LISTING IN HONG KONG C O N F I D E N T I A L

Transcription

1 LISTING IN HONG KONG

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3 LISTING IN HONG KONG Overview, Process And Requirements Hong Kong March 2011

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5 TABLE OF CONTENT Foreword 5 Introduction to Hong Kong The Hong Kong Stock Exchange Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples. 31 Case study 1: L Occitane. 34 Case study 2: Prada Palazzari & Turries Glossary

6 FOREWORD (1/2) An initial public offering (IPO) * is the process through which a privately held company offers shares to the public for the first time, mainly with the aim of raising funds for financing its expansion, repaying its debts and/or planning the future exit of the main shareholders. Initial Public Offerings are often considered to be the ultimate goal for any entrepreneurial venture and represents a major stage in the growth of many businesses, providing them with access to new public capital while increasing companies credibility and exposure. When a company lists its securities on a public stock market, the money paid by investors for newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors); an IPO, therefore, allows a company to tap a wide pool of investors to raise capital for future growth. Once a company is listed, it is able to issue additional common shares via a secondary offering, thereby again providing itself with capital for expansion without incurring any debt. This ability to quickly raise large amounts of capital from the market is the reason many companies seek to go public. Listed companies can also decide to get listed on more than one market through a dual-listing (or even triple). Dual listings are usually aimed at increasing shares liquidity, tapping in new investors and getting exposure to new markets in which the company has strategic interests. For these reasons dual-listings are especially common for companies that started out in a certain market and grew into new markets. Key in the IPO planning is also the identification of the entity to be listed. In fact, groups can decide to either list either the holding company or a specific subsidiary so to finance the expansion in a specific region, or of a specific business line. Hong Kong, Chinese territory maintaining its independency under the one country two systems policy, is consolidating its position as gateway to the fastest growing economy and world s largest market. In 2010 the Hong Kong Stock Exchange hosted 114 IPOs, raising a total of EUR 41,6 billions. * The first time that terms explained in the glossary are presented in the document, they will be in italic 6

7 FOREWORD (2/2) The charts below summarize the main rationales for private companies for considering an IPO and the reasons why Hong Kong can be an ideal trading platform: MAIN REASONS FOR GOING PUBLIC RAISING FUNDS FOR FINANCING BUSINESS EXPANSION REDUCING COMPANY S INDEBTEDNESS INCREASING SHARES LIQUIDITY ENABLING CHEAPER ACCESS TO CAPITAL GAINING EXPOSURE, CREDIBILITY AND PRESTIGE FACILITATING EXISTING AND POTENTIAL ACQUISITIONS RETAINING AND ATTRACTING HUMAN CAPITAL MONITORING THE COMPANY S MARKET VALUE ADVANTAGES OF GOING PUBLIC IN HONG KONG HIGHER VALUATIONS AND IPO PREMIUM EXPOSURE IN ASIA, ESPECIALLY TO CHINA STRATEGIC SHIFTING OF BUSINESS GRAVITY LEVERAGING ON CHINA S GROWTH STRONG LEGAL SYSTEM AND REGULATORY FRAMEWORK FREE FLOW OF CAPITAL AND INFORMATION ADVANCED CLEARING AND SETTLEMENT INFRASTRUCTURE LARGE AND DYNAMIC INVESTOR BASE For the purpose of simpler navigation of this document, amounts in Hong Kong Dollars are converted in Euro as at the date of redaction of this document (3 March 2011: 10 HKD = Euro) 7

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9 TABLE OF CONTENT Foreword... 5 Introduction to Hong Kong The Hong Kong Stock Exchange.. 13 Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples. 31 Case study 1: L Occitane. 34 Case study 2: Prada.. 38 Palazzari & Turries Glossary

10 INTRODUCTION TO HONG KONG (1/2) The Hong Kong Special Administrative Region of the People s Republic of China ( Hong Kong ) is Asia s top financial city and ranked 3 rd in the world behind New York and London *. As a leading business and financial platform Hong Kong assures: Location and transport links across Asia Pacific and internationally: Hong Kong is strategically located at the centre of Asia, all of the region s key markets are within 4 hours flight and half the world s population is within 5 hours flight time. Hong Kong International Airport is the busiest in Asia Pacific, with direct flights to over 155 international destinations. Gateway to China: close and unique proximity to Mainland China, the second largest economy and the largest single marketplace in the world, has made Hong Kong the business gateway to China. Although in 1997 Hong Kong returned to the sovereignty of China, the country s legal system is separate from China s and English common law prevails. English is also the conventional language of business. 3rd lowest tax in the world ** : Hong Kong operates a low and simple tax system, with profit tax up to a maximum of 16.5%, and no taxes on sales, capital gains and dividends. No VAT or GST. According to the Index of Economic Freedom ***, Hong Kong is the freest economy in the world since the inception of the index in In Greater China there are 3 independent stock exchanges, located in Hong Kong, Shanghai and Shenzhen. Unlike the Hong Kong Stock Exchange ( HKEx ), where as at 31 January 2011 has listed 17 foreign companies, Shanghai and Shenzhen Stock Exchanges are still not available for foreign companies. Chinese authorities are accelerating the international opening process and work on some structural issues such as the non convertibility of the Renminbi. First foreign listings are expected not before With its access to foreign capital providers and higher listing standards Hong Kong, besides international companies, is also attracting a large number of Mainland companies looking for the seal of approval implied by an HKEx listing. * Source: World Economic Forum ** Source: InvestHK *** Series of 10 economic measurements created by The Heritage Foundation and The Wall Street Journal 10

