1 Streamlining on circular and listing document requirements Joseph Choi Senior Manager Compliance and Monitoring Department Listing Division, HKEx

2 Purposes -Make document contents relevant for shareholders -Eliminate unnecessary restrictions or compliance burdens -Facilitate timely despatch of circulars Background

3 September 09Consultation paper on “Proposed Changes to Requirements for Circulars and Listing Documents of Listed Issuers” November 09Consultation period end May 10Consultation conclusions 3 June 10Effective date of new Rules Background

4 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 Issues

5 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 Issues

6 C.Despatch of circular –Transaction / supplementary circulars Issues

7 Financial disclosure

8 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” Accountants’ report requirements for VSD

99 New rule ReviewAudit Disposal Target [R14.68(2)(a)(i)(A)] Option A Financial information of disposal target Reviewed by reporting accountants Accountants’ report on disposal target [Note 1 to the rule] Issuer Group [R14.68(2)(a)(i)(B)] Option B Financial information of issuer group, with separate note disclosure on disposal target Reviewed by reporting accountants Accountants’ report on issuer group, with separate note disclosure on disposal target [Note 1 to the rule] Assurance level Financial information Accountants’ report requirements for VSD

10 Old RuleNew 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 Option A (Review)Option B (Review) The Disposal Target’s financial information comprising -income statement - balance sheet - cash flow statement - statement on changes in equity The issuer group’s financial information comprising - 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 Content requirements Accountants’ report requirements for VSD

11 Old RuleNew Rule Auditing Guidelines – Prospectus and the Reporting Accountants (Statement 3.340) issued by HKICPA - opine on whether financial information gives true and fair view 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) Assurance level requirement Accountants’ report requirements for VSD

12 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] Accountants’ report requirements for VSD

13 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] Dec 07Jan 07Dec 08Dec 09Jun 10 Issuer Group with separate note on Disposal Target (Option B) Disposal Target (Option A) Accountants’ report requirements for VSD Sept 10 VSD circular date

14 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] Accountants’ report requirements for VSD

15 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 Reporting period of accountants’ report in acquisition circulars

16 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)] Reporting period of accountants’ report in acquisition circulars

17 Dec 06Dec 07Dec 08 Dec 09 Apr 10 Dec 05 Proposed Circular date: Apr 2010 Old rule New rule Oct 09 Reporting period of accountants’ report in acquisition circulars

18 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 Statement of sufficiency of working capital

19 New rule Clarify that the working capital statement in circular must take into account effect of the transaction [R14.66(10)] Statement of sufficiency of working capital

20 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)] Reproduction of published financial information

21 New rule Allow issuer to incorporate those published financial information by reference [Note 6 to App 1B] Reproduction of published financial information

22 Reproduction of published financial information DocumentsPublished financial information which can be incorporated by reference under new rule [Note 6 to App 1B] Circulars Major acquisition VSA Listing documents Rights issue Open offer Financial information of -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) 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)]

23 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] Reproduction of published financial information

24 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 Enlarged group’s combined financial information

25 Mar 1031 Dec 09Jun 10 Year endMajor acquisitionVSA 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 Enlarged group’s combined financial information

26 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) Enlarged group’s combined financial information

27 Non-financial disclosure

28 Issuers must include directors’ responsibility statement in MB –notifiable / connected transaction circular –listing document GEM –announcement –notifiable / connected transaction circular –listing document Directors’ responsibility statement

29 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.” Directors’ responsibility statement

30 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.” Directors’ responsibility statement

31 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  included in announcement (b)INED’s views  included in announcement (c)whether any directors have material interest in the transaction and have abstained from voting at board meeting  not included in announcement Board minutes for connected transactions

32 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 Board minutes for connected transactions

33 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 Circular content requirements for transaction involving acquisition and disposal

34 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] Circular content requirements for transaction involving acquisition and disposal

35 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] Listco Buyer Listco sells Subsidiary to Buyer; consideration includes cash and Target Sale of subsidiary : Major disposal Acquisition of target : Discloseable transaction Circular content requirements for transaction involving acquisition and disposal Subsidiary Target (property company)

36 Old RuleNew Rule Classification to determine applicability of shareholder approval requirement 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  X Valuation report on acquisition target’s property interests  X Pro forma financial information  X Circular content requirements for transaction involving acquisition and disposal

37 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 Disclosure for Overseas / PRC issuers

38 Despatch of circular

39 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 Transaction circular

40 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] Transaction circular (excluding information circular)

41 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 Transaction circular (excluding information circular)

42 1. VSA announcement date 2. Deadline for notice of special GM under Mandatory Provision 3. Deadline for notice of special GM under PRC Company Law 4. Special GM Date Transaction circular (excluding information circular) 30 days15 days X Old rule New rule Circular despatch deadline 14 Jun 105 Jul 104 Aug 1019 Aug 10 Circular despatch deadline

43 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] Information / supplementary circular

44 New requirements apply to documents issued on or after 3 June 2010 Effective date

45 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 1 Jun 103 Jun 1022 Jun 1030 Jun 10 VSA announcement date Deadline for circular despatch under old rule New expected circular despatch date New rule effective Effective date Delay in despatch

46 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 Effective date

47 Thank you