Alumni Seminar - Capital Market Updates and Preparing for HKFRS 16 23 November 2018 Disclaimer This presentation contains general information only and Deloitte Touche Tohmatsu is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Touche Tohmatsu, its affiliates and related entities shall not be responsible for any loss sustained by any person who relies on this presentation. © 2018©. F2018or info.r mFoarti oinfn, ocromntactti oDne,lo cittoent Cachinta. Deloitte China. 2 Speakers Edward Au Kenneth Chan Co-Leader Partner National Public Offering Group Audit & Assurance Deloitte China Partner Audit & Assurance [email protected] Deloitte China +852 2852 5622 [email protected] +852 2852 1266 © 2018. For information, contact Deloitte China. 3 IPO Market Update © 2018. For information, contact Deloitte China. 4 The Rules Changes © 2018. For information, contact Deloitte China. 5 Updated listing requirements for MB and GEM Effective 15 February 2018 1.Profit Test § Profits in the last 3 financial years > HK$50 million § Preceding 2 years' aggregate profits > HK$30 million § Most recent year's net profit > HK$20 million § Market capitalization at the time of listing > HK$500million 2. Market Capitalization/ Revenue/ Cash Flow Test § Market capitalization at the time of listing > HK$2 billion § Most recent audited financial year's revenue > HK$500 million § Preceding 3 financial years’ aggregated positive cash flow from operating activities > Main Board HK$100 million 3. Market Capitalization/ Revenue Test § Market capitalization at the time of listing > HK$4 billion § Most recent audited financial year's revenue > HK$500 million § The minimum public float value at the time of listing increases to HK$125 million HK’s Listing A Main Board new applicant must meet one of the three financial criteria above. Framework § Aggregated positive cash flow from operating activities for the 2 years prior to listing > HK$30million § Market capitalization at the time of listing > HK$150million § Substantially the same management for 2 years • The removal of the streamlined process for GEM transfers to the Main Board (including that a sponsor must be appointed at least two months before the submission of a listing application) GEM • An increase in the minimum public float value at the time of listing to HK$45 million • A mandatory public offering requirement (at least 10% of the total offer size) for all GEM IPOs • An extension of the post-IPO lock-up requirement on controlling shareholders to 2 years ©2018. For information, contact Deloitte China 6 A new listing regime since 30 April 2018 3 new chapters in the Main Board Listing Rules for biotech issuers, companies with weighted voting rights (WVR) and a new concessionary secondary listing route Chapter 18A - Companies from the innovative sectors (Min. expected market capitalisation of HK$10 billion at listing biotech companies time) that do not meet any 1. Chapter 8A - Chapter 19C - of the MB financial new secondary eligibility tests 2. with WVR structures 3. listing regime • A minimum expected market • Only applications for listing from • To attract Greater China issuers capitalisation of HK$1.5 billion at new applicants will be considered that have been primary listed on time of listing • If below HK$40 billion of expected the New York Stock Exchange, • Has been in operation in its current market capitalisation at time of Nasdaq or the London Stock line of business for at least two listing, it would need to have at Exchange’s Main Market financial years under substantially least HK$1 billion revenue in its (“premium” only) for at least two the same management prior to full financial years to list in HK listing most recent audited financial year (“Revenue Test”) • If the secondary listing applicants • Must meet the available working with a WVR structure and/or is a • WVR shares must not seek for a capital requirements to cover at Greater China issuer will also have least 125% of the issuer’s costs listing to meet the Revenue Test if it has (including general, administrative, • The voting power attached to WVR an expected market capitalisation operating and R&D costs) for at shares to be capped to not more below HK$40 billion at time of least 12 months from the date of than 10 times of the voting power secondary listing publication of its listing document of ordinary shares after taking the IPO proceeds into • A non-Greater China issuer account without a WVR structure must • Must have previously received have an expected market meaningful third party investment capitalization at time of secondary from at least one sophisticated listing of at least HK$10 billion investor at least six months before • Listing applications can be the date of the proposed listing* submitted on a confidential basis. *HKEX Guidance Letter HKEX-GL92-18 ©2018. For information, contact Deloitte China 7 The Market Perspective © 2018. For information, contact Deloitte China. 