11 INTRODUCTION TO HONG KONG (2/2) The following table shows the ranking of the top 15 world s Stock Exchanges in terms of domestic market capitalization as of 31 January 2011 (source: World Federation of Exchanges). Ranking Stock Exchange Region Market Cap (EUR million) % change vs. previous year No. of Listings 1 NYSE Euronext (US) North America 10, % 2,316 2 NASDAQ OMX North America 2, % 2,771 3 Tokyo SE Group Asia - Pacific 2, % 2,291 4 London SE Group Europe 2, % 2,954 5 NYSE Euronext (Europe) Europe 2, % 1,133 6 Shanghai SE* Asia - Pacific 1, % Hong Kong Exchanges Asia - Pacific 1, % 1,420 8 TSX Group North America 1, % 3,743 9 BM&FBOVESPA South America 1, % Deutsche Börse Europe 1, % Bombay SE Asia - Pacific % 5, Australian SE Asia - Pacific % 2, National Stock Exchange India Asia - Pacific % 1, BME Spanish Exchanges Europe % 3, Shenzhen SE* Asia - Pacific % 1,195 * Stock Exchanges still not available for foreign companies. 11

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13 TABLE OF CONTENT Foreword Introduction to Hong Kong.. 9 The Hong Kong Stock Exchange 13 Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples. 31 Case study 1: L Occitane. 34 Case study 2: Prada.. 38 Palazzari & Turries Glossary

14 THE HONG KONG STOCK EXCHANGE (1/2) HKEx is a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Ltd., company resulting from the merger between The Stock Exchange of Hong Kong Ltd., Hong Kong Futures Exchange Ltd. and Hong Kong Securities Clearing Company Ltd. in March Hong Kong Exchanges and Clearing Ltd. is listed itself since June 2000 and its 5 major shareholders include the Hong Kong Special Administrative Region of People s Republic of China (with 5.8% capital), JP Morgan Chase & Co. (4.9%), Thornburg Investment Management (2.6%), Oppenheimer Funds (1.7%) and Blackrock Fund (1.4%). On HKEx, securities are listed either on: Main Board: market which enables the listing of established companies that meet high profit and other financial standards requirement. At 31 December 2010 it was composed of 1,244 listed companies with a total market capitalization of HKD 20.1 trillion (EUR 1.86 trillion). Growth Enterprise Market ( GEM ): market available since 2008 and providing capital financing opportunities for smaller scaled companies from a full spectrum of industries. At 31 December 2010 it was composed of 169 listed companies with a total market capitalization of HKD 134,674 billion (EUR billion). Apart from normal listed issuers on the HKEx, there are special issuers that can be defined in three categories as following: Blue chips: issuers with the highest status and quality for investment. Red chips: issuers incorporated outside Mainland China and either controlled directly or indirectly by Mainland Government entities or Chinese private investors. H shares: issuers incorporated in Mainland China which are either controlled by Mainland Government entities or Chinese private investors. The Hang Seng Index (hereinafter HSI ) is the main indicator of the overall market performance of the HKEx, comprising 45 constituent stocks which account for about 67% of the total market capitalization. As of today, the overseas jurisdictions acceptable as an issuer s place of incorporation include 17 countries: Australia, Bermuda, Brazil, British Virgin Islands, Canada (States of British Columbia and Ontario), Cayman Islands, China, Cyprus, Germany, Isle of Man, Italy (officially included since January 2011), Japan, Jersey, Luxembourg, Singapore, United Kingdom, United States (State of California). 14

15 THE HONG KONG STOCK EXCHANGE (2/2) The following table indicates the foreign companies* listed on HKEx as of 31 January 2011 (source: HKEx). In addition, at the same date, HKEx received pre-ipo enquiries from 12 overseas companies. Stock Exchange Jurisdiction Market Cap (HKD million) Market Cap (EUR million) Date of IPO Industry HSBC Holdings Plc. UK 1,574, , Financials - Banks Standard Chartered Plc. UK 496,407 45,967 31/10/02 Financials - Banks Manulife Financial Corporation Canada (Ontario) 262,951 24,349 27/09/99** Financials - Insurance Prudential Plc. UK 226,559 20,979 25/05/10 Financials - Insurance United Company RUSAL Plc. Jersey 198,117 18,346 27/01/10 Materials - Metals L Occitane International S.A. Luxemburg 28,800 2,667 07/05/10 Consumer Goods South Gobi Resources Ltd. Canada (British Columbia) 22,606 2,093 29/01/10** Energy - Coal Winsway Coking Coal Holdings Ltd. BVI 16,289 1,508 11/10/10 Energy - Coal China Gold International Resources Corp. Ltd. Canada (British Columbia) 15, /12/10 Materials - Mining West China Cement Ltd. Jersey 12,156 1,126 23/08/10 Properties & Constructions Midas Holdings Ltd. Singapore 6, /10/10** Materials - Metals Sound Global Ltd. Singapore 5, /09/10 Utilities China XLX Fertiliser Ltd. Singapore 3, /12/09 Materials - Basic Materials China New Town Development Co. Ltd. BVI 2, /10/10 Properties & Constructions Hengxin Technology Ltd. Singapore /12/10 IT - IT hardware Novo Group Ltd. Singapore /12/10 Materials - Metals Schramm Holding AG Germany /12/09 Industrial Goods ** Secondary listings. * Defined by the HKEx as companies incorporated overseas and performing the bulk of their businesses outside Hong Kong or China. 15

