Annual and Transition Report (foreign Private Issuer) (20-f)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM

20-F

 

 

(Mark One)

 

☐	R EGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

☒	A NNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

F

or the fiscal year ended December 31,

2021

OR

 

☐	T RANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to

OR

 

☐	S HELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission File Number:

001-39006

 

 

AMTD IDEA GROUP

(Exact Name of Registrant as Specified in Its Charter)

 

 

N/A

(Translation of Registrant’s Name into English)

Cayman Islands

(Jurisdiction of Incorporation or Organization)

23/F Nexxus Building

41 Connaught Road Central

Hong Kong

(Address of Principal Executive Offices)

William Fung, Chief Executive Officer

23/F Nexxus Building

41 Connaught Road Central

Hong Kong

Telephone: [phone]

Facsimile: [phone]

(Name, Telephone, Email and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class		Trading Symbol		Name of Each Exchange on Which Registered
American depositary shares, each representing one Class A ordinary share, par value US$0.0001 per share Class A ordinary shares, par value US$0.0001 per share*		AMTD		New York Stock Exchange

 

*	Not for trading, but only in connection with the listing of American depositary shares on the New York Stock Exchange.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 62,327,851 Class A ordinary shares, par value US$0.0001 per share, and 183,283,628 Class B ordinary shares, par value US$0.0001 per share, as of December 31, 2021.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

    

☒  Yes    ☐  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     ☒

  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

 

Large  accelerated filer   ☐		Accelerated filer  ☒		Non- accelerated filer   ☐		Emerging  growth company   ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards

†

provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

†	The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report

..

  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ☐		International Financial Reporting Standards as issued by the International Accounting Standards Board  ☒		Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ☐   Item 17    ☐  Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act).

    ☐  Yes     

☒  No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ☐  Yes    ☐  No

 

 

 

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Table of Contents

TABLE OF CONTENTS

 

				Page
PART I					1
ITEM 1.		IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS			7
ITEM 2.		OFFER STATISTICS AND EXPECTED TIMETABLE			8
ITEM 3.		KEY INFORMATION			8
ITEM 4.		INFORMATION ON THE COMPANY			48
ITEM 4A.		UNRESOLVED STAFF COMMENTS			71
ITEM 5.		OPERATING AND FINANCIAL REVIEW AND PROSPECTS			72
ITEM 6.		DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			89
ITEM 7.		MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			100
ITEM 8.		FINANCIAL INFORMATION			102
ITEM 9.		THE OFFER AND LISTING			103
ITEM 10.		ADDITIONAL INFORMATION			104
ITEM 11.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			115
ITEM 12.		DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			115
PART II.					116
ITEM 13.		DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			116
ITEM 14.		MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS			116
ITEM 15.		CONTROLS AND PROCEDURES			117
ITEM 16A.		AUDIT COMMITTEE FINANCIAL EXPERT			118
ITEM 16B.		CODE OF ETHICS			118
ITEM 16C.		PRINCIPAL ACCOUNTANT FEES AND SERVICES			118
ITEM 16D.		EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES			119
ITEM 16E.		PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS			119
ITEM 16F.		CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT			119
ITEM 16G.		CORPORATE GOVERNANCE			120
ITEM 16H.		MINE SAFETY DISCLOSURE			120
PART III.					120
ITEM 17.		FINANCIAL STATEMENTS			120
ITEM 18.		FINANCIAL STATEMENTS			120
ITEM 19.		EXHIBITS			120
SIGNATURES					124

 

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INTRODUCTION

Our Corporate Structure

AMTD IDEA Group is not an operating company but a Cayman Islands holding company. Our operations are primarily conducted by our operating subsidiaries in Hong Kong and Singapore. Investors in our ADSs thus are purchasing equity interest in a Cayman Islands holding company and not in an operating entity. As a holding company, AMTD IDEA Group may rely on dividends from its subsidiaries for cash requirements, including any payment of dividends to our shareholders. The ability of our subsidiaries to pay dividends to AMTD IDEA Group may be restricted by laws and regulations applicable to them or the debt they incur on their own behalf or the instruments governing their debt. For a detailed description, see “Part I—Our Corporate Structure.”

Although we do not have any material operations in Mainland China or any variable interest entities in place, the business operations of an insignificant subsidiary and certain investee companies of ours are conducted in Mainland China. PRC laws do not currently prohibit direct foreign investment in our subsidiary or our investee companies in Mainland China, and our investors could potentially own equity interests in our subsidiary or our investee companies in Mainland China. Nonetheless, we, together with our subsidiary and our investee companies in Mainland China face risks and uncertainties associated with the complex and evolving PRC laws and regulations, and PRC regulatory authorities could disallow the corporate structure through which we own our subsidiary or invest in our investee companies in Mainland China, and could extend such prohibition to our Hong Kong operations, which could lead to a material change in our operations and/or a material change in the value of our ADSs, and could cause the value of our ADSs to significantly decline or become worthless. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China and Hong Kong—The PRC government’s significant authority to intervene in or influence the Mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of PRC, and could otherwise result in a material adverse change to our business operations, including our Hong Kong operations and cause the ADSs to significantly decline in value or become worthless.”

Cash Transfers and Dividend Distribution

We conduct the majority of our operations in Hong Kong and maintain our bank accounts and balances primarily in licensed banks in Hong Kong. If needed, cash can be transferred between our holding company and subsidiaries through intercompany fund advances. In 2021, a total of HK$541.9 million was transferred in the form of cash advances from our subsidiaries to our Cayman Islands holding company and a total of HK$413.1 million was transferred from our Cayman Islands holding company to our subsidiaries. No material transfer of other assets was made between our holding company and subsidiaries in 2021 and we intend to settle amounts owed between our Cayman Islands holding company and Hong Kong subsidiaries to the extent required by our business operations.

No dividends or distributions were made by a subsidiary to our holding company in the past, and no dividends or distributions are intended to be made by a subsidiary to our holding company in the near future.

Our Cayman Islands holding company has not declared or made any dividend or other distribution to its shareholders, including U.S. investors, in the past, and no such dividends or distributions are intended to be made by our Cayman Islands holding company in the near future.

See “Part I—Cash Transfers and Dividend Distribution.”

