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Going public Growing private enterprises often consider a Stock Exchange listing to accelerate business expansion. Preparation is essential for a successful flotation, so providing management with appropriate advice is vital. When exploring an initial public offering (IPO) as part of your strategic planning, you need to critically assess your business and its prospects in the public market. An IPO is the beginning of a process, not the end. It requires setting clear objectives together with careful and long-term planning.

STEPS TO FLOTATION Preparing the transaction

Considerations Expect to be driven by forces outside of your control. Be sure to weigh the pros and cons in light of your vision of the company’s direction, and discuss alternatives with your professional advisers before you embark on the IPO route. BENEFITS

DRAWBACKS

Obtaining regulatory approvals

• • •

• •

Marketing and pricing

• •

Enhances access to capital Improves company profile Reduces personal funding and guarantees Business succession Helps attract and retain talent

• •

Increases pressure to grow Additional demands on senior management due to increased transparency and regulation Dilutes control Listing and ongoing compliance costs

Preparation and suitability for listing The market readily accepts companies that demonstrate the following: • • • •

Undertaking accounting, legal and other due diligence requirements

A track record of revenue growth Strong leadership team Strong financial controls Good growth prospects

All companies aspiring to list should fulfil all of the above criteria. Early consideration should be directed to financial systems, accounting policies, reporting lines, corporate and board structure and the most appropriate time to enter the market from a fund-raising perspective.

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Listing


The Baker Tilly Hong Kong team will assist you in each stage of the IPO process, from pre-IPO readiness tests through post IPO strategies. An applicant should not underestimate the amount of time required for the listing process, and this will vary from company to company. The process could take up to one year. The cost of going public typically ranges from 5% to 30% of the capital raised, depending on the size and complexity of the offering. Professional fees will be paid to your sponsor, lawyers, accountants and public relations partners. Any company offering securities must comply with the relevant jurisdiction’s accounting standards, disclosure requirements, and the local regulatory authorities. These are interpreted strictly and change frequently. Failure to comply can result in severe penalties. Which market to list Your decision on where to list will be influenced by many factors, including the regulatory environment and profit requirements. Below are the basic financial requirements for admission to the Hong Kong Main Board. The applicant must have a trading record of not less than three financial The applicant must have a trading record of not less than three financial years and meet one of the following three years and meet one of the following three financial criteria: financial criteria: ALTERNATIVE 1

ALTERNATIVE 2

ALTERNATIVE 3

At least HKD 50M ALTERNATIVE 2 in ALTERNATIVE the last three 1 financial years At least HKD50 (with profits of at million PROFIT aggregate over the last 3 least HKD 20M PROFIT ATTRIBUTABLE financial in years recorded the(with profits of ATTRIBUTABLE TO at least HKD20 TO most recent year,million SHAREHOLDERS SHAREHOLDERS recorded in the most recent and aggregate year) profits of at least HKD 30M At least in HKD500 recorded the 2 million at the At least HKD4 billion at the MARKET CAP timebefore of listing time of listing years that) At least HKD At least HKD 4B At least HKD 2B MARKET CAP 200M at the time at the time At of least at HKD500 the timemillion of for REVENUE the most of listing listing listingrecent audited financial At least HKD At year least HKD 500M for the 500M for the REVENUE most recent most recent audited financial audited financial year year CASHFLOW

ALTERNATIVE 3 -

At least HKD2 billion at the time of listing At least HKD500 million for the most recent audited financial year Positive cashflow from operating activities of at least HKD100 million in aggregate for the 3 preceding financial years