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17 TABLE OF CONTENT Foreword.. 5 Introduction to Hong Kong. 9 The Hong Kong Stock Exchange Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples. 31 Case study 1: L Occitane. 34 Case study 2: Prada Palazzari & Turries Glossary

18 OVERVIEW OF THE MOST ACTIVE INVESTORS ON THE HONG KONG STOCK EXCHANGE The following charts show the distribution of HKEx securities market turnover by investor type from October 2009 to September 2010 and the breakdown of the overseas investors by country of origin (source: HKEx). HKEX INVESTORS Local institutional investors 22,5% Local retail investors 21,3% Exchange Participants principal trading 9,9% Overseas retail investors 4,5% Overseas institutional investors 41,8% US 24.4% UK 28.7% Others 2.6% Australia 1.6% Rest of Europe 16.1% Rest of Asia 3.1% Japan 2.6% Mainland China 10.6% Singapore 9.3% The contribution of local investors to total securities market turnover value decreased from 50% in 2008/09 to 44% in 2009/2010, the lowest level ever registered, showing that Hong Kong is becoming increasingly internationally attractive and beneficial to both foreign institutional and private investors. OVERSEAS INVESTORS Confirming that HKEx is becoming one of the most internationalized trading platforms, in 2010 overseas investors were for the first time the major contributors with about 46% of the total trading value in the security market. UK is the most significant source of overseas investors in terms of trading volume and its contribution increased from 23% in 2008/09 to 29% in 2009/10. During the period considered, US investors have been surpassed for the first time since 2004/05 by UK investors and their contribution dropped intensively from 36% of overseas investor trading in 2008/09 to 24% in 2009/2010. In addition the contribution from Continental European investors rebounded to a record level of 16% in 2009/2010 from 10% in 2008/09. 18

19 TABLE OF CONTENT Foreword.. 5 Introduction to Hong Kong. 9 The Hong Kong Stock Exchange Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs.. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples. 31 Case study 1: L Occitane. 34 Case study 2: Prada Palazzari & Turries Glossary

20 THE LISTING PROCESS: MAIN REQUIREMENTS Financial requirements Management, ownership and control Main Board Applicants must fulfil one of three alternative financial criteria: 1. Profit test: profit attributable to shareholders of HKD 50 million (EUR 4.63 mil) in the last 3 years (with HKD 20 million (EUR 1.85 mil) in the most recent year and an aggregate of HKD 30 million (EUR 2.78 mil) in the 2 preceding years); Market Cap at least HKD 200 million (EUR 18.5 mil) at the time of listing. 2. Market Cap/Revenue test: Market Cap at least HKD 4 billion (EUR mil) at the time of listing; revenues of HKD 500 million (EUR 46.3 mil) for the most recent audited financial year. 3. Market Cap/Revenue/Cash flow test: Market Cap of at least HKD 2 billion (EUR 185 mil) at the time of listing; revenues of at least HKD 500 million (EUR 46.3 mil) for the most recent audited financial year; positive cash flow for operating activities of at least HKD 100 million (EUR 9.26 mil) in aggregate for the 3 preceding financial years. Management continuity for at least the 3 preceding years; and Ownership continuity and control for at least the most recent audited financial year. GEM Applicants must fulfil the following cumulative financial criteria: Market Cap at least HKD 100 million (EUR 9.26 mil) at the time of listing; Positive cash flow for operating activities of at least HKD 20 million (EUR 1.85 mil) in aggregate for the 2 preceding financial years. Management continuity throughout the 2 preceding years; and Ownership continuity and control throughout the preceding full financial year. Minimum public float Independent non executive directors Audit Committee The higher of HKD 50 million (EUR 4.63 mil) or 25% of the issuer s total issued share capital. A minimum of 300 shareholders (if qualifying under financial criteria 1 or 2) / 1,000 shareholders (if qualifying under financial criteria 3). The higher of HKD 30 million (EUR 2.78 mil)or 25% of the issuer s total issued share capital. A minimum of 100 shareholders. Minimum public float as determined above must be maintained at all times. For issuers with an expected market capitalization of over HKD 10 billion (EUR 926 mil) at the time of listing, the Stock Exchange may accept a lower percentage down to 15%. Not more than 50% of the securities in public hands at the time of listing can be beneficially owned by the 3 largest public shareholders. Issuers are required to appoint at least 3 independent non-executive directors. At least one of the independent non-executive directors must have appropriate professional qualifications or accounting or related financial management expertise. Issuers must establish an audit committee comprising non-executive directors only, of whom the majority (Chairman included) must be independent. The audit committee must have a minimum of three members, at least one of whom is an independent non-executive director with appropriate professional qualifications or accounting or related financial management expertise. Underwriting Public tranche must be fully underwritten. Fully underwriting is not compulsory. 20