The Holding Foreign Companies Accountable Act

We face risks relating to the lack of PCAOB inspection on our auditor, which may cause our securities to be delisted from the NYSE or prohibited from being traded over-the-counter in the future under the Holding Foreign Companies Accountable Act, if the SEC determines that we have filed annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely for three consecutive years, or two consecutive years if proposed changes to the law, i.e. the Accelerating Holding Foreign Companies Accountable Act, are enacted, beginning in 2021. The delisting or

 

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the cessation of trading of our ADS, or the threat of their being delisted or prohibited from being traded, may materially and adversely affect the value of your investment. On December 16, 2021, the PCAOB issued a report to notify the SEC its determinations that it is unable to inspect or investigate completely registered public accounting firms headquartered in Mainland China and Hong Kong, respectively, and identifies the registered public accounting firms in Mainland China and Hong Kong that are subject to such determinations. Our auditor is identified by the PCAOB and is subject to the determination. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China and Hong Kong—The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections,” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China and Hong Kong—The ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in Mainland China and Hong Kong, or as early as 2023 if proposed changes to the law are enacted. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”

Frequently Used Terms

In this annual report, unless otherwise indicated or unless the context otherwise requires:

 

•

“ADRs” refers to the American depositary receipts that evidence our ADSs;

 

•

“ADSs” refers to our American depositary shares, each of which represents one Class A ordinary share;

 

•

“AMTD,” “we,” “us,” “our company,” or “our” refers, prior to the restructuring which was completed in April 2019, to our investment banking, asset management, and strategic investment businesses and, after the completion of the restructuring, to AMTD IDEA Group (formerly known as AMTD International Inc.), a Cayman Islands exempted company with limited liability, and its subsidiaries;

 

•

“AMTD Group” or “Controlling Shareholder” refers to AMTD Group Company Limited, a British Virgin Islands company;

 

•

“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Taiwan, Hong Kong, and Macau;

 

•

“Class A ordinary shares” refers to our Class A ordinary shares of par value US$0.0001 each;

 

•

“Class B ordinary shares” refers to our Class B ordinary shares of par value US$0.0001 each;

 

•

“HK$” or “Hong Kong dollars” refers to the legal currency of Hong Kong;

 

•

“HKSFC” refers to the Securities and Futures Commission of Hong Kong;

 

•

“SEC” refers to the United States Securities and Exchange Commission;

 

•

“SEHK” refers to the Stock Exchange of Hong Kong Limited;

 

•

“SGX-ST” refers to the Singapore Exchange Securities Trading Limited;

 

•

“shares” or “ordinary shares” refers to our Class A ordinary shares and Class B ordinary shares; and

 

•

“US$” or “U.S. dollars” refers to the legal currency of the United States.

Rounding and Currency

Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

 

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Our reporting currency is Hong Kong dollars because our business is mainly conducted in Hong Kong and most of our revenue is denominated in Hong Kong dollars. This annual report on Form

20-F

contains translations from Hong Kong dollars to U.S. dollars solely for the convenience of the reader. Unless otherwise stated, all translations from Hong Kong dollars to U.S. dollars were made at a rate of HK$7.7996 to US$1.00, which was the certified noon buying rate in effect as of December 30, 2021, as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. We make no representation that any Hong Kong dollar amounts referred to in this annual report on Form

20-F

could have been, or could be, converted to U.S. dollars at any particular rate, or at all.

 

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FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify these forward-looking statements by words or phrases such as “may,” “might,” “will,” “would,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to,” “potential,” “continue,” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:

 

•

our goals and strategies;

 

•

our future business development, financial condition and results of operations;

 

•

the trends in, expected growth and market size of the financial services industry in Hong Kong;

 

•

expected changes in our revenues, costs or expenditures;

 

•

our expectations regarding demand for and market acceptance of our products and services;

 

•

competition in our industry;

 

•

our proposed use of proceeds;

 

•

government policies and regulations relating to our industry; and

 

•

fluctuations in general economic and business conditions in Hong Kong, Mainland China and globally, and

 

•

assumptions underlying or related to any of the foregoing.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview,” “Item 5. Operating and Financial Review and Prospects,” and other sections in this annual report. You should read thoroughly this annual report and the documents that we refer to in this annual report with the understanding that our actual future results may be materially different from and worse than what we expect. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

This annual report contains certain data and information that we obtained from industry publications and reports generated by third-party providers of market intelligence. We have not independently verified the accuracy or completeness of the data and information contained in these publications and reports. Statistical data

 

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in these publications also include projections based on a number of assumptions. The financial services industry may not grow at the rate projected by market data, or at all. Failure of these markets to grow at the projected rate may have a material and adverse effect on our business and the market price of the ADSs or our Class A ordinary shares. If any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions.

 

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PART I

Our Corporate Structure

AMTD IDEA Group is not an operating company but a Cayman Islands holding company. Our operations are primarily conducted by our operating subsidiaries in Hong Kong and Singapore. Investors in our ADSs thus are purchasing equity interest in a Cayman Islands holding company and not in an operating entity. As a holding company, AMTD IDEA Group may rely on dividends from its subsidiaries for cash requirements, including any payment of dividends to our shareholders. The ability of our subsidiaries to pay dividends to AMTD IDEA Group may be restricted by laws and regulations applicable to them or the debt they incur on their own behalf or the instruments governing their debt. For a detailed description, see “Part I—Selected Financial Data—Selected Consolidated Financial Data.” In addition, our strategic investment business is subject to liquidity risks, and we may need additional financing but may not be able to obtain it on favorable terms or at all, all of which may impose liquidity risks on us and adversely affect our ability to pay dividends to our shareholders.

The following diagram generally illustrates our corporate structure, including our subsidiaries as of the date of this annual report. For details, see “Item 4. Information on the Company—C. Organizational Structure.”

 

 

 

(1)	Our shareholders include (i) holders of our ordinary shares such as AMTD Group, Infinity Power Investments Limited and Century City International Holdings Limited, and (ii) public investors. For details relating to our share ownership, see “Item 4. Information on the Company—E. Share Ownership.”

(2)	The other shareholders of AMTD Digital Inc. include third party investors and two of our employees.

(3)

AMTD Digital Financial Holdings Limited has 11 subsidiaries in British Virgin Islands, Singapore and Hong Kong. AMTD Digital Media Holdings Limited has four subsidiaries in British Virgin Islands, Singapore and Hong Kong. AMTD Digital Investments Holdings Limited has 10 subsidiaries in British Virgin Islands and Singapore.

(4)	The other shareholder of AMTD Capital Co., Ltd. is a third party investor.

As used in this annual report, “AMTD,” “we,” “us,” “our company,” or “our” refers, prior to the restructuring which was completed in April 2019, to our investment banking, asset management, and strategic investment businesses and, after the completion of the restructuring, to AMTD IDEA Group (formerly known as AMTD International Inc.), a Cayman Islands exempted company with limited liability, and its subsidiaries.

Although we do not have any material operations in Mainland China or any variable interest entities in place, the business operations of an insignificant subsidiary and certain investee companies of ours are conducted in Mainland

 

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China. PRC laws do not currently prohibit direct foreign investment in our subsidiary or our investee companies in Mainland China, and our investors could potentially own equity interests in our subsidiary or our investee companies in Mainland China. Nonetheless, we, together with our subsidiary and our investee companies in Mainland China face risks and uncertainties associated with the complex and evolving PRC laws and regulations, and PRC regulatory authorities could disallow the corporate structure through which we hold our subsidiary or invest in our investee companies in Mainland China, and could extend such prohibition to our Hong Kong operations, which could lead to a material change in our operations and/or a material change in the value of our ADSs, and could cause the value of our ADSs to significantly decline or become worthless. See “Item 3. Key Information—Risk Factors—D. Risks Relating to Doing Business in Mainland China and Hong Kong—The PRC government’s significant authority to intervene in or influence the Mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of PRC, and could otherwise result in a material adverse change to our business operations, including our Hong Kong operations and cause the ADSs to significantly decline in value or become worthless.”

