Virus Crisis Risks Delaying Earnings Reports in Hong Kong

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(Bloomberg) -- The deepening virus crisis is raising risks that many Hong Kong-listed companies won’t be able to get their earnings reports done in time, lining them up for a suspension in trading if they run afoul of exchange rules.

The Hong Kong Institute of Certified Public Accountants and senior executives at the Hong Kong Exchanges & Clearing Ltd. held an emergency meeting on Thursday to discuss the issue. Auditors are concerned that companies whose fiscal year ended in December might not be able to meet a March 31 deadline for filing their accounts. Travel restrictions to and from China, as well as difficult working conditions in Hong Kong are delaying efforts.

“We have suggested the exchange to extend the deadline,” HKICPA Vice President Nelson Lam said in an interview. “The health of audit professionals is our utmost priority.”

At most risk of delays are companies based in mainland China, where the Lunar New Year holiday has been extended as authorities struggle to contain a virus outbreak that has killed more than a 150 people and infected thousands.

The accountant group met with HKEX Head of Listing Bonnie Chan and the bourse agreed to consider possible remedies but also stressed that the main responsibility lies with the companies to handle the situation, according to Lam. The parties agreed to stay in touch but haven’t scheduled any further meetings, he said.

“We’re closely monitoring developments, and are working with our regulator and other stakeholders to consider the circumstances of the issuers in fulfilling their obligations to publish financial results under the Listing Rules,” an HKEX spokesman said.

HKEX officials couldn’t immediately be reached to comment on the meeting.

More than 1,200 mainland Chinese companies are listed in Hong Kong. With a Dec. 31 year-end, auditors have three months to review and audit their accounts. Companies that fail to announce results in three months after the end of the result period are suspended from trading.

Roy Lo, a practice auditor and deputy president of the Hong Kong Independent Non-Executive Director Association, said it will be a “grave challenge to complete auditing tasks in due course.”

An ideal outcome would be if the exchange delayed its deadline by a month or at least agrees to waivers on case-by-case basis, Lo said.

The situation now is more dire than during the 2003 SARS crisis since the deadline then was a month later and there were fewer mainland companies listed in Hong Kong.

“We now face much more pressure than at the time of SARS,” Lo said.

Regulators are hopeful the situation will clear.

“It’s still early to say it can’t be completed by March,” Kelvin Wong, chairman of the listed company auditors’ regulator Financial Reporting Council, said in a phone interview.

Companies and auditors should come up with a plan to complete the work and also set a date if there’s a delay as early as possible, he said. “Listed companies should bear primary responsibility to negotiate with the stock exchange for alternative solutions if needed,” said Wong.

The city’s financial oversight authority, the Securities & Futures Commission, said it will work closely with the Hong Kong bourse and consider whether there are any grounds to grant delays.

A company would need to “demonstrate specific, practical impediments, which are not capable of resolution, to justify any delay,” a spokesman said in a written reply.

Growing Chinese Ties20202003
Chinese companies (number/% of total)1,241/ 51%802 (a combined count of domestic Hong Kong and China incorporated companies)
Market Value (% of total)73%No breakdown
* Figures are from the previous year-end
Source: HKEX

©2020 Bloomberg L.P.

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