April 2016
Contents 1 2 3 Listing requirements About EY 3 16 19
IPO readiness Self-assessment Do you recognize these challenges in your company? Question Self-assessment Often Sometimes Never Do you understand which capital raising option fits your organization? Do not know what organizational changes are required for IPO journey? Are there any issues that need resolving before the IPO? Do you have a lack of experience on selecting the right team? Are you struggling with the right story? Do you have doubts on the right timing and pricing? Each of the above may indicate that your IPO readiness requires support. Page 4
Every entrepreneur aspires to take one s company public. Business owners need advice for assessment for readiness of their organization for an IPO and sources for IPO funding. As you embark on your IPO journey, find out how EY can help guide you through the first steps in the process. In 2015, Asia Pacific was the world s leading region in terms of number of IPOs and capital raised. In addition, despite some economic uncertainty in China, the outlook for 2016 remains positive with investor sentiment strengthened by ongoing reforms on the mainland. To execute an IPO successfully, you must be well-prepared. Successful IPO candidates approach the IPO as a transformational process rather than the end-game or just a financing event. It is essential to begin to act and operate as a public company at least one year in advance of the IPO. Page 5
The IPO value journey Overview The IPO should be: Structured A managed transformation of people, processes and culture of an organization A process that starts long before the transaction Market leaders recognize the IPO event as one defining milestone in a complex transformation from a private to a public company. An IPO is a process, not an event. Page 6
What are typical IPO work streams at company level? The IPO value journey IPO value journey IPO planning IPO execution IPO realization Internal preparation 12 24 months prior to IPO IPO design, concept and placement with external team 3-12 months prior to IPO Day-one readiness post-ipo Evaluate IPO as strategic funding in a readiness assessment workshop Set up resources and an internal IPO team Start to build capital market infrastructure and make structural adjustments to achieve IPO readiness Prepare group systems, new functions and tax optimization at company and shareholder level IPO team selection (bank, lawyers, auditors and investor relations) Set timetable, start due diligence and prepare offering concept and prospectus Fine-tune business plan, fact book and presentation materials for analysts, the press and investors Fine-tune the equity story and valuation perceptions based on investor feedback Offering prospectus Approval by regulators and securities admission to the stock exchange Press conference and launch investor road show Bookbuilding, order book analysis and determination of the issue price and allocation Listing on stock exchange with an IPO ceremony and media attention Active investor relations (IR) and ongoing road shows based on the IR calendar Management of investor expectations through efficient forecasting and use of issue proceeds Ongoing transparent external reporting Awareness of disclosures such as ad hoc, directors dealings, corporate governance and operate general meetings Page 7
How to prepare and launch an IPO internally Our approach: IPO-readiness assessment IPO value journey IPO planning IPO execution IPO realization Preparing for the IPO journey Our IPO-readiness approach Start with an IPO-readiness workshop 1. Discuss strategic funding considerations and a possible IPO base case 2. Hold an IPO-readiness assessment workshop, based on selected IPOreadiness assessment modules 3. Analyze gaps of current infrastructure using IPO diagnostics to get the IPO-ready target status 4. Agree on a road map to fill the gaps, based on an IPO-readiness result report 1. Strategy IPO value journey IPO destination Issue concept 8. Timeline IPO windows Plan B options Multi-track process 7. Leadership C-suite Board of directors Work with media 2. Structures Issuing company Group structure Maintaining influence Possible IPO-readiness assessment modules 6. Functions Investor relations Compliance officer Committees 3. Taxes Company level Shareholder level Transaction level 4. Financials External reporting Forecasting Prospectus 5. Systems Internal controls Enterprise risk Compliance management Page 8
IPO readiness assessment The benefits Save time Greater insight into your capital-raising options An IPO base case to meet your objectives and strategies and build road map to enhanced value Reduce cost Transparency on how to get IPO-ready Map of organizational changes to execute an IPO or other capital transaction in an integrated approach Increase transaction certainty Reduced risks in unpredictable IPO markets Effective combination of team, story, timing and the pricing Structured, integrated approach IPO-readiness A successful transformation from private to public status Share knowledge Understanding of your IPO requirements to address questions, share knowledge and train your team Page 9
Executing a seamless IPO At EY, we work closely with IPO candidates, private equity funds and listed companies throughout the IPO journey. EY s global footprints demonstrates that we have experience in working in many of the key global capital markets and with a range of intermediaries. EY s multidisciplinary team with market-specific experience helps you develop a clear concise equity story built on your organization s activities, historic results and future strategy. We recognize the need for enhanced corporate governance. We can help you assess the nature and the robustness of the various (internal and external) information sources required to draw up a prospectus. We assist you in implementation and improvement of relevant systems (e.g., risk management, internal control and internal audit) and improve forecasting systems, to facilitate analysts and investors have superior information. Page 10