21 THE LISTING PROCESS: LISTING PROSPECTUS Statement of business objectives Main Board Applicants must provide information on its general business trend, financial and trading prospects. GEM Applicants must explain all bases and assumptions and provide a detailed description of business objectives for each product and service, analysed by reference to each major business activity. Use of proceeds Applicants must disclose details of its intended use of proceeds. Applicants must explain the use of proceeds in detail by reference to its business objectives. Profit forecasts Not compulsory. Accountants report To cover 3 financial years (except for exempted companies). Can be prepared in accordance with either Hong Kong Financial Reporting Standards or International Financial Reporting Standards for primary listings on the HKEx. May also be prepared in accordance with generally accepted accounting principles in the United States of America or other acceptable accounting standards acceptable to the HKEx under certain circumstances. To cover a period of at least 2 financial years. Can be prepared in accordance with either Hong Kong Financial Reporting Standards or International Financial Reporting Standards. Can be prepared in accordance with generally accepted accounting principles in the United States of America if the applicant is or will be simultaneously listed on either the New York Stock Exchange or the NASDAQ National Market. 21

22 THE LISTING PROCESS: ESTIMATED FEES AND EXPENSES Assuming an HKD 5 billion-size IPO (EUR 463 million), total listing costs can be estimated as about 4-5% of the total funds raised including among others: 1. Underwriting commission, of about 3% of the gross proceeds, plus discretionary bonus. 2. Professional fees, of about 1-2% of the fund raised, related to sponsor, reporting accountants, company s lawyers, underwriter s lawyers, property valuer, internal control auditor, public relation firm. 3. Fees to the Stock Exchange, as shown in the table reported below: MAIN BOARD GEM Monetary value of securities to be listed* Initial listing fees HKD million EUR million HKD EUR < 100 < ,000 13, ,000 16, ,000 18, ,000 20, ,000 23, ,000 27,780 1, ,000 32,410 1, ,000 37,040 2, ,000 41,670 2, ,000 46,300 3, ,000 50,930 4, ,000 55,560 > 5,000 > ,000 60,190 < 100 < ,000 9,260 1, ,000 13,890 > 1,000 > ,000 18,520 Borsa Italiana MTA s new applicants are required to pay an initial listing fee, which is calculated by reference to the market capitalization (EUR 75,0 for every EUR 500,000 of expected capitalization), ranging between a minimum of EUR 25,000 (with an expected market cap lower than EUR 1 billion) / 75,000 (with an expected market cap greater than EUR 1 billion) and a maximum of EUR 500,000. For secondary listings on the HKEx s Main Board, the initial listing fee is normally 25% of the fees listed on the table, subject to a minimum payment of HKD 150,000 (EUR 13,890). * Estimated market capitalization of the company. In case the actual market capitalization is higher than expected, the applicant should pay the shortfall before getting listed. In case it is lower, the applicant has the right to let the excess be deducted from the future annual listing fees. 22

23 THE LISTING PROCESS: FLOWCHARTS (1/2) PHASE Restructuring Preparation and Filing Listing Approval Marketing, Listing and Price Stabilization During this phase the issuer appoints sponsor, underwriters and other professional parties to study, prepare and finalize the listing structure. If the company s structure is not ideal for listing, the issuer may need to reorganize the group structure (e.g. setting up an holding company) to adjust itself into a more favourable listing structure. If necessary, an internal listing execution team is established to manage the listing process. During this phase the issuer hires a full spectrum of professional teams to conduct business, legal and financial due diligence on the group. All the documents requested by the HKEx are prepared. Underwriting arrangement is also finalised in this phase. During this phase the issuer submits all the relevant documents to the HKEx. Following the document submissions there is a Q&A session with the HKEx aimed at clarifying all the pending aspects of the listing. Along with the document submission, the issuer is also required to settle the listing fees. As soon as the listing is approved by the HKEx the issuer usually finalize the underwriting syndicate members. This last phase includes the marketing, promotion, allocation and initial public trading of the issuer s shares. Public relations firms are hired to prepare marketing materials aimed at strengthening issuer attractiveness for the investors. In addition, underwriters organize a roadshow and draft company & sector research reports to promote equity offering to institutional investors and boost market response. Finally shares are issued and publicly traded. ESTIMATED TIMING* 1/2 months 3/4 months 1/ 2 months 1/2 months 6/10 months in total 23

24 THE LISTING PROCESS: FLOWCHARTS (2/2) PHASE Restructuring Preparation and Filing Listing Approval Marketing, Listing and Price Stabilization Appointment of the sponsor and other professional parties Business, legal and financial due diligence Submission of the listing application to the HKEx Preparation of marketing materials (PR firm) Reorganization of the group structure Financial audit Answering queries from HKEx s listing Division Preparation company & sector researches for roadshow Set-up of an internal listing execution team Property valuation Payment of the initial listing fee Issuance of prospectus and formal notice (IPO starts) STEPS Drafting of the listing documents Obtain Listing Division s recommendation Pricing, allocation and closing Drafting of the underwriting arrangement Obtain Listing Committee s approval Official listing (trading starts) Selection of underwriting syndicate members Price stabilization (exercising over-allotment option) ESTIMATED TIMING* 1/2 months 3/4 months 1/ 2 months 1/2 months 6/10 months in total 24

