Corporate Finance and Advisory Services
This domain tests Type 6 corporate finance advisory work, sponsor due diligence, Listing Rules transaction classification, the Takeovers Code and prospectus regulation.
Type 6, sponsors and listing work
Type 6 covers advising on corporate finance, including Listing Rules and Takeovers Code matters, restructurings and issuer transactions. Sponsors to IPO applicants must perform reasonable due diligence and cannot simply rely on management assurances. The SFC expects sponsors to make reasonable enquiries, verify material information and ensure the listing document is materially accurate and complete. After listing, a compliance adviser may be required.
The Listing Rules classify transactions by percentage ratios (assets, profits, revenue, consideration and equity capital). A discloseable transaction is 5% or more but under 25%; a major transaction is 25% or more but under 100%; a very substantial acquisition is 100% or more. Reverse takeovers are treated as new listings. Connected transactions require independent shareholder approval and, where applicable, an independent financial adviser (IFA). A connected person includes a director, chief executive, substantial shareholder (10% or more) and their associates.
Worked example
A listed issuer with market capitalisation of HKD 2 billion buys a target for HKD 1.2 billion; the target’s total assets are HKD 1.1 billion and the profits ratio is 120%. The highest ratio exceeds 100%, so this is a very substantial acquisition: shareholder approval and a circular with an accountant’s report are required. If a director of the issuer owns 30% of the target, it is also a connected transaction, so independent shareholders must approve and an IFA must advise them. If the acquisition gave control of a company that itself held 35% of another listed company, the chain principle could require a mandatory offer for that second company.
Traps that cost marks
The Takeovers Code mandatory offer trigger is 30% of voting rights, not 30% of shares acquired; a holder between 30% and 50% that acquires more than 2% in 12 months also triggers an offer. A substantial shareholder for connected-transaction purposes is 10%, not the 5% disclosure threshold. An IFA must be independent of the transaction, not merely the issuer’s sponsor. Announcement is not a substitute for the required circular and shareholder approval.