Executing a seamless IPO For a successful IPO or strategic transaction, you need to get the following right: Financials Tax matters Legal issues Points to consider Internal control Risk management Corporate governance Information technology Performance reporting The equity story The capital market strategy Page 11
Why EY Global number one in IPO A market leader for past 10 years (by audit share) in guiding high-growth companies through an IPO Leverage our international credentials to provide the guidance needed to address the priorities and mitigate risks Our global presence Outstanding network of contacts among leading capital market intermediaries A multidisciplinary team with market-specific experience, helping to facilitate cross-border IPOs and overseas listings Global network gives the presence in each capital market and an external network of capital market intermediaries, regulators and exchanges IPO leaders network Offer access to a deep pool of knowledge and experience from a network of dedicated teams helping you to anticipate the risks of capital-raising and to navigate through the challenges of operating as a public company. Extensive market resources and support Produce a range of research reports and other publications about rapidly changing IPO environment Provide events, workshops and briefings on IPO readiness Page 12
IPO journey services 7. IPO readiness result 6. IPO journey services 5. Communication with shareholders 1. Assessment workshop 4. GAAP conversion 2. Diagnostics and gap analysis 3. Evaluating listing options After the market correction in the middle of 2015, which saw regulators temporarily shut mainland Chinese exchanges to new listings, the region has rebounded strongly in the fourth quarter. Despite ongoing concerns about global and Chinese economic growth and the possible repercussions of a US interest rate rise, the outlook for 2016 is positive. There is a strong pipeline of IPOready businesses and investor sentiment has been buoyed by reforms to China s IPO system which will see a shift to a market-oriented registration process. We expect a healthy appetite for new listings to persist in the coming year. 1 1 EY Global IPO Trends, 2015 Q4, EY, 2015 Terence Ho EY Greater China Strategic Growth Markets and IPO Leader Page 13
IPO journey services Key stages in IPO journey: Assessment workshop: The IPO readiness assessment workshop can include up to eight modules: strategy, structures, taxes, financials, internal systems, functions, leadership and the planned timeline. We work with you to identify and discuss any gaps that need closing on your IPO value journey. We also discuss strategic funding considerations and develop an initial target structure and IPO base case in line with your objectives. Diagnostics and gap analysis: This analysis helps you design the corporate structure depending on funding requirements and to identify any gaps with the current structure. These are analyzed in greater detail in individual follow-up workshops, and we help you clarify the time, content and resources required to close them. These results are then used to develop the plan for the work leading up to the multitrack option and IPO. IPO readiness result report: This report defines the strategy that lays the foundation for further discussions and multitrack readiness checkpoints. We help identify the gaps between your current status and IPO target-ready status, and recommend work streams and a road map along with estimates, timelines and resources required to fill the gaps and achieve IPO readiness. Page 14
EY s services across the IPO journey Support you in understanding of the movement and requirements of your chosen capital markets and how that fits into your funding strategy and wider business operations Assist you in analyzing and selecting the right listing location and stock exchange, based on the strategic perspective of the company and stakeholders Compare regulatory requirements while helping you select the appropriate stock exchange segment Compare internal structures and processes with initial and ongoing requirements of the chosen capital market Facilitate an IPO readiness assessment workshop designed to analyze the steps required to reach your preferred IPO destination Assist with cross-border project management by our global IPO leaders network Certain of our services for an audit client and its affiliates may be more limited in order to comply with applicable independence standards. Please reach out to your EY contact for further information. Page 15
Listing requirements
Listing requirements Mainland China Listing is a complex and intensive exercise which requires a significant amount of time commitment from senior management to determine it is successful. The listing requirements are set out in various Chinese laws and regulations and their principal provisions are as follows. Main and SME board No material change in principal business, board of directors and management in the last three years No change in controlling shareholder in the last three years Pre-IPO share capital not less than RMB30 million At the end of latest reporting period, not in an accumulated loss position, and the proportion of intangible assets (after deducting land use right, use right of waters for aquaculture, and mining right) in net assets not more than 20% Profits for each of the last three years, and accumulatively more than RMB30 million Operating net cash flow accumulatively more than RMB50 million in the last three years, or accumulative revenues of more than RMB300 million ChiNext Engage in one principal business; no material change in principal business, board of directors and management in the last two years No change in controlling shareholder in last two years Post-IPO share capital not less than RMB30 million At the end of the latest reporting period, net assets not less than RMB20 million, and not in an accumulated loss position Profits for each of the last two years, and accumulatively not less than RMB10 million; or profits for the recent past year, and revenues in the recent past year not less than RMB50 million Page 17
