Hong to list on the Main Board of the

 

 

 

Hong
Kong Exchanges and Clearing Limited           BY
FAX (22950198) & BY POST

11/F
One International Finance Centre,

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1
Harbour View Street, Central, Hong Kong

 

 

Attn: 
             Grace
Kan, Managing Director

Lin Shi, Managing Director

 

30 January 2018

 

Dear
Sirs,

 

Re: Pre-IPO enquiry on the Applicant’s
financial independence

 

We act for Jade
Working Limited (the “Applicant”) in its application to list on the Main Board
of the Stock Exchange of Hong Kong (the “Exchange”).

 

We are writing to
seek confirmation on whether or not the Applicant’s proposals in relation to
its financing after listing are in compliance with the Listing Rules.

 

Background
of the Applicant

 

The Applicant is
an electronics manufacturing company that was established around ten years ago
in the PRC. GIAM Electronics (“GIAM”) is the controlling shareholder of the
Applicant, holding 56% of the shares. GIAM has provided the Applicant with a shareholder’s
loan of US$30,000,000.

 

The Applicant has
also obtained bank financing in Japan and the US to fund its growth in those jurisdictions
and in the PRC with parent guarantees from GIAM. The aggregate value of these
bank facilities is around $38,000,000, approximately 20% of the Applicant’s net
asset value and 30% of its total debt.

 

The Applicant
proposes to repay the shareholder’s loan in full using the proceeds of the IPO.
GIAM will continue to remain as Controlling Shareholder after the listing. GIAM
will not sell any shares in the Initial Public Offering (“IPO”). The Applicant has
commenced negotiations to refinance its banking facilities in Japan and the US
in the period after the IPO as interest rates have dropped. The parent
guarantees from GIAM will aid the refinancing of the banking facilities to allow
for much more favourable terms.

 

Applicable
Listing Rules or Principle

 

Listing Rule 8.04
requires both the issuer and its business, in the opinion of the Exchange, be
suitable for listing. Listing Rule 8.10(1)(a)(iii) requires an applicant to
demonstrate that it can operate its business independently of its controlling shareholder.
This requirement is also reflected in Paragraph 27A of Part A of Appendix 1 of
the Listing Rules.

 

The Exchange in
considering an applicant’s independence from its controlling shareholder will
consider the applicant’s financial independence, operational independence, and
management independence, taking into account the particular facts and
circumstances of an applicant (Listing Decision 42-1).

 

A method to
demonstrate financial independence from the controlling shareholder is to repay
all outstanding loans due to, and release guarantees provided by controlling
shareholders before listing (Listing Decision 42-1). However, Listing Decision
69-1 noted that this was not a mandatory method to demonstrate financial
independence.

 

Listing Decision
69-1 noted that a shareholder’s loan need not be repaid prior to listing but may
be repaid from the proceeds of the new issue to demonstrate financial
independence.     

 

Further, in
Listing Decision 69-1, the applicant was not required to prematurely release its
parent’s guarantees for its banking facilities before listing. In determining
whether the applicant could operate financially independent from its
controlling shareholder, the Exchange took into account that (i) the applicant
had a record of fund raising on a stand-alone basis without any credit support
from its parent; (ii) the applicant had received firm offers from a number of
independent financial institutions to provide generally equivalent finance
facilities, on a stand-alone basis, to refinance the loans secured by its
parent’s guarantees. The listing document would disclose this fact; (iii) and the
applicant had a strong financial position. Its business operations are in relatively
matured and developed markets.

 

Application

 

The Applicant
proposes to repay the shareholder’s loan in favour of GIAM in full using the
proceeds of the IPO.

 

The Applicant has
never had any trouble borrowing in Hong Kong and the PRC on a stand-alone basis
without any credit support from GIAM. Further, the Applicant’s business has
done very well, with a strong financial position especially in recent years,
with a large factory in Guangdong. The Applicant’s business operations are in
relatively matured and developed markets, with a number of long-term supply
contracts with household name US and European electronics companies.

 

Given the matters
set out above, in particular taking into account the Applicant’s proposals in
relation to its financing after listing, we seek confirmation on whether the
Applicant would be required to discharge the existing shareholder’s loan in
full as well as release its parent guarantee by the date of listing in order to
demonstrate its financial independence from its controlling shareholder.

 

Any guidance
given on this matter would be very much appreciated. Should you have any
queries, please do not hesitate to contact name
at telephone number.

 

Yours
sincerely,

Name

Position

Solicitor’s firm