Risks Relating to Doing Business in Mainland China and Hong Kong

We face various legal and operational risks and uncertainties relating to our operations. Although we do not have any material operations in Mainland China or any variable interest entities in place, we, as well as an insignificant subsidiary and certain investee companies of ours whose business operations are primarily conducted in Mainland China, face risks and uncertainties associated with the complex and evolving PRC laws and regulations and as to whether and how the recent PRC government statements and regulatory developments, such as those relating to regulatory approvals on offshore offerings, anti-monopoly regulatory actions, oversight on cybersecurity and data privacy and variable interest entities, would apply to us, our subsidiary or our investee companies. Should these statements or regulatory actions apply to our subsidiary, our investee companies or to ourselves, including our Hong Kong operations, in the future, or if we expand our business operations into Mainland China such that we become subject to them to a greater extent, our ability to conduct our business, invest into or maintain our investment in Mainland China as foreign investments or accept foreign investments, or list on a U.S. or other overseas exchange may be restricted. For example, PRC regulators have been increasingly focused on regulation in areas of data security and data protection and the PRC regulatory requirements regarding cybersecurity are constantly evolving. Various regulatory bodies in China, specifically the Cyberspace Administration of China, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. As of the date of this annual report, we do not have any material operation in Mainland China and we have not collected, stored, or managed any personal information in Mainland China. Our management have conducted an analysis of the status and scope of our operations, including data compliance, and have concluded that currently we do not expect that PRC laws and regulations on data security, data protection or cybersecurity to be applied to us or that the oversight of the Cyberspace Administration of China will be extended to our operations outside of Mainland China. However, we still face uncertainties regarding the interpretation and implementation of these laws and regulations in the future and if the recent PRC regulatory actions on data security or other data-related laws and regulations were to apply to us, we could become subject to certain cybersecurity and data privacy obligations, including the potential requirement to conduct a cybersecurity review for our public offerings at a foreign stock exchange, and the failure to meet such obligations could result in penalties and other regulatory actions against us and may materially and adversely affect our business and results of operations. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China and Hong Kong—We may be subject to a variety of laws and other obligations, including those regarding cybersecurity and data protection, and failure to comply with any of them may result in proceedings against us by government authorities or others and harm our public image and reputation, which could materially and adversely affect our business, financial condition, and results of operations.”

The PRC government has significant authority to regulate, influence or intervene in the Mainland China operations of an offshore holding company at any time. It also oversees and controls and may exert more control

 

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over offerings conducted outside China by, and foreign investment in, China-based issuers. We cannot assure you that such oversight and control will not be extended to companies operating in Hong Kong such as us. These risks, together with uncertainties in the PRC legal system and the interpretation and enforcement of PRC laws, regulations, and policies, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business operations, and damage our reputation, which could cause the ADSs to significantly decline in value or become worthless. For a detailed description of risks relating to doing business

in Mainland China and Hong Kong, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing

Business in Mainland China and Hong Kong.”

The Holding Foreign Companies Accountable Act

We face risks relating to the lack of PCAOB inspection on our auditor, which may cause our securities to be delisted from the NYSE or prohibited from being traded over-the-counter in the future under the Holding Foreign Companies Accountable Act, if the SEC determines that we have filed annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely for three consecutive years, or two consecutive years if proposed changes to the law, i.e. the Accelerating Holding Foreign Companies Accountable Act, are enacted, beginning in 2021. The delisting or the cessation of trading of our ADS, or the threat of their being delisted or prohibited from being traded, may materially and adversely affect the value of your investment. On December 16, 2021, the PCAOB issued a report to notify the SEC its determinations that it is unable to inspect or investigate completely registered public accounting firms headquartered in Mainland China and Hong Kong, respectively, and identifies the registered public accounting firms in Mainland China and Hong Kong that are subject to such determinations. Our auditor is identified by the PCAOB and is subject to the determination. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China and Hong Kong—The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections,” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China and Hong Kong—The ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in Mainland China and Hong Kong, or as early as 2023 if proposed changes to the law are enacted. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”

Permissions Required from the PRC Authorities for Our Operations

We believe that we and our subsidiaries, to the extent applicable, have obtained the requisite licenses and approvals that are material for our operations in China as of the date of this annual report. Specifically, AMTD Capital Co., Ltd., or AMTD Capital, is a PRC company in which we currently hold 50.13% of equity interest. AMTD Capital is not a significant subsidiary pursuant to Rule 1-02(w) of Regulation S-X. As of the date of this annual report, we do not have any material operation in Mainland China and we have not collected, stored, or managed any personal information in Mainland China. As such, we believe we are not required to obtain any permission from PRC authorities to operate and issue our securities to foreign investors as of the date of this annual report, including permissions from the China Securities Regulatory Commission, or the CSRC, or the Cyberspace Administration of China, or the CAC. If (i) we do not receive or maintain any permission or approval required of us, (ii) we inadvertently concluded that certain permissions or approvals have been acquired or are not required, or (iii) applicable laws, regulations, or interpretations thereof change and we become subject to the requirement of additional permissions or approvals in the future, we may have to expend significant time and costs to procure them. If we are unable to do so, on commercially reasonable terms, in a timely manner or otherwise, we may become subject to sanctions imposed by the PRC regulatory authorities, which could include fines and penalties, proceedings against us, and other forms of sanctions, and our ability to conduct our business, invest into Mainland China as foreign investments or accept foreign investments, or list on a U.S. or other overseas exchange may be restricted, and our business, reputation, financial condition, and results of operations

 

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may be materially and adversely affected. See also “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China and Hong Kong—The PRC government’s significant authority to intervene in or influence the Mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of PRC, and could otherwise result in a material adverse change to our business operations, including our Hong Kong operations and cause the ADSs to significantly decline in value or become worthless,” “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China and Hong Kong—Uncertainties arising from the legal system in China, including uncertainties regarding the interpretation and enforcement of PRC laws and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ADSs to significantly decline in value or become worthless,” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China and Hong Kong—If we were to be required to obtain any permission or approval from the CSRC, the CAC, or other PRC authorities in connection with our overseas offering under PRC law, we may be fined or subject to other sanctions, and our business, reputation financial condition, and results of operations may be materially and adversely affected.”

Selected Consolidated Financial Data

The following selected consolidated financial data should be read in conjunction with our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” in this annual report. The selected consolidated statements of profit or loss and other comprehensive income data for the years ended December 31, 2019, 2020, and 2021 and the selected consolidated statements of financial position data as of December 31, 2020, and 2021 have been derived from our audited consolidated financial statements, which are included in this annual report beginning on page

F-1.

The selected consolidated statements of profit or loss and other comprehensive income data for the years ended December 31, 2017 and 2018 and the selected consolidated statements of financial position data as of December 31, 2017, 2018 and 2019 are derived from our audited consolidated financial statements that have not been included herein. Our consolidated financial statements are prepared and presented in accordance with the International Financial Reporting Standards, or IFRS, issued by the International Accounting Standard Board, or IASB.

Our historical results do not necessarily indicate results expected for any future periods.

