One-Page Summary of Valtech Tips for Compliance with HKEX-GL116-23: Download
Appropriate selection and application of valuation approaches
Well documented valuation process
Financial analysis in line with generally accepted theory in finance
Adhereance to Internationally Recognised Valuation Standards
DON'T / AVOID
Too generic disclosures
Avoid professional judgement or management estimation that cannot be clearly explained
Being too optimistic unless it is supported by certain market views or research
Issuers are recommended to pay special attention on growth,,margin projections, discount rate and terminal value
More quantitative analysis will be helpful
Narrative on material matters specific to the case
Sensitivity analysis is expected
Answer clearly the question “arethey really comparable and how”
Provide clear reason(s) for exclusion of comparable(s) which are classified as outliner(s)
Provide the basis for forming the list of comparable companies
Clear explanation of valuation multiple’s selection
VALUATION VS NO VALUATION
First, having valuation is obviously much preferrable unless you can find excellent comparable deal or the business is very mature that valuation is simple.
If no independent valuation done, issuers should justify pricing multiple or forecasts with solid supportinng rationale.
Here is the reason why
WHY CHOOSE US
Valtech is renowned for its expertise in advanced valuation techniques, customized valuation models, data-driven insights, and adherence to compliance and reporting standards, having a solid track record in valuation advisory for listed companies, private equity, fund managers, financial institutions, and Hong Kong Government sponsored organisations.
CPA + CFA - Guaranteed at Minimal
We are committed to have qualified CPA and CFA to involve in an valuation engagement at minimal.
It is more often we have CPA, CFA, FRM, MRICS, ABV (by AICPA) with master level of education background in finance or statistics involved in the valuation for disclosure purpose. PhD level will also be involved for mining companies seeking for compliance with Ch. 18 of listing rule.
Disclosure of the Basis of Consideration and Business Valuations in Notifiable Transactions
In October 2023, The Stock Exchange of Hong Kong Limited (HKEx) published a guidance letter HKEX-GL116-23 (the “Guidance Letter”) outlining the disclosure gaps identified in transaction circulars from their previous vetting. The Guidance Letter underscores the need for listed companies to provide adequate explanation of the basis of determining the consideration of the transaction by disclosing in the transaction announcement sufficient and objective information with quantitative inputs and analysis to substantiate how the consideration was arrived at. In a recent review of issuers’ transaction circulars, HKEx found that the disclosure in some transactions was overly general and simplistic. As a result, in the Guidance Letter, HKEx provides guidance on the recommended disclosures of business valuation reports, as well as the recommended disclosures for transactions where no independent valuation is conducted. This article will explore the key aspects of the Guidance Letter and its potential implications for the disclosure of circulars or announcements related to acquisition or disposal transactions.
What’s the Guidance Letter about?
The Guidance Letter states that, regardless of which valuation approach is adopted, the issuer shall provide an explanation of why and how the adopted approach is appropriate for the transaction. It also provides an overview of the necessary information that should be included in the circular or announcements of the transaction to substantiate how the consideration was arrived at. Under the current requirements of Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), when an issuer conducts an acquisition or disposal that constitutes a notifiable transaction, it must disclose the basis for determining the consideration and the terms of the transaction. Where the consideration of the transaction is determined primarily with reference to an independent valuation report of the target company (the “Target”), the transaction circular should contain a valuation report of the Target or a summary of the valuer’s views and analysis, as well as all material factors contained in the valuation report. These include, but not limited to, the effective valuation date, scope and limitation of work, valuation approach(es) or method(s) adopted, key inputs and assumptions adopted, conclusion of value and the identity, qualification and independence of the valuer.