25 THE LISTING PROCESS: THE ACTORS ADVISOR LISTING ENTITY Advisory services on listing preparation and for the whole listing process. Underwriting Syndicate Company s lawyers Preparation of listing prospectus in relation to legal issues, connected transactions and risk factors. GLOBAL COORDINATOR UNDERWRITERS Is the lead manager of a public offering and is responsible for overseeing the entire issue, usually with the support of regional and national coordinators. Arranges and coordinates the underwriting syndicate. Are responsible for the allocation of the issuer s shares to the investors. Usually there is more than one underwriter (underwriting syndicate). Auditors Carrying out financial and accounting due diligence. Audit under acceptable financial standards. Underwriter s lawyers BOOKRUNNER Main underwriter or lead-manager in the listing process. It keeps the books of securities sold by the underwriters. Preparation of listing prospectus in relation to business, industry, offering information, etc. SPONSOR Usually prepares the applicant for listing, lodging the formal application and all support documentation to the Exchange and deals with all matters arising in connection with the application. Usually Global Coordinator is also Sponsor. Public Relation firm Marketing activities. Listing application. STOCK EXCHANGE INVESTORS 25

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27 TABLE OF CONTENT Foreword Introduction to Hong Kong... 9 The Hong Kong Stock Exchange Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples. 31 Case study 1: L Occitane. 34 Case study 2: Prada Palazzari & Turries Glossary

28 MAIN CONTINUING OBLIGATIONS AND ANNUAL FEES OF LISTED ISSUERS (1/3) Main Board GEM Disclosure of Price Sensitive Information Listed issuers are required to keep the Exchange and the investing public informed as soon as reasonably practicable of any information which might be reasonably expected to affect market activity in the price of their securities. Fundamental change in the nature of business Within the first 12 months after listing, issuer may not effect any acquisition or disposal which would result in a fundamental change in its principal business activities as described in the prospectus. However, the HKEx may grant a waiver if the circumstances are exceptional and prior independent shareholders approval is obtained (controlling shareholders are not allowed to vote). Other than with the prior approval of independent shareholders, issuer may not effect any fundamental change in its principal business activities or that of its group within the first 12 months after listing. Issuers are required to publish their financial results on a timely basis and all the information which is expected to be price-sensitive. The Exchange will normally require suspension of trading in a issuer's securities if it fails to publish periodic financial information. Financial Disclosure Annual reports not later than 4 months and half-yearly reports not later than 3 months of the date on which the financial period ended. Issuers are required to disclose in their annual report how they have applied the proceeds raised in the share offering and whether this was in accordance with that disclosed in their listing documents. Annual reports not later than 3 months, half-yearly and quarterly reports not later than 45 days of the date on which the financial period ended. Issuers are required for the 2 financial years after listing to publish in their annual and half-yearly accounts a statement as to their progress against the statement of business objectives as set out in their listing documents. Restrictions on disposal of shares Any person regarded as a Controlling Shareholder at the time of listing shall not: a. dispose of his shares in the listed issuer in the period commencing on the date by reference to which disclosure of the shareholding of the Controlling Shareholder is made in the listing document and ending on the date which is 6 months from the beginning of dealings on the HKEx; or b. dispose of his interest in the issuer if such disposal would result in him ceasing to be a Controlling Shareholder in the period of 6 months commencing on the date on which the period referred to above expires. Controlling Shareholder of a new applicant must undertake to the issuer and the HKEx to disclose any pledge/charge of any securities beneficially owned by him/them in favour of an authorised institution that was made within the period commencing on the date by reference to which disclosure of the shareholding of the Controlling Shareholder is made in the listing document and ending on the date which is 12 months from the beginning of dealings on the. 28

29 MAIN CONTINUING OBLIGATIONS AND ANNUAL FEES OF LISTED ISSUERS (2/3) Main Board GEM Notifiable Transactions HKEx rules set out various categories of notifiable transactions, the classification of which is determined by comparing the size of a transaction with the size of the issuer proposing to enter into the transaction. The thresholds for categorising notifiable transactions under the percentage ratios are listed on the HKEx listing rules. Appointment of compliance advisor Issuers must appoint a compliance advisor acceptable to the HKEx for the period commencing on its listing date and ending on publication of financial results for the first full financial year after listing. Issuers must appoint a compliance adviser acceptable to the Exchange for the period commencing on its listing date and ending on publication of financial results for the second full financial year after listing. Issuers will have to consult and, if necessary, seek advice from compliance advisers before publication of any regulatory announcement, circular or financial report. HKEx advocates the adoption of high corporate governance standards and encourages and/or requires listed issuers to ensure they have adequate and effective systems of internal control covering financial and compliance matters. Corporate Governance Independent non Executive Directors a.issuers are required to appoint at least three independent non-executive directors. b.at least one of the independent non-executive directors must have appropriate professional qualifications or accounting or related financial management expertise. Audit Committee a.issuers must establish an audit committee comprising non-executive directors only. b.the audit committee must have a minimum of three members, at least one of whom is an independent non-executive director with appropriate professional qualifications or accounting or related financial management expertise. c.the majority must be independent non-executive directors and chaired by an independent non-executive director. 29