 

		For the Year Ended December 31,
		2017				2018				2019				2020				2021
		HK$				HK$				HK$				HK$				HK$				US$
		(in thousands, except for share, per share and per ADS data)
Selected Consolidated Statements of Profit or Loss and Other Comprehensive Income Data
Revenue
Fee and commission income			278,976				367,538				580,006				607,263				680,478				87,245
Dividend and gain related to disposed investments			69,509				99,228				100,552				171,027				173,823				22,286
Sub-total			348,485				466,766				680,558				778,290				854,301				109,531
Net fair value changes on investments, stock loan and derivatives			684,679				256,460				523,616				340,250				543,543				69,689
Total revenue			1,033,164				723,226				1,204,174				1,118,540				1,397,844				179,220
Other income			17,915				15,393				22,090				111,867				125,538				16,095
Impairment losses under expected credit loss model on financial assets			—				—				—				(17,109	)			—				—

 

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		For the Year Ended December 31,
		2017				2018				2019				2020				2021
		HK$				HK$				HK$				HK$				HK$				US$
		(in thousands, except for share, per share and per ADS data)
Other operating expenses, staff costs and finance costs			(242,493	)			(129,654	)			(237,010	)			(219,643	)			(192,206	)			(24,642	)
Net fair value changes on derivative financial liability			—				—				—				7,765				—				—
Profit before tax			808,586				608,965				989,254				1,001,420				1,331,176				170,673
Income tax (expense)/credit			(135,214	)			(83,840	)			(158,350	)			137,541				(109,295	)			(14,013	)
Profit for the year			673,372				525,125				830,904				1,138,961				1,221,881				156,660
Other comprehensive income for the year			—				—				—				1,022				739				94
Profit and other comprehensive income attributable to:
—Ordinary shareholders			568,266				468,061				938,272				1,060,996				1,096,896				140,634
—Holders of perpetual securities			—				—				—				78,987				125,743				16,122
Non-controlling interests			105,106				57,064				(107,368	)			—				(19	)			(2	)
Total comprehensive income for the year			673,372				525,125				830,904				1,139,983				1,222,620				156,754
Class A ordinary shares:
Profit per share attributable to ordinary shareholders
Basic			—				—				4.34				4.34				4.81				0.62
Diluted			—				—				4.34				4.22				4.81				0.62
Weighted average number of ordinary shares used in per share calculation
Basic			—				—				16,113				57,474				62,328				62,328
Diluted			—				—				16,117				58,966				62,328				62,328
Class B ordinary shares:
Profit per share attributable to ordinary shareholders
Basic			2.84				2.34				4.34				4.34				4.81				0.62
Diluted			2.84				2.34				4.34				4.34				4.81				0.62
Weighted average number of ordinary shares used in per share calculation
Basic			200,000				200,000				200,149				186,987				165,666				165,666
Diluted			200,000				200,000				200,205				186,987				165,666				165,666

 

		As of December 31,
		2017				2018				2019				2020				2021
		HK$				HK$				HK$				HK$				HK$				US$
		(in thousands)
Selected Consolidated Statements of Financial Position Data
Total non-current assets			15,623				15,302				15,202				2,209,103				2,801,265				359,155
Total current assets			6,025,994				7,091,887				8,255,491				8,317,188				3,885,573				498,176
Total assets			6,041,617				7,107,189				8,270,693				10,526,291				6,686,838				857,331
Total non-current liabilities (interest-bearing)			—				—				116,810				116,233				125,723				16,119
Total non-current liabilities (non-interest-bearing)			130,209				163,357				242,914				—				—				—
Total current liabilities (interest-bearing)			351,610				322,000				317,722				232,280				388,871				49,857

 

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		As of December 31,
		2017				2018				2019				2020				2021
		HK$				HK$				HK$				HK$				HK$				US$
		(in thousands)
Total current liabilities (non-interest- bearing)			2,890,522				3,427,430				764,752				453,602				383,371				49,153
Total liabilities			3,372,341				3,912,787				1,442,198				802,115				897,965				115,129
Share capital and capital reserve			1,312,960				1,312,960				4,551,380				4,551,380				4,551,376				583,540
Treasury shares			—				—				—				—				(5,000,000	)			(641,059	)
Exchange reserve			—				—				—				1,023				1,467				189
Retained profits			870,781				1,338,842				2,277,115				3,337,088				4,449,490				570,477
Total ordinary shareholders’ equity			2,183,741				2,651,802				6,828,495				7,889,491				4,002,333				513,147
Non-controlling interests			485,535				542,600				—				—				15,496				1,987
Holders of perpetual securities			—				—				—				1,834,685				1,771,044				227,068
Total equity			2,669,276				3,194,402				6,828,495				9,724,176				5,788,873				742,202
Total liabilities and equity			6,041,617				7,107,189				8,270,693				10,526,291				6,686,838				857,331

Cash Transfers and Dividend Distribution

We conduct the majority of our operations in Hong Kong and maintain our bank accounts and balances primarily in licensed banks in Hong Kong. Out of our total bank balances of HK$526.2 million (US$67.5 million) as of December 31, 2021, only HK$31.0 million (US$4.0 million) was maintained in China by AMTD Capital, which is a 50.13%-owned PRC subsidiary and did not engage in any material operation in 2021. If needed, cash can be transferred between our holding company and subsidiaries through intercompany fund advances, and there are currently no restrictions of transferring funds between our Cayman Islands holding company and subsidiaries in Hong Kong.

The following table sets forth the material cash transfers in the form of cash advances in both directions occurred between our Cayman Islands holding company and Hong Kong subsidiaries in 2021.

 

Subsidiaries		To Holding Company HK$ (in million)				From Holding Company HK$ (in million)
AMTD Global Markets Limited			375.4				413.1
AMTD Investment Solutions Group Limited			166.5				—

No material transfer of other assets was made between our holding company and subsidiaries in 2021.

We intend to settle amounts owed between our Cayman Islands holding company and Hong Kong subsidiaries to the extent required by our business operations.

AMTD Capital, which is 50.13% owned by AMTD Global Markets Limited (our Hong Kong subsidiary), is a foreign-invested enterprise under PRC law. Pursuant to the PRC Enterprise Income Tax Law, dividends generated and payable by a foreign-invested enterprise in China to its foreign investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. In accordance with the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, where a Hong Kong resident enterprise, which is considered a

non-PRC

resident enterprise, directly holds at least 25% of the equity interest in a PRC enterprise, the withholding tax rate in respect to the payment of dividends by such PRC enterprise to such Hong Kong resident enterprise is reduced to 5% from the standard rate of 10%, subject to approval of the competent PRC tax authority. Thus, a 5% preferential dividend withholding tax will be applied when AMTD Capital pays any dividend to its parent, AMTD Global Markets Limited. There is no tax on dividends in Hong Kong.

 

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Other than the aforementioned tax consequences of any dividend or distribution by AMTD Capital, there are no significant tax consequences when our subsidiaries make any dividends or distributions to our holding company. No such dividends or distributions were made by a subsidiary to our holding company in the past, and no dividend or distribution is intended to be made by a subsidiary to our holding company in the near future.

Our board of directors will review and consider whether to distribute earnings from time to time. If our board of directors decides to pay dividends, the form, frequency, and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, and other factors that the board of directors may deem relevant.