Listing requirements Hong Kong Main board Listing requirements Place of incorporation (in acceptable jurisdictions) Trading record Profit attributable to shareholders Profit test Market capitalization, revenue and cash flow test Market capitalization and revenue test Hong Kong, mainland China, Bermuda, Cayman Islands, or a jurisdiction where the standards of shareholder protection are at least equivalent to those provided in Hong Kong Not less than three financial years Aggregate profits of HK$50 million in the last three years (with HK$20 million in the most recent year and an aggregate of HK$30 million in the two preceding years) No specific requirement No specific requirement Revenue No specific requirement At least HK$500 million for the most recent audited financial year Cashflow No specific requirement Positive cash flow from operating activities of at least HK$100 million in aggregate for the three preceding financial years No specific requirement Minimum market capitalization At least HK$200 million at the time of listing At least HK$2 billion at the time of listing At least HK$4 billion at the time of listing Management and ownership Relaxation of trading record and management requirement Minimum public float Spread of shareholders Management continuity for at least three preceding financial years; and ownership continuity and control for at least the most recent audited financial year The Hong Kong Stock Exchange (SEHK) may accept a shorter trading record period and may vary or waive the above profit or other financial standards requirement for: 1. Mineral companies (those that have at least discovered resources) 2. Newly formed project companies 3. Applicants applying under the market capitalization and revenue test (given the new applicants directors and management have sufficient and satisfactory experience of at least three years in the line of business and industry of the applicant; and the new applicant has management continuity for the most recent audited financial year) At least 25% of total issued share capital; for issuers with expected market capitalization of over HK$10 billion at the time of listing, the SEHK may accept a lower percentage of 15% to 25% At the time of listing, it is not allowed to have less than 300 shareholders and no more than 50% of the securities in public hands can be beneficially owned by the three largest public shareholders. Page 18
Listing requirements Hong Kong GEM Board Listing requirements Description Place of incorporation (in acceptable jurisdictions) Hong Kong, mainland China, Bermuda, Cayman Islands, or a jurisdiction where the standards of shareholder protection are at least equivalent to those provided in Hong Kong Trading record Profit attributable to shareholders Revenue Cashflow Not less than two financial years No specific requirement No specific requirement A positive cash flow, generated from operating activities in the ordinary and usual course of business before changes in working capital and taxes paid, at least HK$20 million in the aggregate for the two financial years immediately preceding the issue of the listing document Minimum market capitalization Management and ownership Relaxation of trading record and management requirement At least HK$100 million at the time of listing Management continuity for at least two preceding financial years; and ownership continuity and control for at least the most recent audited financial year The SEHK may accept a shorter trading record period and/or may vary or waive the above profit or other financial standards requirement for: 1. Mineral companies (those that have at least discovered resources) 2. Newly formed project companies Where the SEHK accepts a trading record of less than two financial years, the applicant must nevertheless still meet the cash flow requirement of HK$20 million for that shorter trading record period. Minimum public float Spread of shareholders At least 25% of total issued share capital; for issuers with expected market capitalization of over HK$10 billion at the time of listing, the SEHK may accept a lower percentage of 15% to 25% At the time of listing, it is not allowed to have less than 100 shareholders and no more than 50% of the securities in public hands at the time of listing can be beneficially owned by the three largest public shareholders. Page 19
About EY
Regional EY network ASEAN Brunei, Cambodia, Guam, Indonesia, Laos, Malaysia, Maldives, Myanmar, North Mariana Islands (Including Saipan), Philippines, Singapore, Sri Lanka, Thailand, Vietnam Greater China Mainland China, Hong Kong SAR, Macau SAR, Taiwan, Mongolia Korea Oceania Australia, Fiji, New Zealand, Papua New Guinea Financial Services Office Australia, China, Korea, Singapore, Vietnam Offices worldwide EY Global in more than 700+ 150 countries Employees worldwide as of 30 June 2015 212,000 Global revenue Financial Year '15, US$28.7 billion ending 30 June 2015 Page 21
Financial Accounting Advisory Services Contacts Lawrence Lau Greater China and Central China FAAS leader lawrence.lau@cn.ey.com +86 21 2228 2816 Maggie Sun North China FAAS leader maggie.sun@cn.ey.com +86 10 5815 3370 Lionel Li South China and Hong Kong FAAS leader lionel.li@cn.ey.com +86 755 2502 8149 Page 22
EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 2016 EYGM Limited. All Rights Reserved. EYG no. 00503-163GBL BMC Agency GA_00004776 ED None In line with EY s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com