New Regulations on IPO Sponsors


On 12 December 2012, SFC published its “Consultation Conclusions on the regulation of IPO sponsors” (Sponsor Consultation Conclusions) to confirm certain reforms on two major areas: (a) the regulatory regime for sponsors’ conduct; and (b) the legislative amendments relating to sponsors’ liability. The new regulatory requirements will apply to listing applications submitted on or after 1 October 2013.


The major reforms adopted are:

Click here to view table.


The key obligations of sponsors will be specified in a new paragraph 17 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission which will become effective on 1 October 2013. The related amendments to the Corporate Finance Adviser Code of Conduct and the Additional Fit and Proper Guidelines for Corporations and Authorized Financial Institutions applying or continuing to act as Sponsors and Compliance Advisers will also become effective on the same day.


HKEx will amend the Listing Rules with a view to bringing the relevant new requirements into force when they become effective.

Also, legislative amendments to the CO will follow a separate timetable.

You may download copies of the Sponsor Consultation Conclusions via the link below: gateway/EN/news-and-announcements/ news/doc?refNo=12PR132

New Guidance on Pre-IPO Investments

On 25 October 2012, HKEx published two guidance letters, “HKEx-GL43-12” and “HKEx-GL44-12” to help remove some of the uncertainties surrounding Pre-IPO investments by cataloguing which Pre-IPO investment terms and which Pre-IPO convertible instruments pricing arrangements are allowed and which ones are not. For more details, please refer to our previous Legal Update “Pre-IPO Investments: The Dos and Don’ts”.


Granting of Waiver in relation to Despatch of Interim Report


On 12 October 2012, HKEx published a listing decision “HKEx-LD38-2012 in which it grants a waiver to a listing applicant from strict compliance with the requirement to send an interim report to its shareholders under Rule 13.48(1) of the Listing Rules.


The listing applicant was a PRC listed company which intended to list on HKEx in September of Year 4.

Its prospectus in relation to its HKEx proposed listing would include an accountants’ report for:

  • the three financial years ended 31 December of Year 3; and
  • the three months ended 31 March of Year 4.

The listing applicant published its interim results and report for the six months ended 30 June of Year 4 (Interim Results) on the website of the PRC stock exchange in August of Year 4. Under the PRC regulatory requirements, it was not required to send a hard copy of its interim report to its shareholders in the PRC.

The listing applicant would include certain specified information (Specified Information) on its Interim Results in its prospectus according to the requirements under a relevant listing decision.


Rule 13.48(1) of the Listing Rules requires an issuer to send to its shareholders an interim report or a summary interim report in respect of the first six months of the financial year within three months after the end of that period.


The listing applicant submitted that full compliance with Rule 13.48(1) would not provide any new information to its shareholders but would incur unnecessary costs, given that the relevant financial information for the six months ended 30 June of Year 4 in the interim report would be disclosed in its prospectus.

The issue is whether or not to grant the listing applicant a waiver from strict compliance with the requirement under Rule 13.48(1).


HKEx decided to grant to the listing applicant a waiver from strict compliance with the requirement under Rule 13.48(1) in respect of its Year 4 interim report provided that it:

  • included the Specified Information in its prospectus;
  • was not in breach of its articles or laws and regulations of its place of incorporation or other regulatory requirements, regarding its obligation to publish and distribute interim reports and accounts; and
  • included in its prospectus a statement that it would comply with the Model Code for Securities Transactions and Code on Corporate Governance set out in Appendices 10 and 14 to the Listing Rules respectively for the year ending 31 December of Year 4.

You may download copies of the listing decision via the link below: Documents/ld38-2012.pdf

Granting of Waiver in relation to Filing of IPO Placee Lists


On 14 December 2012, HKEx published an updated listing decision “HKEx-LD48-4” specifying the conditions which a listing applicant should satisfy for granting a waiver from compliance with the filing of placee lists requirement under the Listing Rules with respect to the IPO shares sold in public offers outside Hong Kong.