8 The market spotlights fall on NEEQ + H Share New technology Full board in circulation Shanghai of H Shares Shanghai- London Stock Connect © 2018. For information, contact Deloitte China. 9 HK regains no. 1, NYSE trails with six mega IPOs IPO proceeds raised by key global stock exchanges (Jan-Oct 2018) Hong Kong 176new listings Stock Exchange 256 New York Stock Exchange 213 56new listings Nasdaq 184 139new listings Deutsche Börse 104 17new listings Shanghai Stock 52new listings Exchange 95 (HK$ billion) HKEX regained no. 1 position with the world’s Deustsche Börse surpassed Shanghai two largest IPOs year-to-date, China Tower through another new listing that raised and Xiaomi more than HK$10 billion in the first half of NYSE surpassed other stock exchanges with October two mega IPOs that raised funds nearly as Shanghai Stock Exchange could only much as China Tower’s IPO take up the 5th position with one small Two Chinese concept stocks that raised new listing in October although over HK$10 billion each helped Nasdaq completed the listings of Foxconn cemented its 3rd place Industrial Internet and others earlier Source: NYSE, Nasdaq, CSRC, Deutsche Börse, HKEX, Bloomberg and Deloitte's analysis as at 31 October 2018; excluding proceedsraised from the exercise of over-allotment options after 31 October 2018 by IPOs that were debuted in October 2018. Including proceeds raised from the listings of real estate investment trusts, but excluding proceeds raised from investment trust companies, close-end investment companies, and close-end funds and special purpose acquisition companies © 2018. For information, contact Deloitte China. 10 Both the number of new listings and IPO proceeds in the first 10 months of 2018 rose strongly in HK New listings +46% Jan-Oct 2018 Proceeds raised HK$255.8 +187% 176 billion new listings 121 new listings Jan-Oct • Both the number of new listings and IPO proceeds 2017 HK$89.2 scaled new heights billion • The number of MB listings continued to exceed that of GEM • Three new economy giants contributed more than 30% of the total proceeds raised Source: HKEX and Deloitte’s analysis as of 31 October 2018; excluding proceeds raised from the exercise of over-allotment options of the newly listed companies on MB, which did not announce their price stabilization actions by 31 October 2018. ©2018. For information, contact Deloitte China. 11 Overview of HK’s IPO market – Jan-Oct 2018 Thanks to the three IPOs raising more than HK$30 billion of proceeds each, total proceeds raised from the top 5 IPOs in the first 10 months of 2018 reached HK$151.9 billion, almost a threefold increase over HK$54.1 billion of the same period of 2018. New economy IPOs played an important role in HK’s IPO market. W W Jan-Oct 2018 4 . Ping An 1. China Tower – 2. Xiaomi Corp-W 3. Meituan 5. Jiangxi H Shares (HK$42.6 billion) Healthcare & Bank – H Shares Dianping-W Technology (HK$58.8 billion) (HK$8.6 billion) (HK$33.1 billion) (HK$8.8 billion) Jan-Oct 2017 1. Guotai Junan 2. ZhongAn Online – 3. Zhongyuan 4. Guangzhou 5. Wuxi Biologics Securities – H Shares H Shares Bank – H Shares Rural Commercial (HK$4.6 billion) (HK$17.2 billion) (HK$13.7billion) (HK$9.3 billion) Bank – H Shares Source: HKEX and Deloitte’s analysis as of 31 October 2018. (HK$9.3 billion) ©2018. For information, contact Deloitte China. 12 IPO applications received and under processing, lapsed applications with approval in principle granted, and rejected applications in the first 10 months of the year all rose in number. Total no. of applications 333 279 19% received* IPO applications under processing this year** 208 162 28% Lapsed applications (i.e. approval in principle 46 28 64% granted but not listed prior to applications lapsed) Rejected applications 18 7 157% Withdrawn applications 8 14 36% Returned applications 0 2 - Source: HKEX and Deloitte’s analysis as of 31 October 2018. Jan-Oct 2018 Jan-Oct 2017 *Includes application(s) by investment vehicle(s) pursuant to Chapters 20 and 21 of the Main Board Listing Rules, application(s)for transfer of listing from GEM to the Main Board, and deemed new applicant(s)pursuant to Main Board Listing Rule 8.21C or Main Board Listing Rule 14.84,and very substantial acquisition(s) treated as reverse takeover(s) pursuant to Main Board Listing Rule 14.06(6)/GEM Listing Rule 19.06(6).