Project Meridian
We act as Hong Kong legal counsel to the underwriting syndicate on the proposed Main Board IPO of Sino Tech Holdings Limited, a Cayman Islands company incorporated as the listing vehicle (“the Company”) for the group carried on by Tech Solutions Limited and its subsidiaries (“TSL” or “the Group”). The sponsor has circulated a first draft of the A1 filing and I attended a kick-off call yesterday. Several matters emerged that I want you to get on top of before we finalise our due diligence plan and mark up the underwriting agreement.
The business. TSL is a five-year-old enterprise-software and IT-solutions group founded and led by Mr. Alan Ko, who is chairman and CEO. Reported Group revenue was HK$312 million (FY2023), HK$401 million (FY2024) and HK$500 million (FY2025), with the profit trend satisfying, on current figures, the profit test in Main Board Listing Rule 8.05(1)(a). The Group operates across Greater China through PRC subsidiaries and, separately, through a wholly-owned Singapore subsidiary that serves South-East Asian clients. A material part of the PRC revenue derives from an online platform business that requires a value-added telecommunications services (VATS) / ICP licence, which foreign-invested enterprises cannot readily hold. The Group therefore operates that segment through a PRC-domestic operating company (“the OpCo”) that is controlled by the Group’s wholly-foreign-owned enterprise (“the WFOE”) under a suite of contractual arrangements (the “VIE structure”).
Ownership. Mr. Ko holds 60% of the Company; the balance of 40% is held by three financial investors — Dragon Peak Capital, Meridian Ventures and Aster Fund — which came in over two funding rounds and enjoy customary pre-emption, anti-dilution, information and board-nomination rights under a shareholders’ agreement, together with certain undisclosed side letters.
First, TSL’s second-largest customer — Zhonghai Telecom, a provincial state-owned enterprise contributing roughly 15% (about HK$75 million) of FY2025 revenue — served a contract-termination notice last month. The commercial team is vague about the grounds. TSL’s other anchor clients are also SOEs.
Second, Mr. Ko is in the middle of contested divorce proceedings. He was married in the PRC but the couple have assets and a residence in Hong Kong, and the spouse’s lawyers have written asserting a claim over “matrimonial assets including shareholdings.” Nothing has been filed against the shares yet, but nothing has been ruled out either.
Third, a competitor, Nexcode Systems, has sent a letter before action alleging that a core module of TSL’s flagship product infringes two of its patents. TSL disputes this but has not yet obtained an independent opinion.
Fourth, at least two of the financial investors have told the sponsor they wish to sell down completely at IPO. Mr. Ko’s own position is that he wishes to retain control.
Fifth, the VIE structure has never been stress-tested against the current CSRC and cybersecurity regime, and the platform business appears to hold a substantial volume of user data.
Please prepare a due-diligence and disclosure memorandum for the syndicate addressing the questions below. Assume a Main Board listing and that we are aiming to submit the A1 within the next quarter, though I am sceptical that is realistic.
Due diligence and disclosure
- Identify the areas of the Group’s affairs that in your view require enhanced (as opposed to routine) due diligence, explain why each is elevated on these facts, and set out the specific documents, confirmations and independent inputs we should demand for each. Where our verification depends on matters outside the Group’s control (for example court proceedings or a regulator’s view), explain how we should bridge the resulting evidential gap.
- Advise how each of the five matters should be treated in the prospectus. Your advice should distinguish between the Business, Directors and Substantial Shareholders, Financial Information, and Risk Factors sections, and should address the tension between full and accurate disclosure on the one hand and, on the other, commercial sensitivity, legal privilege in the Nexcode dispute, and the confidentiality of the founder’s matrimonial affairs.
- Draft the headline risk factors you would insist on, and explain how you would guard against the criticism that the risk factors are either boilerplate or, conversely, so alarming as to be misleading.
Legal documentation and regulatory comfort
- Which contracts and instruments require special (partner-level) review, and what are you specifically looking for in each? Address in particular the Zhonghai contract, the shareholders’ agreement and side letters, the VIE control documents, the founder’s service agreement and any share charges, and the Group’s IP chain of title.
- What additional legal opinions, expert reports and comfort letters are the Exchange and the SFC likely to require, and from whom? Deal specifically with the PRC-law opinion on the VIE structure and the “narrowly tailored” principle, the CSRC filing under the Overseas Listing Trial Measures, and any cybersecurity review.
- Identify the special provisions we should negotiate into the underwriting agreement to protect the syndicate against the five matters, and explain the practical function of each (warranties, specific indemnities, conditions precedent, force majeure / material adverse change and termination triggers, and bring-down mechanics).
Timing and deal management
- Assess how each matter affects the listing timetable, and give the partner a realistic view of the overall critical path.
- Identify the items that require action this week, and explain the consequence of leaving each of them.
- Set out the contingency options for each matter, including any that would allow the deal to proceed even if the underlying issue is not fully resolved.
Professional and ethical considerations
We are the underwriters’ counsel, not the Company’s. Identify any conflict, independence or reliance issues these facts raise for us and for the sponsor, and explain what we should do about them — including how the sponsor’s own due-diligence obligations under Practice Note 21 bear on the timetable, and what we should do if we come to doubt the accuracy of the Company’s instructions on any of the five matters.
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