The international offering of the listing applicant included a public offering without listing (POWL) in Japan.

The Listing Rules require submission to HKEx of a list from each of the placing brokers specifying the details of and the amounts taken up by each placee. The sponsor applied for a waiver from strict compliance with such requirements.


The normal practice of HKEx is not to require the submission of placee lists in respect of the public offer of shares sold under POWL in Japan and the US provided that HKEx is reasonably satisfied that the investors fulfil the independence requirement under the relevant foreign regulations.

In view of such practice, HKEx approved the current waiver application subject to the satisfaction of the following conditions:

  • the shares would be sold in a public offer governed by rules and regulations of the relevant jurisdiction to ensure independence of the investors;
  • the listing applicant and sponsor made a demonstrable effort to comply with the placee list requirement in good faith and established that full compliance would not be practicable;
  • the sponsor, underwriters or placing brokers would confirm in writing that the noninstitutional investors obtaining the shares sold in the public offers are independent of them, the listing applicant’s connected persons or their associates or any existing shareholders of the listing applicant, including nominee(s) of the foregoing; and
  • each placing broker would be required to submit to HKEx a list setting out details of all institutional placees and the number of shares taken up by each of them as required under the relevant Listing Rules1.

You may download copies of the listing decision via the link below: Documents/LD48-4.pdf


Guidance on Matters in relation to Biological Assets


On 7 December 2012, HKEx published a guidance letter “HKEx-GL46-12” to provide guidelines on various matters in relation to biological assets2: (a) unrealised fair value gains on valuation for the purpose of the trading record and profit requirements under Rule 8.05(1)(a) of the Listing Rules3; (b) disclosure requirements; and (c) due diligence work expected to be performed by sponsors and other professional advisers.


HKEx considers that sales of biological assets/ agricultural produce4 are the principal activities in the ordinary and usual course of business of a listing applicant engaging in agricultural activities5. The guidelines are specific to listing applicants engaging in agricultural activities in view of the nature of, and inherent risks relating to, the biological assets and their valuation and may not be applicable to other listing applicants.


The guidelines are summarised as follows:

Click here to view table.

You may download copies of the guidance letter via the link below:


Guidance on Satisfying the Trading Record Requirements


On 26 November 2012, HKEx published a guidance letter “HKEx-GL45- 12” on matters relating to satisfying the trading record requirements under the Listing Rules.


Rule 8.05(1)(a) of the Listing Rules requires that a listing applicant must have an adequate trading record. There are two conditions to be satisfied under such requirement:

  • the minimum length of the trading record – the listing applicant must have a trading record of not less than three financial years; and
  • the minimum amount of profits during such period - the profit attributable to shareholders must, in respect of the most recent year, be not less than HK$20,000,000 and, in respect of the two preceding years, be in aggregate not less than HK$30,000,000. Such profit should exclude any income or loss generated by activities outside the ordinary and usual course of the listing applicant’s business.


The following guidelines in relation to satisfying the trading record requirements are provided:

Click here to view table.

You may download copies of the guidance letter via the link below:

Contractual Arrangements would not Result in Unsuitability for Listing (Further Guidelines)


On 5 December 2012, HKEx published a revised listing decision “HKEx-LD43-3” to set out further guidelines in relation to the previous version of the listing decision published on 27 August 2012 in which it determines that the legal questions relating to certain contract-based structures arrangements (Structured Contracts) would not render the listing applicant unsuitable for listing.

For a summary of the previous version of the listing decision, please refer to the article entitled “Contractual Arrangements Would Not Result in Unsuitability for Listing (Further Guidelines)” contained in our previous Capital Markets Quarterly Update (July to September 2012). Please read this article in conjunction with the previous version of the listing decision.


A new provision requiring a listing applicant using Structured Contracts for the entire or part of its business to disclose in its prospectus details of any insurance purchased to cover the risks relating to the Structured Contracts or a prominent disclosure that those risks are not covered by any insurance. You may download copies of the listing decision via the link below: Documents/LD43-3.pdf

Click here to view glossary.