AMTD IDEA Group is a holding company incorporated in the Cayman Islands, and our ability to pay dividends depends upon dividends paid by our subsidiaries. The ability of our subsidiaries to pay dividends to us may be restricted by laws and regulations applicable to them or the debt they incur on their own behalf or the instruments governing their debt. Two of our subsidiaries, Asia Alternative Asset Partners Limited, a licensed company under the Securities and Futures Ordinance (Cap. 571) of Hong Kong, and AMTD Global Markets Limited, a licensed company under the Securities and Futures Ordinance (Cap. 571) of Hong Kong and a licensed insurance intermediary under the Insurance Ordinance (Cap. 41) of Hong Kong, are subject to minimum liquid and

paid-up

capital requirements under relevant rules. Before distributing their earnings to the respective holding companies, these subsidiaries must take into consideration their respective financial condition. In addition, our strategic investment business is subject to liquidity risks, and we may need additional financing but may not be able to obtain it on favorable terms or at all, all of which may impose liquidity risks on us and adversely affect our ability to pay dividends to our shareholders.

Our Cayman Islands holding company has not declared or made any dividend or other distribution to its shareholders, including U.S. investors, in the past, and no such dividend or distribution is intended to be made by our Cayman Islands holding company in the near future.

U.S. investors will not be subject to Cayman Islands or Hong Kong taxation and no withholding will be required on the payment of dividends or distributions to them while they may be subject to U.S. federal income tax. See ‘Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—Dividends.’

There are no other significant restrictions and limitations on our ability to distribute earnings from our businesses, including our subsidiaries, to the parent company and U.S. investors or our ability to settle amounts owed, and there are no significant foreign exchange and fund transfer restrictions on cash transfers between entities within our group, across borders, and to U.S. investors.

The foregoing notwithstanding, the PRC government has significant authority to intervene or influence the Mainland China operations of an offshore holding company at any time, and such oversight may also extend to companies operating in Hong Kong like us. We cannot assure you that the PRC government will not prevent us from transferring the cash we maintain in Hong Kong outside of PRC, or restrict our ability to deploy our cash into business or to pay dividends. We could also be subject to limitations on the transfer or the use of our cash if we expand our business operations into Mainland China or conduct our operations in some other ways such that we become subject to PRC laws that regulate these activities. Any limitation on our ability to transfer or use our cash could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in Mainland China and Hong Kong—The PRC government’s significant authority to intervene in or influence the Mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of PRC, and could otherwise result in a material adverse change to our business operations, including our Hong Kong operations and cause the ADSs to significantly decline in value or become worthless.”

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

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ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

ITEM 3.

KEY INFORMATION

 

A.	[Reserved]

 

B.	Capitalization and Indebtedness

Not applicable.

 

C.	Reasons for the Offer and Use of Proceeds

Not applicable.

 

D.	Risk Factors

Summary of Risk Factors

An investment in the ADSs involves significant risks. Below is a summary of material risks that we face, organized under relevant headings. These risks are discussed more fully in “Item 3. Key Information—D. Risk Factors.”

Risks Relating to Doing Business in Mainland China and Hong Kong

 

•

The PRC government’s significant authority to intervene in or influence the Mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of PRC, and could otherwise result in a material adverse change to our business operations, including our Hong Kong operations and cause the ADSs to significantly decline in value or become worthless.

 

•

Uncertainties arising from the legal system in China, including uncertainties regarding the interpretation and enforcement of PRC laws and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ADSs to significantly decline in value or become worthless.

 

•

The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections.

 

•

The ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in Mainland China and Hong Kong, or as early as 2023 if proposed changes to the law are enacted. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.

 

•

We may be subject to a variety of laws and other obligations, including those regarding cybersecurity and data protection, and failure to comply with any of them may result in proceedings against us by government authorities or others and harm our public image and reputation, which could materially and adversely affect our business, financial condition, and results of operations.

 

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•

If we were to be required to obtain any permission or approval from the CSRC, the CAC, or other PRC authorities in connection with our overseas offering under PRC law, we may be fined or subject to other sanctions, and our business, reputation financial condition, and results of operations may be materially and adversely affected.

Risks Relating to Our Business and Industry

 

•

We have a relatively short operating history of our current businesses compared to some of our globally established competitors and face numerous risks and challenges as we continue to expand our business in a rapidly evolving market, which makes it difficult to effectively assess our future prospects.

 

•

Unfavorable financial markets and economic conditions in Asia and elsewhere in the world could materially and adversely affect our business, financial condition, and results of operations.

 

•

The financial services industry is intensely competitive. If we are unable to compete effectively, we may lose our market share and our results of operations and financial condition may be materially and adversely affected.

 

•

Our businesses depend on key management executives and professional staff, and our business may suffer if we are unable to recruit and retain them.

 

•

We make strategic investments using our own capital, and may not be able to realize any profits from these investments for a considerable period of time, or may lose some or all of the principal amounts of these investments.

 

•

Our strategic investment business is subject to liquidity risks.

 

•

Our results of operations and financial condition may be materially affected by fluctuations in the fair value of our equity investments in our investee companies.

 

•

Our investments are subject to liquidity, concentration, regulatory, credit and other risks.

 

•

A substantial portion of our revenue is derived from investment banking business, which is not long-term contracted source of revenue and is subject to intense competition, and declines in these engagements could materially and adversely affect our financial condition and results of operations.

 

•

Our investment banking business depends on our ability to identify, execute, and complete projects successfully and is subject to various risks associated with underwriting and financial advisory services. We cannot assure you that the income level of our investment banking business can be sustained.

 

•

If we cannot identify or effectively control the various risks involved in the asset management products that we offer or manage under our asset management business or otherwise achieve expected investment returns for our asset management clients, our reputation, client relationships, and asset management business will be adversely affected.

 

•

We are subject to extensive and evolving regulatory requirements, non-compliance with which may result in penalties, limitations, and prohibitions on our future business activities or suspension or revocation of our licenses, and consequently may materially and adversely affect our business, financial condition, and results of operations. In addition, we may, from time to time, be subject to regulatory inquiries and investigations by relevant regulatory authorities or government agencies in Hong Kong or other applicable jurisdictions.

 

•

Our revenue and profits are highly volatile, and fluctuate significantly from quarter to quarter, which may result in volatility of the price of our ADSs or our Class A ordinary shares.

Risks Relating to Our Relationship with the Controlling Shareholder

 

•

We have limited experience operating as a stand-alone public company.

 

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•

Our financial information included in this annual report may not be representative of our financial condition and results of operations if we had been operating as a stand-alone company.

 

•

We may not continue to receive the same level of support from our Controlling Shareholder.

 

•

Our agreements with our Controlling Shareholders or any of its controlling shareholders may be less favorable to us than similar agreements negotiated between unaffiliated third parties. In particular, our non-competition agreement with our Controlling Shareholder limits the scope of business that we are allowed to conduct.

 

•

We may have conflicts of interest with our Controlling Shareholders or any of its controlling shareholders and, because of our Controlling Shareholder’s controlling ownership interest in our company, we may not be able to resolve such conflicts on terms favorable to us.