Pre-listing preparations

How Baker Tilly Hong Kong can help

Appointment of advisers You must appoint advisers to assist in all aspects of the IPO process, including reporting accountants and lawyers. Accounting professionals like Baker Tilly Hong Kong play a pivotal role in helping your company comply with extensive listing requirements, and provide an early assessment of your readiness to launch. Moreover, we are well placed to introduce suitable sponsors and underwriters. Timetable When drafting the timetable, all parties input to the process thus ensuring that the timetable is achievable. It is often necessary to effect a re-organisation of the group, or to form a new holding company, for the IPO. Activities, or assets and liabilities, which may not be appropriate in a listed entity should be divested. Allowing sufficient time for organisational restructuring in the timetable is essential. Tax structuring and planning The pre-listing stage creates an opportunity to have consultants review your tax arrangements. We can identify savings by implementing a more taxefficient operating structure. Should you so choose, our experts can develop a tax-efficient share option scheme for your company’s employees to enhance staff commitment. The founding shareholders/directors may wish to have their personal tax planning arrangements reviewed as there will usually be significant increases in personal worth after listing. If citizenship is held in countries other than the listing jurisdiction, the laws of such countries will also need to be satisfied. Internal control review A good corporate governance structure, effective risk management and strong internal control system are crucial to a successful listing, as mandated by regulators around the world. Our internal specialists can provide an independent review of your operations and provide you with an analyses and recommendations. Audits When the structure is decided, companies in the group may require to be audited where the operations are significant and no audit has previously been regulatorily required.

Act as reporting accountants Advise on group restructuring Audit financial statements required for the prospectus Assist the sponsors in their financial due diligence Address and resolve issues raised by regulators Advise on regulatory and accounting developments faced by an applicant


The due diligence process

Ask Our Experts

Due diligence is an integral part of the IPO process. Each of your advisers will conduct due diligence on their specialist area to ensure there is no missing or misleading information in the prospectus. The following actions will be accomplished during this period: • • • •

Preparing the prospectus Submitting the listing application Responding to comments from the regulators Issuing the prospectus to the general public

The prospectus contains full disclosure including the company’s history, structure, operations, organisation, financial information and risks. The regulators will pose questions on the draft prospectus and other information submitted. Your prospectus will therefore require modification as the company responds to questions and requests of the regulators. Delays in responding may result in approval difficulties. Given the volatility of the financial markets, unnecessary delays due to unfamiliarity with listing requirements can impair the IPO process.

Post-listing activities The obligations of a listed company then continue indefinitely. Corporate governance and regulatory reporting demand constant attention from management subsequent to fund-raising. A listed company must observe good corporate governance. The rules in this area are ever evolving and becoming increasingly complex. Our experts can offer timely advice of evolving disclosure requirements and stock exchange regulations. We can provide audit support to ensure your company’s financial statements comply with complex accounting principles and stringent time requirements subsequent to listing.

The Baker Tilly Hong Kong advantage

Contact us to obtain up-to-date advice and support to reach your next milestone. LISTING AND REPORTING Edmond Chan Director – Audit and Assurance D: +852 2152 2685 edmondchan@bakertillyhk.com

REGULATORY ADVICE Anntice Lai Technical and Regulatory Services D: +852 2152 2723 annticelai@bakertillyhk.com

TAX PLANNING Joseph Lam Executive Director - Regional Tax D: +852 2152 2652 josephlam@bakertillyhk.com

CORPORATE GOVERNANCE Doman Wong Director – Risk Advisory D: +852 2152 2632 domanwong@bakertillyhk.com

Our knowledgeable advisory teams will work closely with your offering team to manage this daunting process. Through an in-depth understanding of your business, we will develop a tailored approach to assist your company to list in Hong Kong and/or other major equity markets. Baker Tilly Hong Kong is a leading firm of certified public accountants and business advisers in Hong Kong. We specialise in providing an integrated range of services to fast growing and established business clients. Our clients benefit from outstanding personal service backed by a global network supporting them as they grow regionally and globally. Through our membership of Baker Tilly International we have the resources and business acumen to help you achieve your goals.

The name Baker Tilly and its associated logo is used under licence from Baker Tilly International Limited.

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Taking your business public in Hong Kong  

A brief on the major considerations for an IPO, and steps to flotation in the Hong Kong Stock Exchange.

Taking your business public in Hong Kong  

A brief on the major considerations for an IPO, and steps to flotation in the Hong Kong Stock Exchange.

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