Form of Memorandum from Sponsor to Issuer
Re: Project [●] – Control of information to investment research analysts
This memorandum sets out important Hong Kong laws and regulations regarding communications between the Company and investment research analysts during the listing application process.
The securities offering is made on the basis on the prospectus only
Throughout the listing preparations, it is crucial to bear in mind that the contemplated offer of securities by the Company in Hong Kong must be made solely on the basis of the prospectus (and in the case of the offer to participants in the international offer, on the basis of the international offering circular the contents of which substantially mirrors the prospectus). In other words, public as well as institutional investors should make their investment decision on the basis of these documents only.
Serious legal consequences of existence of another selling document
[As outlined in the publicity memorandum to you dated [●],] there are serious legal consequences if investors are found to have relied on information contained in a different document – e.g. a research report – to make their investment decision. A document, by whatever name it is called, which offers securities or invites others to acquire securities carries legal risks of being an “investment advertisement” under the Securities and Futures Ordinance, as well as a “prospectus” under the Companies Ordinance.
Personal liability of directors
If material information not in the prospectus is disclosed by the Company or any of its directors, employees or substantial shareholders, or any of their respective advisers, to an analyst who uses such information in his or her research report, this may have serious consequences as it triggers onerous legal compliance matters including registration requirements, mandatory content requirements and language requirements for the research report. Failure to comply with such requirements may result in statutory liabilities on the part of the Company as well as the directors.
In normal cases, neither the Company nor its directors or senior management is liable for “independent research” produced by analysts. However, if the Company is too closely involved in the preparation of investment research, there is a risk that the analyst’ s independence may be compromised and the resulting research will be taken to be representations by the Company. This may in turn give rise to the argument that the Company’s securities are being offered partly on the basis of the research. In this case, any error, inaccuracy or misleading statement in the research report could give rise to contractual claims against the Company for investor’s compensation, as well as statutory penalties for misstatements. In some circumstances, the research report may be taken to be a prospectus in itself, and if this is the case, any misstatement in it may lead to personal liabilities, including criminal liabilities, for the directors and senior managers concerned.
Do not provide research analysts with non-prospectus material information
To avoid the risk of liability, the directors and senior management of the Company must ensure that no material information, including forward-looking information (whether qualitative or quantitative) concerning the Company that is not reasonably expected to be included in the prospectus or publicly available, is provided to any investment research analyst. When assessing whether any such information is「material」information, the test that should be applied is whether the information is material to an investor in forming a valid and justifiable opinion of the Company and its financial condition and profitability.
This restriction covers any information provided to an analyst, directly or indirectly, formally or informally, and in writing or verbally. It covers all communications in a meeting, during a presentation, site visit or interview, or in any other context.
Consequences of disclosure to research analysts
If the Company discloses to an analyst material information that is not reasonably expected to be included in the prospectus or publicly available, there are immediate legal and regulatory risks and the Company may be compelled to disclose the same information in the prospectus.
In the event of disclosure (whether intentional or otherwise) to analysts, corresponding disclosure of the material information in the prospectus may be required, even if such information is in fact inappropriate for a prospectus and/or cannot be verified. Once such information is put into the prospectus, the directors take full responsibility for its truthfulness, accuracy and completeness in the same way as for all the other information in the prospectus.
As a corporate finance advisory firm licensed by the SFC to carry on the work of a sponsor, we are under an express regulatory requirement to ensure that all material information, including forward-looking information (whether quantitative or qualitative) disclosed or provided to research analysts is contained in the prospectus or is publicly available.
Please seek assistance
In view of the above, [the Sponsors in this project] reserve all rights to supervise and coordinate, monitor and/or place restrictions on all communications between the Company and research analysts throughout the listing application process.
The Company is strongly advised to seek the guidance and assistance of [names of the Sponsor and both teams of Hong Kong legal advisers] if there are any uncertainties in this area.
HKCFEF Limited 及撰文律師行、會計師及保薦人並非透過本《盡職審查指引》提供法律、財務或專業意見或服務，亦不應予以依賴作此用途。本《盡職審查指引》不應用作任何決定、行動或不予行動的唯一依據，亦不擬替代合資格專業人士意見。請點擊這裡以查看使用條款