Recent Updates to HKSI Paper 5 Version 3.2 Manual – Regulation of Corporate Finance

Recent Updates to HKSI Paper 5 Version 3.2 Manual – Regulation of Corporate Finance

The following updates are examinable from 30 December 2020

 

TOPIC 1 – OVERVIEW OF THE LEGAL AND REGULATORY STRUCTURE AND CODE OF CONDUCT

Revision of Corporate Finance Division functions

Corporate Finance Division (important for Paper 5):

  • Vets listing applications together with the SEHK
  • Monitors listed companies’ announcements to identify misconduct or irregularities
  • Administers the Codes on Takeovers and Mergers and Share Buy-backs
  • Supervises listing-related activities of Stock Exchange (SE administers listing process)
  • Reviews and recommends changes to Listing Rules
  • Reviews and authorises prospectuses and marketing materials for unlisted issuers for unlisted shares or debentures
  • Intervenes at an early stage in serious cases of suspected misconduct in listing applications and corporate transactions by the powers under the Securities and Futures (Stock Market Listing) Rules

Updates to ESG Guide

Environmental, Social and Governance Reporting Guide (ESG)

  • The ESG Guide sets out “comply or explain” provisions that allow flexibility to issuers along with mandatory disclosure requirements
  • ESG reflects developments internationally including Mainland China, UK, US, Singapore and Australia
  • Two subjects that need to be reported on:

Environmental

  • Emissions
  • Use of resources
  • Policies on minimising environmental and natural resources
  • Climate change

Social

  • Labour issues, including employment laws, health and safety and development and training
  • Supply chain management
  • Product responsibility
  • Anti-corruption measures
  • Community engagement
  • Issuer will need to report ESG information on both the issuer’s website and the HKEx’s website. It may also choose to report the information in its annual report
  • Where the issuer elects not to include the ESG report in the annual report, it is encouraged to publish the ESG report at the same time as the publication of the annual report
  • The issuer should publish the ESG report within five months of the relevant financial year end and inform any intended recipient of how to access the report on its website
  • The information reported should be based around four reporting principles:
    • Based on the materiality of the issue to investors and other stakeholders
    • Based on quantitative assessment of the KPIs
    • Presents a balanced and unbiased picture of the issuer’s performance
    • Use of consistent methodologies to facilitate meaningful comparisons over time
  • Issuer may also consider whether to obtain independent assurance to strengthen the credibility of the disclosed ESG information

 

TOPIC 2 – LISTING ON THE STOCK EXCHANGE OF HONG KONG LIMITED (SEHK)

Material added covering the definition of “public”

  • “Public” refers to persons:
    • Who are not a director, chief executive or substantial shareholder of the issuer, or their close associates
    • Who are not being directly or indirectly financed by any of the core connected persons in the acquisition of securities
    • Who are not accustomed to taking direction from any of the core connected persons regarding acquisition, disposal or voting of the securities

Material added covering preferential treatment:

    • Directors of the listing applicant, their close associates and existing shareholders who wish to subscribe for shares in an offering are prohibited from receiving any preferential treatment

 

TOPIC 3 – TAKEOVERS AND MERGERS AND SHARE BUY-BACKS

Material added relating to interpretation of the Codes:

  • The Codes are supplemented by Practice Notes, Executive Statements and Panel Statements providing details of how the Codes might be interpreted by the Panel and the Executive

Material added relating to financial advisers:

  • A financial adviser to an offeror is required to confirm in the offeror’s offer announcement that the offeror’s financial resources are sufficient to complete the offer if successful

Material added relating to Scheme of Arrangement:

  • Where an offeror seeks to take over an offeree company by way of a scheme of arrangement or capital reorganisation, shareholders of the offeree company will need to approve a resolution, subject to the following:
    • Shareholders of at least 75% of disinterested shares must approve the delisting by voting in person or by proxy
    • Shareholders voting against the delisting must not exceed 10% of disinterested shares

Material added regarding mandatory and voluntary offers:

  • In both cases, the offer will be conditional upon the offeror and persons acting in concert holding more than 50% of the offeree company’s voting rights as a result of the offer

Material revised regarding findings of Takeovers and Mergers Panel:

  • Where there has been no finding of a breach of the Codes, either the Executive or the Panel may report a person to other regulatory authorities or professional bodies if they have reasonable grounds to believe that the person may have breached any applicable rules/regulations/codes of conduct

 

TOPIC 4 – MISCELLANEOUS

Slight change to when options may be granted:

  • No options can be granted while inside information exists until it has been properly disclosed. It may only grant options until, and including) the trading day after the announcement of such information