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The Mofo Guide to Hong Kong Ipos a COMPLEX SUBJECT MADE SIMPLE

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The Mofo Guide to Hong Kong Ipos a COMPLEX SUBJECT MADE SIMPLE THE MOFO GUIDE TO HONG KONG IPOS A COMPLEX SUBJECT MADE SIMPLE. A WEALTH OF EXPERIENCE. INNOVATIVE IDEAS. PRACTICAL SOLUTIONS. This IS MOFO. LearN MOre at www.MOFO.COM. FOrewORD The transition from private to public ownership is a major step in the lifecycle of a company, involving a complex and often challenging process of dealing with regulators, investors and professional parties, while continuing to run the company’s business. As one of the world’s preeminent international financial centers, Hong Kong has become a destination of choice for many companies seeking to make this transition through an initial public offering (“IPO”) and listing on the Hong Kong Stock Exchange. The MoFo Guide to Hong Kong IPOs (“Guide”) aims to help companies and their advisers successfully navigate this transition by providing a comprehensive overview of the IPO process in Hong Kong, with an emphasis on listings on the Main Board of the Hong Kong Stock Exchange. The Guide covers the IPO process from the preliminary planning stages and pre-IPO considerations all the way up to, and including, a listed company’s post-IPO obligations. The Guide also discusses listing issues pertinent to companies in specific industries, such as mineral and natural resources companies, as well as issues that arise when conducting an international offering to investors in other jurisdictions, such as the United States. Practical tips are included throughout the Guide based on our experience advising on Hong Kong IPOs over the years. While we have tried to make the Guide as informative as possible, please kindly note that it is only an overview of the major legal, regulatory and practical issues involved in the Hong Kong IPO process as of November 5, 2012 and therefore should not be relied upon as legal advice in any jurisdiction. Because of the generality of the Guide, the information provided herein may not be applicable to all situations and should not be acted upon without specific legal advice based on particular situations. Finally, we also invite you to visit our publications website for our China Capital Markets practice (www.mofo.com/hk-capital-markets), where you will be able to find even more resources, including our Hong Kong Capital Markets Quarterly News newsletter. If you wish to obtain a free subscription to our Hong Kong Capital Markets Quarterly News, please send an email to [email protected]. We hope that you enjoy the Guide and find it readable, helpful and useful. Please do not hesitate to contact any of the members of our capital markets team if you have any questions or comments. CONtacts STEPHEN BIRKETT [email protected] +852 2585 0818 CHARLES Chau [email protected] +852 2585 0828 MELODY HE-CHEN [email protected] +852 2585 0887 JOHN MOORE [email protected] +852 2585 0869 VEN TAN [email protected] +852 2585 0836 GREGORY WANG [email protected] +852 2585 0856 INside Chapter 1: Deciding to Go Public 1 Chapter 2: Regulatory Overview 5 Principal Statutory and Non-statutory Rules 5 Principal Regulators 10 Chapter 3: Key Requirements for a Listing in Hong Kong 13 Summary of Key Main Board Listing Requirements 13 Summary of GEM Listing Requirements 19 Chapter 4: Pre-IPO Preparation 21 Corporate Restructuring 21 Strategic Investors and Pre-IPO Placings 23 Selecting a Sponsor and Underwriter 28 Chapter 5: The Key Parties 31 Chapter 6: The IPO Process 37 Methods of Listing 37 Listing Timetable and Document Submission 39 Due Diligence—PN21 and Rule 10b-5 41 Approval and Registration of Prospectus 45 Underwriting and Other Contractual Arrangements 47 Comfort Letters, Legal Opinions and Closing Documents 51 INside Chapter 7: Marketing, Sales and Stabilization 55 Publicity Restrictions 55 Pre-deal Research and Investor Education 64 Structuring and Pricing the Offer 67 Placees and Placing Guidelines 70 Stabilization and Over-allotment 73 Chapter 8: The Prospectus 77 Prospectus Liability 77 Prospectus Contents 82 Chapter 9: Specific Listing Issues 91 Listing Applicants from Overseas Jurisdictions 91 PRC Businesses 92 Mineral and Natural Resources Companies 93 Competing Business of Controlling Shareholder and Independence from Parent Company 95 Connected Transactions 97 Pre-IPO and Post-IPO Share Option Schemes 101 Hong Kong Depositary Receipts 102 Business Trusts 105 Structured Contracts 105 Chapter 10: Corporate Governance 109 Sources 109 Directors 110 Audit, Remuneration and Nomination Committees 113 Company Secretary 114 Model Code for Securities Transactions by Directors 115 Environmental, Social and Governance Reporting 116 6 THE MOFO GUIDE TO HONG KONG IPOS INside Chapter 11: International Offerings 117 Regulation S and Rule 144A Safe Harbors 117 H- and