Risks Relating to the ADSs and Our Ordinary Shares

 

•

An active public market may not develop for the ADSs on the NYSE or our Class A ordinary shares on the SGX-ST, and you may not be able to resell the ADSs or Class A ordinary shares at or above the price you paid, or at all.

 

•

The trading price of the ADSs or Class A ordinary shares may be volatile, which could result in substantial losses to you.

 

•

The characteristics of the U.S. capital markets and the Singapore capital markets are different

 

•

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against us or our directors and officers named in the annual report based on foreign laws.

Risks Relating to Doing Business in Mainland China and Hong Kong

The PRC government’s significant authority to intervene in or influence the Mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of PRC, and could otherwise result in a material adverse change to our business operations, including our Hong Kong operations, and cause the ADSs to significantly decline in value or become worthless.

Our business, prospects, financial condition, and results of operations may be influenced to a significant degree by political, economic, and social conditions in Mainland China and in Hong Kong generally. The PRC government has significant authority to intervene or influence the Mainland China operations of an offshore holding company at any time, as the government deems appropriate to advance regulatory and social objectives and policy positions. For instance, the PRC government has recently published new policies that significantly affected certain industries. We cannot assure you that the oversight of the PRC government will not be extended to companies operating in Hong Kong like us or that new policies will not be introduced to regulate our industry. The PRC government may also prevent us from transferring the cash we maintain in Hong Kong outside of PRC, or restrict our ability to deploy our cash into business or to pay dividends. Any such action could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business, and could result in a material adverse change to our business operations, including our Hong Kong operations, our prospects, financial condition, and results of operations, require us to seek additional permission to continue our operations, and damage our reputation, which could cause the ADSs to significantly decline in value or become worthless. See also “—We may be subject to a variety of laws and other obligations, including those regarding cybersecurity and data protection, and failure to comply with any of them may result in proceedings against us by government authorities or others and harm our public image and reputation, which could materially and adversely affect our business, financial condition, and results of operations.”

 

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Uncertainties arising from the legal system in China, including uncertainties regarding the interpretation and enforcement of PRC laws and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ADSs to significantly decline in value or become worthless.

We may be affected directly or indirectly by PRC laws and regulations. The legal system in China is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases may be cited for reference but have less precedential value. The laws, regulations, and legal requirements in China are quickly evolving and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to you and us. In addition, we cannot predict the effect of future developments in the PRC legal system, particularly with regard to new economies, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all. As a result, we may not be aware of our potential violation of these policies and rules. In addition, any administrative and court proceedings in China may be protracted and result in substantial costs and diversion of resources and management attention.

New laws and regulations may be enacted from time to time and substantial uncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations applicable to our operations, including our Hong Kong operations. In particular, the PRC government authorities may continue to promulgate new laws, regulations, rules and guidelines governing new economy companies with respect to a wide range of issues, such as intellectual property, unfair competition and antitrust, privacy and data protection, and other matters. Compliance with these laws, regulations, rules, guidelines, and implementations may be costly, and any incompliance or associated inquiries, investigations, and other governmental actions may divert significant management time and attention and our financial resources, bring negative publicity, subject us to liabilities or administrative penalties, or materially and adversely affect our business, financial condition, results of operations, and the value of the ADSs.

The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections.

Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Since our auditor is located in Greater China, with operations in and who performs audit operations of registrants in China, a jurisdiction where the PCAOB has been unable to fully conduct inspections without the approval of the PRC authorities, our auditor is not currently inspected by the PCAOB.

As a result, we and investors in our ADSs are deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause investors and potential investors in our ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

 

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The ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in Mainland China and Hong Kong, or as early as 2023 if proposed changes to the law are enacted. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.

The HFCAA was signed into law on December 18, 2020. The HFCAA states that if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection for the PCAOB for three consecutive years beginning in 2021, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the

over-the-counter

trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in Mainland China and Hong Kong. The PCAOB identified our auditor as one of the registered public accounting firms that the PCAOB is unable to inspect or investigate completely. In March 2022, the SEC issued its first list of issuers identified under the HFCAA indicating that the companies on the list are now formally subject to the delisting provisions if they remain on the list for three consecutive years.

Whether the PCAOB will be able to conduct inspections of our auditor before the issuance of our financial statements on Form

20-F

for the year ending December 31, 2023, which is due by April 30, 2024, or at all, is subject to substantial uncertainty and depends on a number of factors out of our, and our auditor’s, control. If the ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a

non-U.S.

exchange or that a market for the ADSs will develop outside of the United States. Such a prohibition would substantially impair your ability to sell or purchase the ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of the ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, results of operations, and prospects.

On June 22, 2021, the U.S. Senate passed a bill, which would reduce the number of consecutive

non-inspection

years required for triggering the prohibitions under the HFCAA from three years to two. On February 4, 2022, the U.S. House of Representatives passed a bill, which contained, among other things, an identical provision. If this provision is enacted into law and the number of consecutive

non-inspection

years required for triggering the prohibitions under the HFCAA is reduced from three years to two, then the ADSs could be prohibited from trading in the United States as early as 2023.

We may be subject to a variety of laws and other obligations, including those regarding cybersecurity and data protection, and failure to comply with any of them may result in proceedings against us by government authorities or others and harm our public image and reputation, which could materially and adversely affect our business, financial condition, and results of operations.

We may be subject to a variety of cybersecurity, data privacy, data protection, and other laws and regulations related to data, including those relating to the collection, use, sharing, retention, security, disclosure, and transfer of confidential and private information, such as personal information and other data. These laws and regulations apply not only to third-party transactions, but also to transfers of information within our organization. These laws and regulations may restrict our business activities and require us to incur increased costs and efforts to comply, and any breach or noncompliance may subject us to proceedings against us, damage our reputation, or result in penalties and other significant legal liabilities, and thus may materially and adversely affect our business, financial condition, and results of operations.

In some jurisdictions, including Mainland China where we do not have material operations, the cybersecurity, data privacy, data protection, or other data-related laws and regulations are relatively new and evolving, and their interpretation and application may be uncertain. For example, on December 28, 2021, the CAC, the National Development and Reform Commission, or the NDRC, the Ministry of Industry and

 

