Coronavirus questions for Hong Kong IPO applicants

The increase alarm and disturbance surrounding the global spread of COVID-19 coronavirus pushed the HKEX, the Hong Kong Stock Exchange, to ask candidates for the IPO to detail, in their public disclosures, the viruss impact on their business and their response to the disease, according to Reuters.

The Hong Kong Stock Exchange, recently named the worlds first IPO market, quietly began to ask companies wishing to register on its five questions about coronaviruses in their first public offering.

The Reuters report cited three sources (none of which were named because the information is not yet public) which revealed that the stock market was asking companies wishing to go public on HKEX to explain how COVID -19 affected their operations, including disruptions in the supply chain. Companies are also invited to describe their emergency plans and, if their business operations are suspended, how this drastic development would affect their burn rate of existing cash balances. These specific questions are likely to arise from Main Council Rule 2.03 or the requirements of GEM Rule 2.06 (2), which require, in part, that potential investors receive sufficient information to enable them to make a properly informed assessment of an issuer.

The responses of companies to these requests for commercial impact linked to viruses appear with variable frequency in their IPO repositories. For example, C-Link Squared Limited mentions COVID-19 16 times and coronavirus 34 times in its public offer request of March 2, 2020. Fulu Holding Limited refers to COVID-19 30 times and coronavirus 3 times in its February 28, 2020 registration request. However, Wealthy Thunder Ltd only mentions the coronavirus four times and COVID-19 three times in its March 6, 2020 application to HKEX. In these three filings, the COVID-19 disclosures most often appear under section headings for recent developments, risk factors and occupational health and safety issues.

In the United States, neither the stock exchanges nor the SEC have publicly requested additional disclosures to fight the disease, but the SEC provides businesses affected by the virus with a 45 additional days to deposit certain disclosures, subject to explaining why their situation justifies the additional delay. The Hong Kong Securities and Futures Commission (SFC) and the Hong Kong Stock Exchange (the Stock Exchange) issued a joint statement on February 4 to address potential difficulties, including travel and other restrictions, that listed companies and their auditors may meet during the filing. timely disclosures due to the impact of COVID-19.

The guidelines advise reporters to contact the Exchange as soon as possible to discuss their situation and to provide, where possible, certain information detailed in the joint statement on these circumstances. Unlike the SEC, which prefers that filers file in full over a longer period of time than filing a timely but incomplete disclosure, the SFC and the Exchange are in favor of asking filers to file preliminary information no later than the usual deadline, provided the information is accurate and complete in all material respects.

Public companies listed in Hong Kong should describe the uncertainties in their disclosure, such as those relating to the valuation of assets or liabilities, and explain the effects of these uncertainties. The two Hong Kong regulatory entities seek to balance the practical realities of the impact of viruss with their mutual goals of minimizing trade disruption and ensuring that investors continue to have sufficient and timely information to take informed investment decisions.

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