A-Share Dual Listings 120 Chapter 12: Post-listing Continuing Obligations 123 Statutory Disclosure Regime 123 Announcement, Circular and Disclosure Obligations 130 Board and Shareholder Meetings 134 Disclosure of Share Interests 136 Insider Dealing 139 Issue of Shares 141 Rights Issues and Open Offers 142 Suspension and Resumption of Trading 143 Share Repurchases 145 Public Float 147 Notifiable and Connected Transactions 148 Glossary 150 MORRISON & FOERSTER 7 CHAPTER 1 DECIDING TO GO PUBLIC Going public is a monumental decision for any company. The preparation for “being public” is just as crucial as the preparation for “going public.” When considering an IPO, a company should carefully evaluate both the benefits and the burdens of becoming, and maintaining itself as, a public company. A company may also wish to evaluate alternatives to achieving capital raising, liquidity or other goals, such as a private sale, a merger or corporate partnering arrangements. CONSIDERING THE BENEFITS AND BURDENS OF GOING PUBLIC PROS CONS • Raise capital and provide liquidity for current investors • Increased expenses • Increase market value and name recognition • Significant disclosure obligations • Research analyst coverage • Pressure for financial performance • Future access to capital for growth • Restrictions on insider dealing • Securities become attractive currency to potential • Increased risk of legal exposure acquisition targets • Investor relations management • Improve corporate governance and transparency • Ability to attract and keep key personnel IS THE COMPANY READY? Before embarking on an IPO, a company’s board and management should objectively assess their readiness for life as a public company, including: • the company’s business and financial track record and outlook; • the principal risks of the business; • the level of experience and commitment of the company’s management team; • the adequacy of the company’s internal control systems and procedures; • the maturity of the company’s governance structures; • the company’s willingness to comply with disclosure and reporting requirements; and • the company’s readiness to deal with analysts, institutional investors and the public. 1 THE MOFO GUIDE TO HONG KONG IPOS CHAPTER 1 › DECIDING TO GO PUBLIC WHY LIST IN HONG KONG? As an international financial center, Hong Kong is one of the world’s leading capital markets, with the Stock Exchange of Hong Kong Limited (the “Exchange”) being a favored venue for IPO fund-raising activities. In 2011, total IPO funds raised in Hong Kong amounted to approximately US$36.2 billion, making Hong Kong the world’s largest IPO exchange for a third consecutive year. Total equity funds raised on the Exchange in 2011, including IPOs and post-IPO fund-raising, were more than US$60 billion. At the end of September 2012, there were more than 1,500 companies listed on the Main Board of the Exchange, among which were more than 700 Mainland Chinese enterprises comprising approximately 56% of the total market capitalization. While Hong Kong has long been a preferred venue for Chinese companies seeking to tap the international capital markets, it is increasingly becoming a popular listing venue for companies outside of Hong Kong and China looking to access the region’s capital pools and seeking to raise brand awareness in China and throughout Asia. The end of 2011 saw a dramatic increase in the number of overseas companies seeking a listing on the Exchange, including Swiss mining firm Glencore International, Italian fashion house Prada, U.S. luggage maker Samsonite and Japanese online financial services firm SBI Holdings. For Chinese issuers, Hong Kong has a clear advantage over other countries and regions in that its investment community has an in-depth understanding of Mainland China’s business environment, economy and future development. Accordingly, Hong Kong is ideally positioned to support Mainland China’s immense capital and financial needs. MORRISON & FOERSTER 2 CHAPTER 1 › DECIDING TO GO PUBLIC Other advantages of listing in Hong Kong include: • Hong Kong acts as a gateway to Mainland China and Asia and offers opportunities for greater exposure to China and the rest of Asia. • Hong Kong has a well-established legal system based on English common law, as well as a sound regulatory framework that promotes a high level of disclosure from listed companies. • The Exchange promotes the use of international accounting standards, as well as other recognized accounting standards under certain circumstances, such as secondary listings. • Hong Kong provides for the free flow of capital, with tax advantages, currency convertibility and the free transferability of securities. • Hong Kong has continued to develop as an offshore RMB fund-raising center, which provides future fund-raising opportunities for companies seeking to expand in Mainland
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