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Information Technology, or the MIIT, and several other PRC government authorities jointly issued the Cybersecurity Review Measures, which took effect on February 15, 2022 and further restates and expands the applicable scope of the cybersecurity review in effect. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services and network platform operators engaging in data processing activities must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators holding personal information of over one million users must apply to the Cybersecurity Review Office for a cybersecurity review before a foreign listing. Although our securities have been listed on the New York Stock Exchange, given that the Cybersecurity Review Measures was recently promulgated, there are substantial uncertainties as to its interpretation, application, and enforcement. On July 30, 2021, the state council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on September 1, 2021. Pursuant to the Regulations on Protection of Critical Information Infrastructure, critical information infrastructure shall mean any important network facilities or information systems of the important industry or field such as public communication and information service, energy, transportation, water conservation, finance, public services,

e-government

affairs and national defense science, which may endanger national security, people’s livelihood and public interest in case of damage, function loss or data leakage. In addition, relevant administration departments of each critical industry and sector, or Protection Departments, shall be responsible to formulate eligibility criteria and determine the critical information infrastructure operator in the respective industry or sector. The operators shall be informed about the final determination as to whether they are categorized as critical information infrastructure operators. As of the date of this annual report, no detailed rules or implementation have been issued by any authority and the exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws. On November 14, 2021, the CAC released the Regulations on the Network Data Security (Draft for Comments), or the Draft Data Security Regulations. The Draft Data Security Regulations provides that data processors refer to individuals or organizations that autonomously determine the purpose and the manner of processing data. In accordance with the Draft Data Security Regulations, data processors shall apply for a cybersecurity review for the following activities: (i) merger, reorganization or division of internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests to the extent that affects or may affect national security; (ii) listing abroad of data processors which process over one million users’ personal information; (iii) the listing of data processors in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. However, there have been no clarifications from the authorities as of the date of this annual report as to the standards for determining such activities that “affects or may affect national security. There is also no timetable as to when the Draft Data Security Regulations will be enacted. As such, it remains unclear whether the final version adopted in the future will have any further material changes, and it is uncertain how the draft regulations will be enacted, interpreted, or implemented and how they will affect us. It remains uncertain whether future regulatory changes in China would impose additional restrictions on companies like us. We cannot predict the impact of these future regulatory changes, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If future regulatory updates mandate clearance of cybersecurity review and other specific actions to be completed by companies operating in Hong Kong like us, we face uncertainties as to whether such clearance can be timely obtained, or at all. As of the date of this annual report, we do not have any material operation in Mainland China. We have not collected, stored, or managed any personal information in Mainland China. As such, we currently do not expect the Cybersecurity Review Measures, the Draft Data Security Regulations or other recent regulations will have an impact on our business or results of operations, and we believe that we are compliant with the regulations and policies that have been issued by the CAC to date. However, we still face uncertainties regarding the interpretation and implementation of these laws and regulations in the future. Cybersecurity review could result in disruption in our operations, negative publicity with respect to our company, and diversion of our managerial and financial resources. Furthermore, if we were found to be in violation of applicable laws and regulations in China during such review, we could be subject to fines or other government sanctions and reputation damages. Therefore, potential cybersecurity review, if applicable to us, could materially and adversely affect our business, financial condition, and results of operations.

 

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In addition, the PRC Data Security Law, which was promulgated by the Standing Committee of the National People’s Congress on June 10, 2021 and took effect on September 1, 2021, requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for the purpose of data protection, data processing activities must be conducted based on data classification and hierarchical protection system for data security. Furthermore, the recently issued Opinions on Strictly Cracking Down Illegal Securities Activities require (i) speeding up the revision of the provisions on strengthening the confidentiality and archives management relating to overseas issuance and listing of securities and (ii) improving the laws and regulations relating to data security, cross-border data flow, and management of confidential information. The PRC Personal Information Protection Law, which was promulgated by the Standing Committee of the National People’s Congress on August 20, 2021 and took effect on November 1, 2021, integrates previously scattered rules with respect to personal information rights and privacy protection and applies to the processing of personal information within China as well as certain personal information processing activities outside China, including those for the provision of products and services to natural persons within China or for the analysis and assessment of acts of natural persons within China. Although as of the date of this annual report, we have not collected, stored, or managed any personal information in China, given that there remain uncertainties regarding the further interpretation and implementation of those laws and regulations, if they are deemed to be applicable to us, we cannot assure you that we will be compliant with such new regulations in all respects, and we may be ordered to rectify and terminate any actions that are deemed illegal by the government authorities and become subject to fines and other government sanctions, which may materially and adversely affect our business, financial condition, and results of operations.

If we were to be required to obtain any permission or approval from the CSRC, the CAC, or other PRC authorities in connection with our overseas offering under PRC law, we may be fined or subject to other sanctions, and our business, reputation financial condition, and results of operations may be materially and adversely affected.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, purports to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. The interpretation and implementation of the regulations remain unclear.

In addition, the PRC government authorities may strengthen oversight over offerings that are conducted overseas. For instance, on July 6, 2021, the relevant PRC governmental authorities promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities, which emphasized the need to strengthen the supervision over overseas listings by PRC companies. Effective measures, such as promoting the establishment of relevant regulatory systems, are to be taken to deal with the risks and incidents of overseas listings of China-based companies, cybersecurity and data privacy protection requirements and similar matters. As a

follow-up,

on December 24, 2021, the State Council issued a draft of the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Draft Provisions, and the CSRC issued a draft of Administration Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies, or the Draft Administration Measures, for public comments. The Draft Provisions and the Draft Administration Measures propose to establish a new filing-based regime to regulate overseas offerings and listings by PRC domestic companies. On December 28, 2021, the Cyberspace Administration of China and other PRC authorities promulgated the Cybersecurity Review Measures, which took effect on February 15, 2022, and further restates and expands the applicable scope of the cybersecurity review in effect. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services and network platform operators engaging in data processing activities must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators holding personal information of over one million users must apply to the Cybersecurity Review Office for a cybersecurity review before an overseas listing. On December 27,

 

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2021, the NDRC and the Ministry of Finance jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access (2021 Version), or the 2021 Negative List, which became effective on January 1, 2022. Pursuant to such Special Administrative Measures, if a domestic company engaging in the prohibited business stipulated in the 2021 Negative List seeks an overseas offering and listing, it must obtain the approval from the competent governmental authorities. Besides, the foreign investors of the company should not be involved in the company’s operation and management, and their shareholding percentage should be subject to the relevant regulations on the domestic securities investments by foreign investors. The foregoing regulations are either recently issued or remain in draft form and there remain substantial uncertainties with respect to their interpretation and implementation.

We believe that we and our subsidiaries, to the extent applicable, have obtained the requisite licenses and approvals that are material for our operations in China as of the date of this annual report. Specifically, AMTD Capital Co., Ltd., or AMTD Capital, is a PRC company in which we currently hold 50.13% of equity interest. AMTD Capital is not a significant subsidiary pursuant to Rule

1-02(w)

of Regulation

S-X.

As of the date of this annual report, we do not have any material operation in Mainland China and we have not collected, stored, or managed any personal information in China. As such, we believe we are not required to obtain any permission from PRC authorities to operate and issue our securities to foreign investors as of the date of this annual report, including permissions from the CSRC or CAC. However, if we expand our business operations into Mainland China through our AMTD SpiderNet ecosystem or it is otherwise subsequently determined that we were required to obtain such permissions or approvals in the future in connection with the listing or continued listing of our securities on a stock exchange outside of Hong Kong or Mainland China, it is uncertain whether we can and how long it will take for us to obtain such approval, and, even if we obtain such approval, the approval could be rescinded. Any failure to obtain or a delay in obtaining the necessary permissions from the PRC authorities to conduct securities issuance outside of the PRC may subject us to sanctions imposed by the PRC regulatory authorities, which could include fines and penalties, proceedings against us, and other forms of sanctions, and our ability to conduct our business, invest into or maintain our investment in Mainland China as foreign investments or accept foreign investments, or conduct securities issuance outside of the PRC may be restricted, and our business, reputation, financial condition, and results of operations may be materially and adversely affected.

