July 9, 2014 / 9:41 AM / 3 years ago

Hong Kong regulator warns bankers on IPO rules

HONG KONG, July 9 (Reuters) - Hong Kong’s securities watchdog has warned investment bankers they need to provide “meaningful disclosure” for initial public offerings (IPOs) as the regulator attempts to improve corporate governance.

The Securities and Futures Commission (SFC) said in its inaugural newsletter on listing disclosures that bankers could not just tick the boxes on the same checklist for each IPO.

The SFC’s new sponsor regime requires IPO applications to be substantially complete upon submission and represent a major cultural shift for IPO bankers who were accustomed to filing rushed, incomplete submissions that often bore little resemblance to the final prospectus.

The SFC said IPO submissions had generally improved as a result of its new rules, but said the quality of disclosure remains an issue in some cases.

“Each listing applicant is unique and there can never be a ‘one-size-fits-all’ checklist for the preparation of meaningful disclosure in the listing document,” the SFC said. “An applicant and its sponsor should critically assess what constitutes meaningful disclosure in the applicant’s context rather than taking a mechanical box-ticking approach,” it added.

Hong Kong introduced tighter IPO rules in October last year, putting greater responsibility on banks sponsoring the offers in an effort to improve the quality of IPOs.

A series of auditing scandals have raised questions over the quality of IPO due diligence and undermined investor confidence.

Chinese textile maker Hontex International Holdings Co had its shares suspended in 2010, just three months after listing, when regulators alleged it overstated its financial position in the listing prospectus.

Authorities revoked the licence of the sponsor of the Hontex listing, Mega Capital (Asia), and hit it with a record fine. Hontex had its listing canceled in September 2013.

The new rules come at a critical time for Hong Kong’s IPO market after the Hong Kong stock exchange lost e-commerce giant Alibaba Group Holding Ltd’s IPO to New York, prompting a furious debate over the future of Hong Kong’s status as one of Asia’s major listing destinations.

The SFC also raised concerns over sloppy company profit warnings, which it said are frequently lacking in clarity and contain no material information. It urged issuers to make more meaningful disclosures containing specific figures.

The SFC also signaled its intent to clamp down on delayed disclosures, warning that the most egregious cases may be referred to the SFC’s enforcement division.

Separately, the Hong Kong Exchanges and Clearing Ltd introduced a new so-called “name and shame” regime in April, under which incomplete applications will be rejected and the banks and issuers submitting such applications will be named publicly and face an eight-week waiting period to refile their documents. (Editing by Denny Thomas and Matt Driskill)

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