Survey of Regulatory Changes involving Multinational Offerings

1. Introduction of a net profit track record requirement for a new listing

An applicant for a listing is required to have a trading record of not less than three financial years during which the profit attributable to shareholders should be not less than HK$20,000,000 in the most recent year. In addition, the profit attributable to shareholders in the two preceding years should be in aggregate not less than HK$30,000,000. The profit should exclude any income or loss of the issuer generated by activities outside the ordinary and usual course of its business.

2. Increasing disclosure in annual reports

The following disclosures should be included in the annual reports of all SEHK listed issuers, except for items (h) and (i) which are applicable to non-Hong Kong incorporated issuers only:

a. aggregate emoluments of directors and the five highest paid employees which should be further analyzed into the pre-determined bands;

b. brief biological details in respect of the directors and senior management;

c. details of pension schemes and the methods of calculations of the contributions;

d. where an issuer has revalued its property assets in its prospectus for listing, the value for such property assets shall be included in the financial statements at such valuation;

e. information in respect of major customers and suppliers such as the percentages of sale and supplies attributable to them respectively and details of interests, if any of the directors, their associates or any shareholders in the customers or suppliers;

f. management discussion and analysis of information relating to the issuers' performance, material factors underlying the results, and financial information and other key financial data;

g. a statement disclosing whether any change in auditors of the issuers in any of the preceding three years has taken place;

h. overseas incorporated issuers shall state the accounting standards adopted for the preparation of their financial statements; and

i. overseas incorporated issuers shall disclose information required of local issuers under the Hong Kong Companies Ordinance in respect of contents of Directors' Report, corresponding figures, loans to company officers in financial institutions, etc.

3. Disclosure of Distributable Profits

Historically banking and shipping companies were given special exemptions under the Companies Ordinance from disclosure of certain financial information and these exemptions prevented them from disclosing their "true" distributable profits in their financial statements.

These exemptions were removed in 1994-1995 through a series of amendments to the Listing Rules applicable to banking and shipping companies which are listed on the SEHK. For banking companies, they are required to present detailed breakdown of their assets and liabilities under specified headings in the profit and loss accounts and the balance sheets. Further, banks are now required to show in their profit and loss accounts, the amount of the transfer to or from their Inner Reserves. These balances and the amounts of transfer were not previously required to be disclosed making it impossible for readers to ascertain the "true" distributable profits in the financial statements.

On the asset side, additional breakdown will be provided in respect of advances to customers and banks, and the institutions' portfolio of securities will be analyzed into those held for dealing and investment purposes. Property revaluation reserves, which form part of the inner reserves of some banks, will also be disclosed. Further enhancements have been made in the areas of disclosure of off-balance sheet exposures, and segmented analysis of loan portfolios by business and geographical areas.

The above disclosure requirements, which mirror those established by the Hong Kong Monetary Authority for all banks, whether listed or non-listed, have brought the disclosure standards in Hong Kong for banks in line with practices adopted in major financial centers.