30 MAIN CONTINUING OBLIGATIONS AND ANNUAL FEES OF LISTED ISSUERS (3/3) HKEx listed issuers are required to pay an annual listing fee which is calculated by reference to nominal value of the securities which are to be listed, as shown in the table below. Nominal value of listed securities Annual listing fees MAIN BOARD HKD million EUR million HKD EUR < 200 < ,000 13, ,000 15, ,000 18, ,000 20, ,000 26,854 1, ,000 32,966 1, ,000 41,577 2, ,000 50,097 2, ,000 58,708 3, ,000 67,228 4, ,000 83,155 5, ,069,000 98,989 > 5,000 > ,188, ,009 For secondary listings on the Main Board, the annual listing fee is normally 25% of the fees listed on the table. If an issuer has shares which have a nominal value of less than HKD 0.25 (EUR 0.023), then for the purpose of calculating the annual listing fee, the nominal value of each share is deemed to be HKD 0.25.(EUR 0.023) The annual listing fee (both for Main Board and GEM issuers) is payable in advance in one instalment. GEM < 100 < ,000 9,260 2, ,000 13,890 > 2,000 > ,000 18,520 Concerning Borsa Italiana, listed issuers are subjected every 6 months to the payment of an half-yearly fee, which is calculated by reference to the market capitalization (up to 1 billion of market cap: EUR 10,7 for every EUR 500,000 of capitalization; over 1 billion of market cap: EUR 9,6 for every EUR 500,000 of capitalization), ranging from a minimum of EUR 6,300 to a maximum of EUR 215,000 per semester. 30

31 TABLE OF CONTENT Foreword.. 5 Introduction to Hong Kong. 9 The Hong Kong Stock Exchange.. 13 Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples.. 31 Case study 1: L Occitane. 34 Case study 2: Prada Palazzari & Turries Glossary

32 HKEx vs. BORSA ITALIANA AVERAGE TRADING MULTIPLES Once a company has decided to pursue an IPO it must choose the most suitable market on which to list its shares, considering among other factors which is the Stock Exchange expected to deliver higher valuation multiples. Leading up to that, the following tables show the main trading multiples (P/E, P/Book Value, EV/Sales and EV/Ebitda) as of December 31, 2010, with reference to HKEx and Borsa Italiana Consumer Discretionary, Consumer staples, Energy, Health care and Utilities industries. HKEx P/E P/Book EV/Sales EV/Ebitda Borsa Italiana P/E P/Book EV/Sales EV/Ebitda Consumer Discretionary 20.1x 3.1x 2.9x 10.7x Consumer Discretionary 19.2x 1.8x 1.3x 9.3x Consumer Staples 19.2x 2.9x 3.2x 12.9x Consumer Staples 14.2x 1.4x 1.1x 6.9x Energy 16.6x 2.2x 3.8x 15.9x Health care 18.4x 2.8x 3.8x 14.8x Utilities 18.3x 1.8x 5.4x 16.9x Energy 15.0x 1.5x 1.6x 10.7x Health care 19.6x 2.6x 1.5x 8.1x Utilities 22.9x 1.3x 4.8x 10.9x Source: Palazzari & Turries elaboration of Bloomberg data. The following table shows the HKEx ability to attract new listings during 2010 in comparison with Borsa Italiana. As of Dec 31, 2010 HKEx Borsa Italiana Number of IPOs Funds raised from IPOs EUR 41,6 billion EUR 2,5 billion Charts above confirm that companies listed on the HKEx on average trade at higher multiples than companies listed on the Italian Stock Exchange, involving that investors on the HKEx are willing to pay a premium. This is mainly due to the fact that companies listed on the HKEx are usually exposed to China or other Asian fast growing markets and hence have a more promising growth outlook compared to Borsa Italiana listed peers. 32

33 TABLE OF CONTENT Foreword.. 5 Introduction to Hong Kong. 9 The Hong Kong Stock Exchange Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples. 31 Case study 1: L Occitane. 33 Case study 2: Prada Palazzari & Turries Glossary

34 CASE STUDY 1: L OCCITANE (1/3) L Occitane was listed in Hong Kong in May The company s executives including Reinold Geiger, president of L'Occitane (first from the right in the lowest picture), attended the IPO press conference and celebrated for the listing success. 34

