consideration. During over 30 years of leasing Store A, the directors had not taken sufficient steps to identify or rectify the breach of building regulations. Professionals were hired to perform inspections in Store A shortly before the listing application, and a full assessment was performed only after the listing application was filed. The applicant submitted the rectification proposal to the relevant authority only toward the end of Year 4, months after the Exchange had raised comments on the breach.

The Exchange considered that the cumulative effect of the various uncertainties would affect the applicant’s future performance and could not be adequately addressed by disclosure in the prospectus. The applicant was considered not suitable for listing for the time being.

For a copy of Listing Decision LD73-2013, please follow this link: Documents/ld73-2013.pdf