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Freshfields Transactions

| 3 minutes read

Hong Kong: disclosure of COVID-19 impact

As the impact of COVID-19 on issuers’ Q1 financial performance becomes clearer, boards of Hong Kong-listed companies should carefully consider the key messages they should be communicating to the market and to their key internal and external stakeholders.

From a compliance perspective, listed companies must pay particular attention to whether any disclosure of inside information is required under the Securities and Futures Ordinance as a result of the pandemic on their business and operations. 

The Securities and Futures Commission (SFC) and the Hong Kong Stock Exchange (HKEX) have recently reminded issuers that if their business operations, reporting controls, systems, processes or procedures are materially disrupted by COVID-19 and/or the related travel restrictions, an assessment should be made as to whether any inside information has arisen, and if so, an inside information announcement should be made as soon as reasonably practicable.

In addition, boards and audit committees should ensure that financial reporting contains appropriate discussions on the impact of COVID-19 to satisfy the relevant disclosure requirements under the Listing Rules, eg disclosing the principal risks and uncertainties facing the company and an indication of likely future development of the business. 

The Hong Kong Institute of Certified Public Accountants has also published guidelines (PDF) in relation to the financial reporting implications of COVID-19.

Based on a review of announcements and other disclosures by Hang Seng Index constituents since the pandemic began, we have noted the following trends:

  • Few issuers are discussing the specific effects of COVID-19 on their financial performance. Although most issuers have made general remarks on the likely short-term negative impacts on the global economy and their business performance, and many have commented on the resumption of their operations in China, there are only limited examples of issuers seeking to quantify the financial impact of the virus.
  • A large number of issuers (both state-owned enterprises and otherwise) are highlighting the social and philanthropic efforts they have undertaken during the epidemic as well as their co-operation with central and local government anti-epidemic initiatives.
  • Consistent with usual Hong Kong market practice, quantitative forward-looking financial guidance is scarce. While some issuers are offering reassuring messages about weathering the economic disruption, others caution that the impact on business is unknown and will depend on the spread of the epidemic, the effectiveness of prevention measures and macroeconomics policies.
  • Discussions on the impact of COVID-19 featured in most annual reports published to date, but tend to be general and qualitative, appearing in the chairman/CEO statement, business review section of the directors’ report, outlook, note to financial statements (as an important event after the reporting period), and, mostly frequently, the ESG report.
  • There are very few formal inside information or profit warning announcements. This may be due to issuers treating the impact of the coronavirus on business as generally known information.
  • With some notable exceptions, most issuers have not announced changes to the arrangements for their shareholders’ meetings, but rather are encouraging shareholders to vote by proxy instead of in person. Others are making arrangements to enable online voting or electronic participation in general meetings. While the recent Hong Kong government restrictions on public gatherings exempt AGMs, the position on EGMs and SGMs will depend on their precise nature and arrangements. In our view, it is likely issuers will increasingly announce alternative logistical procedures for EGMs and SGMs while such restrictions remain in place, in line with the guidance published by the SFC and the HKEX on 1 April 2020.

As we move into Q2, the number of profit warning announcements is expected to increase as the financial impact of the pandemic becomes clearer. Boards would be well advised not to defer the making of inside information announcements until later in the year given the requirement to disclose inside information 'as soon as reasonably practicable'.

To assist boards in complying with their disclosure obligations, directors should consider requesting more frequent reports from management, as well as holding regular calls to continually assess the impact of COVID-19 on the performance of the business. 

It is important that any discussions concerning information disclosure and the timing of release are well documented, particularly if a determination is made not to disclose or to delay disclosure of information.

We are continuing to monitor trends in announcements, annual reports and other disclosures, and will keep this refreshed.

Boards would be well advised not to defer the making of inside information announcements until later in the year given the requirement to disclose inside information “as soon as reasonably practicable”.


asia-pacific, covid-19, corporate governance