Question

Background
Hong Kong, as a top global financial centre, has attracted many companies from different countries to be listed with the Stock Exchange of Hong Kong (SEHK). Upon successful Initial Public Offer (IPO), these companies are able to have their stocks traded in Hong Kong. In recent years, more regional multinational companies have taken the advantage of this global financial platform to raise capital and improve liquidity of their stocks. There are stringent financial regulations by SFC on these listed companies as well. In particular, we have discussed the listing experience of Xiaomi and Uniqlo as well as their listing prospectuses.
Requirements:
Against this background, you are requested to prepare a report in response to the following 2 parts:
(i) You are asked to select one of the above 2 companies as the focus in answering this part. According to the Listing Rules, listed companies are required to provide disclosures in their listing prospectuses. Identify 5 main areas of disclosures in the prospectus of your selected one that you think you are the most important from the standpoint of an investor. Highlight specific information in the prospectus that is useful for enhancing transparency for decision making by the investors.

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Remark: 1200words

Answer 1

The prospectus lists all the opportunities, risks, and financial details about the company that’s selling stock to the public. It’s available to investors, regulators, and other interested parties.

Risk factors-involved and warn investors of all the possible things that could go wrong

Industry data and other metrics-performance of the industry has such a large bearing on how well a company does

Use of proceeds

The money being generated by the IPO is for some sort of corporate purpose, and it’s in this section of the prospectus that this purpose is revealed to investors. Normally, a young company going public is raising money because it needs cash to expand and grow. But there are other reasons why a company may go public, including to pay off part of its debt, to purchase another company, or to allow its employees to sell their shares and raise money.

Capitalization

The capitalization structure is a description of the types of financing that were used by the company to raise money. The typical company has a blend of forms of financing ranging from bank loans to outstanding bond debt and perhaps preferred stock.

Financial data-financial positioning of the company

Management’s discussion and analysis of financial condition

Most investment bankers refer to this important section of the prospectus by its acronym, MD&A. It’s in this section of the prospectus that the company’s management team, with the help of the investment bank, steps through the financial statements, almost line-by-line, with full description. Any numbers that are a little offbeat or unusually large or small should be detailed in this section.

Business

The business section of the prospectus is the place where the company explains its reason for being. The company often explains the products it makes or the services it provides and why customers deem them worthy to be bought.

Management

In the management section of the prospectus, you find a listing of all the top management team members — usually the chief executive officer (CEO), chief operating officer (COO), chief financial officer (CFO), and the members of the board of directors.

Executive pay

In this section of the prospectus, investors find out exactly how much executives of a company are being paid.

Related-party transactions

Double-dealing is exactly the kind of thing you don’t want going on at a company you’re looking to invest in. The trouble with IPOs, though, is that many of these companies trace their roots to being practically family business. Many young companies may have complicated business relationships between founders, their families or friends. All these tangled dealings must be highlighted and explained as related-party transactions.

Principal and selling shareholders

When a company seeks to raise money from the public, in an IPO, the rules of disclosure get really strict.

As an investor, you have the right to know who is selling. In some cases, you’ll see selling by early investors — often venture capitalists — who want to cash out of the investment. If you see lots of insiders selling, that generally isn’t a good sign.

Underwriting

When you’re an investment banker, the goal is to be part of the underwriting list on as many IPOs as possible. When a company goes public, it must list all the investment banks and advisors that helped bring the shares to market. For big IPOs, the list can be a long one and is often a who’s who of investment banks.

Legal matters

If you want to get sued, one of the best ways to make it happen is to start a business. Most of these suits are nuisances or minor, but periodically outstanding litigation can be significant. This section of the prospectus must outline any pending suits against the company.