Bloomberg Law
March 6, 2020, 11:34 PM

ANALYSIS: Coronavirus Questions for Hong Kong IPO Applicants

Preston Brewer
Preston Brewer
Legal Analyst

The increasing alarm and disruption surrounding the worldwide spread of the COVID-19 coronavirus has pushed the HKEX, the Hong Kong stock exchange, to ask IPO applicants to detail, in their public disclosures, the virus’s impact to their business and their response to the disease, according to Reuters.

The Hong Kong stock exchange, recently named the world’s leading IPO market, has quietly begun asking companies applying to list on its exchange to address five coronavirus questions in their initial public offering listing applications.

The Reuters report cited three sources (none of whom were named because the information is not yet public) who disclosed that the exchange is requesting companies applying to go public on HKEX to explain how COVID-19 is impacting their operations, including supply chain disruptions. Companies also are being asked to describe their business contingency plans and, should their business operations be suspended, how that drastic development would affect their burn rate of existing cash balances. These specific questions are likely to derive from either Main Board Rule 2.03 or GEM Rule 2.06(2) requirements, which mandate, in part, “that potential investors are given sufficient information to enable them to make a properly informed assessment of an issuer.”

Company answers to these virus-related business impact queries are appearing with varying frequency in their IPO filings. For example, C-Link Squared Limited mentions COVID-19 16 times and coronavirus 34 times in its March 2, 2020 application for a public offering. Fulu Holding Limited refers to COVID-19 30 times and coronavirus 3 times in its February 28, 2020 listing application. But, by contrast, Wealthy Thunder Ltd only refers to coronavirus four times and COVID-19 three times in its March, 6, 2020 application to HKEX. In those three filings, COVID-19 disclosures most commonly appear under section headings for recent developments, risk factors, and health and work safety matters.

In the U.S., neither the exchanges nor the SEC have publicly sought additional disclosures to address this disease, but the SEC is providing companies impacted by the virus an additional 45 days to file certain disclosures, subject to explaining why their circumstances justify the additional time. The Hong Kong Securities and Futures Commission (SFC) and the Stock Exchange of Hong Kong (the Exchange) issued a joint statement Feb. 4 to address the potential difficulties, including travel and other restrictions, that listed companies and their auditors might experience filing required disclosures on time due to the impact of COVID-19.

The guidance advises filers to contact the Exchange as early as possible to discuss their circumstances and to provide certain information detailed in the joint statement about those circumstances, as best they can. In contrast to the SEC, which prefers registrants file fully during the extended time-frame rather than filing on-time but incomplete disclosure, the SFC and the Exchange lean in favor of asking registrants to file preliminary information on or before the usual deadline, provided the “information is accurate and complete in all material respects.”

Hong Kong-listed public companies should describe uncertainties in their disclosure, such as those relating to the valuation of assets or liabilities, and explain the effects of those uncertainties. Both Hong Kong regulatory entities are looking to balance the practical realities of the virus’s impact with their mutual goals of minimizing trading disruptions and ensuring investors continue to have sufficient, timely information to make informed investment decisions.

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