Has The Stock Exchange of Hong Kong Limited (“SEHK”) or the Securities and Futures Commission (“SFC”) made any special arrangements for SEHK listed companies which are unable to comply with relevant financial reporting obligations under the Rules Governing the Listing of Securities on SEHK (the “Listing Rules”)?
On 4 February 2020, SEHK and SFC issued the Joint Statement in Relation to Results Announcements in Light of Travel Restrictions Related to the Severe Respiratory Disease Associated with a Novel Infectious Agent (the “Joint Statement”) to provide guidance to listed companies and their auditors in view of travel and other restrictions arisen out of the Novel Coronavirus ("COVID-19") outbreak.
According to the Joint Statement, if a listed issuer believes that as a result of restrictions arising out of the COVID-19 outbreak, there is a real possibility that it will be unable to publish a preliminary announcement of results or audited financial statements in accordance with the Listing Rules, it should contact SEHK as early as possible to discuss the situation, providing the following information:
(a) a description of the restrictions which have affected its auditing or reporting process;
(b) where available, an account of why these restrictions have meant that it is unable to comply with the relevant reporting requirements set out in the Listing Rules;
(c) the financial information that it is nevertheless still able to report on, and
(d) an explanation of whether the accuracy, completeness and presentation of the financial information available is believed to have been adversely affected and, if so, to what extent.
Where a listed company is unable to obtain agreement from its auditors but is otherwise in all respects able to satisfy its financial reporting obligations under the Listing Rules, it should publish such preliminary results (without the agreement with its auditors) on or before the deadline. In such cases, SEHK will normally allow trading in the securities of the listed company to continue.
In all other cases, the listed company should consult with SEHK as soon as possible on the financial information that it is able to report on. SEHK, in consultation with the SFC, will assess whether publication of this information will be sufficient to maintain an orderly, informed and fair market so that trading in the securities of the listed issuer can continue. In making their assessment, SEHK and the SFC will consider the views of the listed company’s audit committee on the unaudited financial information available to the issuer.
Are there any obligations on a listed company to make any announcements in relation to the COVID-19 outbreak?
A listed company is required, unless otherwise exempted, to make accurate disclosure of information not generally known to persons accustomed/likely to deal in its listed securities which may have a material effect on the price of the securities of the company (the “Inside Information”) to the public as soon as reasonably practicable after any Inside Information has come to its knowledge. SEHK and SFC have reminded listed companies in the Joint Statement to make separate announcements where a listed company's business operations, reporting controls, systems, processes or procedures are materially disrupted by the COVID-19 outbreak. Directors of a listed company are expected to exercise judgment on whether such information constitutes Inside Information.
Have Hong Kong regulators made any special arrangements on filing, reporting and other obligations under Hong Kong laws and regulations?
In addition to the Joint Statement, SFC made an announcement on 5 February 2020 in relation to the operational difficulties experienced by licenced corporations and applicants during the COVID-19 outbreak. SFC expects the licensed corporations and applicants to make all reasonable efforts to maintain “business as usual” in relation to their regulatory obligations and all regulatory filing, reporting and other deadlines. They are encouraged to communicate promptly with the SFC if they encounter specific difficulties arising from the coronavirus situation.
The Hong Kong Monetary Authority (“HKMA”) issued a circular in relation to authorized institutions' obligations under Hong Kong banking laws in face of the COVID-19 outbreak. Where an authorized institution encounters operational difficulties in meeting statutory deadlines under section 60 of the Banking Ordinance (Cap. 155 of the laws of Hong Kong) and anticipate the need for an extension period, it may apply to HKMA in writing as soon as practicable. The HKMA will consider whether an extension is justifiable taking into account, among other considerations, the impact of COVID-19 on the authorized institutions. Authorized institutions are also encouraged to approach HKMA as soon as practicable if they anticipate difficulties in meeting deadline for making required disclosures under the Banking (Disclosure) Rules (Cap.155M of the laws of Hong Kong).
To date, the Companies Registry has not announced any special relaxation measures on relevant filing and reporting obligations.
How does COVID-19 affect the initial public offering (“IPO”) processes in Hong Kong?
Sponsors should carefully consider the travel restrictions imposed by local and foreign governments when designing their due diligence plans. The travel restrictions may pose significant impediments in conducting site visits or physical interviews and can greatly affect schedule of IPOs.
We also observe that SEHK has been cautious about the impact of COVID-19 on the business operations of listing applicants. Listing applicants should take appropriate measures to mitigate the adverse impact of COVID-19 on its business and ensure compliance with new laws and regulations enacted in response to the COVID-19 outbreak. Sponsors should carefully assess whether their due diligence plans have sufficiently covered relevant issues, including but not limited to the impact of COVID-19 on the supply chain of the listing applicant and market demand for the listing applicant's products and services, as well as actions taken by the listing applicant to comply with relevant laws and regulation. We also note that listing applicants are required to disclose in their prospectuses, among other things, the impact of supply chain disruptions on their operation, their business contingency plans, any change in the use of proceeds and profit/cash flow forecast in light of the COVID-19 outbreak.
For further information, please contact:
James Fong, Partner, Bird & Bird