35 CASE STUDY 1: L OCCITANE (2/3) L Occitane is a French group operating in the design, manufacturing and distribution of cosmetics and well-being products based on natural and organic ingredients. The Luxembourg-based holding company L Occitane International S.A. was listed on the HKEx on May 2010, with a floating rate of 27%, allowing the group to raise EUR 625 million. UBS AG, through the Hong Kong Branch, was appointed as Sole Global Coordinator and HSBC Holdings Plc and CLSA Ltd. (Credit Agricole Group) as joint Lead Managers, joint Sponsors and joint Bookrunners. In Hong Kong the offering was so successful that initially the shares planned to be subscribed by Hong Kong investors represented only 10% of the total offering, but after an approximately 158 times over-subscription an additional 40% was re-allocated to the Hong Kong Public Offer from the International Placing (source: group press release). The IPO, based on an offer price comprise between HKD12.88 (EUR1.92) and HKD15.08 (EUR1.40), has been set at the maximum of the range, implying a total Equity value of EUR 2.3 billion. The following table reports L Occitane multiples at the date of listing compared to L Oreal S.A. and Estee Lauder Inc. trading multiples, showing a premium price for L Occitane s IPO: Company L Occitane 1 L Oreal 2 Estee Lauder 3 Stock Exchange Hong Kong Paris New York EV/Sales 3.7x 2.7x 1.4x EV/Ebitda 16.0x 14.1x 9.6x P/E 27.8x 24.4x 19.1x Current Market Cap 4 EUR 2.7 billion EUR 51.6 billion EUR 13.8 billion Notes: 1) L Occitane multiples are referred to fiscal year ended March 31, ) L Oreal trading multiples are referred to fiscal year ended December 31, 2009 (source: Bloomberg). 3) Estee Lauder trading multiples are referred to fiscal year ended June 30, 2010 (source: Bloomberg). 4) Source: Bloomberg, as of February 15,

36 CASE STUDY 1: L OCCITANE (3/3) The following chart shows L Occitane S.A. share price and volumes since the IPO date, in comparison with the Hang Seng Index (source: Bloomberg, as of 15 February 2011). HKD 25, HKD 23, HKD 21, HKD 19, HKD 17, HKD 15, HKD 13,0 0 06/05/10 20/05/10 03/06/10 17/06/10 01/07/10 15/07/10 29/07/10 12/08/10 26/08/10 09/09/10 23/09/10 07/10/10 21/10/10 04/11/10 18/11/10 02/12/10 16/12/10 30/12/10 13/01/11 27/01/11 10/02/11 Volumes L'Occitane S.A. Hang Seng Index Performance L Occitane 29,0% Performance HSI 13,7% 36

37 TABLE OF CONTENT Foreword 5 Introduction to Hong Kong.. 9 The Hong Kong Stock Exchange.. 13 Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples. 31 Case study 1: L Occitane. 34 Case study 2: Prada Palazzari & Turries Glossary

38 CASE STUDY 2: PRADA Prada is an Italian fashion company which manufactures, markets and retails clothing, shoes, handbags and other leather goods. The main brands included in the portfolio of the company are Prada, Miu Miu, Church s and Car Shoe. During fiscal year ended January 31, 2010 the 38.3% of Prada s consolidated net sales (48% for the MiuMiu brand, 38% for the Prada brand, 6% for the Church s brand and 1% for the Car Shoe brand) were generated in the Asia-Pacific region (including Japan). Furthermore, Prada, with 155 of the 265 total group s stores located in the APAC region, can be considered as an Asia-focused player. On January 2011 the Board of Directors decided to start the process for listing Prada on the HKEx, with an expected floating rate around 30%. Prada appointed Banca Imi S.p.A. (Intesa San Paolo Group), Unicredit Group, CLSA Ltd. (Credit Agricole Group) and Goldman Sachs Inc. as joint Global Coordinators and joint Bookrunners in the institutional placement. Moreover, as reported by public sources, it seems that also ICBC and BoC will be involved in the deal (source: Mergermarket). According to public sources available, the Group generated revenues of EUR 2,05 billion and an Ebitda of EUR 370 million during fiscal year ended January 31, From the IPO Prada could reach a 20% - 30% higher valuation by listing in Hong Kong than anywhere else in the world (source: Mergermarket), aiming to raise EUR 1.5 billion with an expected Enterprise Value of EUR 5.0 billion (EV/Ebitda 13.5x). In the past Prada already delayed three IPO attempts on the Milan Stock Exchange in 2001, 2004 and again in Each time the listing was postponed due to deteriorating market conditions. By listing in HKEx, besides an expected higher valuation, Prada will also benefit from i) the increasingly significant brand exposure to generate consumption power in Greater China area, and ii) the fact that on the HKEx there are very few listed competitors within the fashion industry further increasing Prada s shares attractiveness for investors. 38

39 TABLE OF CONTENT Foreword.. 5 Introduction to Hong Kong. 9 The Hong Kong Stock Exchange.. 13 Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples. 31 Case study 1: L Occitane. 34 Case study 2: Prada.. 38 Palazzari & Turries Glossary

40 PALAZZARI & TURRIES Palazzari & Turries is an international M&A advisory firm based in Hong Kong and Milan, whose professionals possess over 15 years experience in dealing with cross border transactions involving European and Chinese groups and entrepreneurs. The firm advises corporations, partnerships, institutions and individuals on private mid-cap mergers & acquisitions and other strategic operations, capital structure, capital raising and restructuring. The roots of the firm date back to the 90's in Beijing, and over the years the professional of the firms have contributed to pave the way of the M&A market in China for numerous European and Chinese groups, private equity firms and entrepreneurs, from origination to transaction completion and post-completion, including identification and initial confidential approach, due diligence, valuation, deal structuring, negotiations. In consideration of their local experience, the professionals of the firm are often called to sit as independent non-executive directors of local companies invested by European groups. Palazzari & Turries values excellency, comprehensive and custom-made advisory, based on technical know-how, professional skills acquired over years of practical experience in situ and a special awareness of the local way of doing business, supported by a solid network of privileged local contacts among prominent industrial groups, financial institutions and private equity firms, comforting clients in making quick-and-just decisions on investment strategies and execution. As part of its assistance to clients in their strategic and financial development in China, Palazzari & Turries is also involved in evaluating and advising hand in hand with prominent local investment banks on listing and dual listing in Hong Kong and other Asian stock exchanges. Founded and managed by Federico Palazzari in Milan and Fabrice Turries in Hong Kong, Palazzari & Turries is also participated by Tamburi Investment Partners S.p.A. ( TIP ) independent leading investment merchant bank listed on the Italian Stock Exchange. 40

41 TABLE OF CONTENT Foreword... 5 Introduction to Hong Kong. 9 The Hong Kong Stock Exchange.. 13 Overview of the most active investors on the Hong Kong capital market The listing process Requirements, phases, obligations and estimated costs. 19 Main continuing obligations and annual fees of listed issuers HKEx vs. Borsa Italiana Average trading multiples. 31 Case study 1: L Occitane. 34 Case study 2: Prada.. 38 Palazzari & Turries Glossary

42 GLOSSARY (1/2) Applicant: an issuer that is proposing to apply, or is applying, for admission to trading of any of its securities. Bookrunner: the managing or lead underwriter who maintains the books of securities sold for a new issue. Controlling Shareholder: any person (including a holder of depositary receipts) who is or group of persons who are together entitled to exercise or control the exercise of 30% (or such other amount as may from time to time be specified in the Takeovers Code as being the level for triggering a mandatory general offer) or more of the voting power at general meetings of the issuer or who is or are in a position to control the composition of a majority of the board of directors of the issuer. Dual listing: when a company's securities are listed on more than one exchange for the purpose of adding liquidity to the shares and allowing investors greater choice in where they can trade their shares. EV/Ebitda: ratio used to determine the value of a company using the comparables multiples method. Calculated dividing the Enterprise Value of a company by its Ebitda. EV/Sales: ratio used to determine the value of a company using the comparables multiples method. Calculated dividing the Enterprise Value of a company by its revenues. Enterprise value: a measure of a company's value and it is calculated as market capitalization plus net financial position, minority interest and preferred shares, minus total cash and cash equivalents. Equity Value: the value of a company available to owners or shareholders. For listed companies the market cap is the main estimate of the Equity Value. Stock exchange: a marketplace in which securities, commodities, derivatives and other financial instruments are traded. Global coordinator: responsible for the coordination and management of the IPO process and for the syndicate arrangement. IPO (Initial Public Offering): the first sale of stock by a private company to the public. Issuer: any company of whose equity securities are the subject of an application for listing on the Exchange or are already listed. Market capitalization: the total market value of all of a company's outstanding shares, calculated by multiplying the number of a company's shares outstanding by the current market price of one share. Outstanding shares: authorized shares in a company that are held by investors, including employees and executives of that company. 42

43 GLOSSARY (2/2) Public float: shares of a company that are freely available for purchase by investors on the secondary market. Price/Earnings ratio (P/E): a ratio used to determine the value of a company using the comparables multiples method, calculated by dividing the share price by the annual earnings per share. Price/Book ratio (P/Book): a ratio used to compare a stock's market value to its book value, identifying if a company is under or overvalued. Security: an instrument representing ownership (stocks), a debt agreement (bonds) or the rights to ownership (derivatives). Secondary offering: a registered offering of a large block of a security which has been previously issued to the public, by a current shareholder. The proceeds of the sale go to the holder, not the issuing company, and the number of shares outstanding does not change. Seasoned offering: stock issue by a listed entity. Proceeds of the issue go to the company. Syndicate: a group of investment banks who together underwrite and distribute a new issue of securities. Sponsor: authorised financial institution responsible for ensuring that a company is suitable for listing. Stock: a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. Underwriter: a company that administers the public issuance and distribution of securities from a corporation, selling them to investors through its distribution network. 43

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45 DISCLAIMER All the information, estimates, assumptions contained in this document are based on elements publicly available which have not been independently verified by Palazzari & Turries. No guaranty can be given regarding their actual achievement. Palazzari & Turries, its shareholders, directors, employees and representatives are not liable as to the accuracy, completeness and correctness of the data provided herein, although we have used all due attention and care in setting up and reporting such data. This document does not constitute an offer or an incentive, an invitation to offer or a promotional message related to a sale or subscription of financial products. This document has to be considered as strictly private and confidential, must not be distributed, disclosed or supplied to third parties (unless required under statutory provision in force) without the prior written consent of Palazzari & Turries. Federico Palazzari fp@palazzari.com Massimo Giavini massimo@palazzari.com PALAZZARI & TURRIES 1105, 11/F Regent Centre 88 Queen s road Central Hong Kong Tel : (852) Fabrice Turries turries@palazzari.com Alberto Pentimalli alberto@palazzari.com 45