Risks Relating to Our Business and Industry

We have a relatively short operating history of our current businesses compared to some of our globally established competitors and face numerous risks and challenges as we continue to expand our business in a rapidly evolving market, which makes it difficult to effectively assess our future prospects.

We have a relatively short operating history of our current businesses compared to some of our globally established competitors. We launched our investment banking business in 2015, after which we introduced our institutional asset management business and strategic investment business. Certain of our business initiatives, including expansion of existing businesses, may put us into direct or indirect contact with individuals and entities that are not within our traditional client and counterparty base, and may expose us to new asset classes and new markets.

You should consider our business and prospects in light of the risks and challenges we encounter or may encounter given the rapidly evolving market in which we operate and our relatively short operating history. These risks and challenges include our ability to, among other things:

 

•

build and maintain a well-recognized and respected brand domestically and globally;

 

•

establish and expand our client base, win capital markets and advisory mandates, and increase our assets under management, or AUM;

 

•

maintain and enhance our relationships with our business partners;

 

•

attract, retain, and motivate talented employees;

 

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•

anticipate and adapt to changing market conditions and competitive landscape;

 

•

manage our future growth and business and geographic expansion;

 

•

ensure that the performance of our products and services meets client expectations;

 

•

maintain or improve our operational efficiency;

 

•

navigate a complex and evolving regulatory environment;

 

•

defend ourselves in any legal or regulatory actions against us;

 

•

enhance our technology infrastructure and maintain the security of our system and the confidentiality of the information provided and utilized across our system;

 

•

identify operational system or infrastructure inefficiency or those of third parties, avoid and remedy operating errors as a result of human or system errors or other misconduct;

 

•

identify and address conflicts of interest;

 

•

manage our strategic investments (including but not limited to monitoring of market risks and operating performance of our investments and derivatives); and

 

•

identify, account for and appropriately manage our related party transactions.

If we fail to address any or all of these risks and challenges, our business may be materially and adversely affected.

We have a relatively short history in serving our current institutional client base. As our business develops and as we respond to competition, we may continue to introduce new service offerings, make adjustments to our existing services, or make adjustments to our business operations in general. Any significant change to our business model that does not achieve expected results could materially and adversely affect our financial condition and results of operations. It is therefore difficult to effectively assess our future prospects.

Unfavorable financial markets and economic conditions in Asia and elsewhere in the world could materially and adversely affect our business, financial condition, and results of operations.

Our businesses are materially affected by conditions in the financial markets and economic conditions in Asia and elsewhere in the world. Financial markets and economic conditions could be negatively impacted by many factors beyond our control, such as inability to access capital markets, control of foreign exchange, changes in exchange rates, rising interest rates or inflation, slowing or negative growth rate, government involvement in allocation of resources, inability to meet financial commitments in a timely manner, terrorism, political uncertainty, epidemic or pandemic, civil unrest, fiscal or other economic policy of governments, and the timing and nature of any regulatory reform. The recent

geo-political

uncertainties may also give rise to uncertainties in global economic conditions and adversely affect general investor confidence. The global spread of coronavirus disease

(COVID-19)

in a significant number of countries around the world and the traveling restrictions due to

COVID-19

have resulted in, and may intensify, global economic distress, and the extent to which it may affect our business and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.

The credit and financial markets have experienced extreme volatility and disruptions due to the current conflict between Ukraine and Russia. The conflict is expected to have further global economic consequences, including but not limited to the possibility of severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in inflation rates and uncertainty about economic and political stability. In addition, the United States and other countries have imposed sanctions on Russia which increases the risk that Russia may resort to retaliatory actions, including the launching of cyberattacks. Any of the foregoing consequences, including those we cannot yet predict, may cause our business, financial condition, results of operations and the price of the ADSs to be adversely affected.

 

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Political unrest such as protests or demonstrations could disrupt economic activities and adversely affect our business. The unrest in Hong Kong in recent years led to a decrease in inbound tourism to Hong Kong, decreased consumer spending and an overall negative impact on the domestic economy. There can be no assurance that these protests and other economic, social, or political unrest in the future will not have a material adverse effect on our financial conditions and results of operations.

Unfavorable financial markets and economic conditions in Asia and elsewhere in the world could negatively affect our clients’ business and materially reduce demand for our services and increase price competition among financial services firms seeking such engagements, and thus could materially and adversely affect our business, financial condition, and results of operations. In addition, our profitability could be adversely affected due to our fixed costs and the possibility that we would be unable to reduce our variable costs without reducing revenue or within a timeframe sufficient to offset any decreases in revenue relating to changes in market and economic conditions.

Revenue generated by our investment banking business is directly related to the volume and value of the transactions in which we are involved. Our investment bankers primarily serve clients in raising capital through IPOs and debt offerings. During periods of unfavorable market and economic conditions, our results of operations may be adversely affected by a decrease in the number and value of the IPOs and debt offerings that we underwrite.

During a market or general economic downturn, we may also derive lower revenue from our asset management and strategic investment businesses due to lower

mark-to-market

or fair value of the assets that we manage and the strategic investments that we made. In addition, due to uncertainty or volatility in the market or in response to difficult market conditions, clients or prospective clients may withdraw funds from, or hesitate to allocate assets to, our asset management business in favor of investments they perceive as offering greater opportunity or lower risk. Difficult market conditions can also materially and adversely affect our ability to launch new products or offer new services in our asset management business, which could negatively affect our ability to increase our AUM and our management fees that are based on the AUM.

The financial services industry is intensely competitive. If we are unable to compete effectively, we may lose our market share and our results of operations and financial condition may be materially and adversely affected.

The financial services industry is intensely competitive, highly fragmented, and subject to rapid change, and we expect it to remain so. We compete both in Asia and globally, and on the basis of a number of factors, including the ability to adapt to evolving financial needs of a broad spectrum of clients, our ability to identify market demands and business opportunities to win client mandates, the quality of our advice, our employees, and deal execution, the range and price of our products and services, our innovation, our reputation, and the strength of our relationships. We expect to continue to invest capital and resources in our businesses in order to grow and develop them to a size where they are able to compete effectively in their markets, have economies of scale, and are themselves able to produce or consolidate significant revenue and profit. We cannot assure you that the planned and anticipated growth of our businesses will be achieved or in what timescale. There may be difficulties securing financing for investment for growth and in recruiting and retaining the skilled human resources required to compete effectively. If we fail to compete effectively against our competitors, our business, financial conditions, results of operations, and prospects will be materially and adversely affected.

Investment banking as our primary business generally requires us to react promptly to the evolving demand of our clients and be able to provide innovative financial solutions tailored to their needs. We may not be able to compete effectively with our competitors at all times and always be able to provide appropriate financial solutions that promptly and accurately address our clients’ needs. If this were to happen, our ability to attract new or retain existing clients will suffer, which would materially and adversely affect our revenue and earnings.

 

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We primarily compete with other investment banking firms. We have experienced and may continue to experience intense competition over obtaining investment banking service mandates. We may face pricing pressure as some of our competitors may seek to obtain higher market share by reducing fees and commissions. Some of our competitors include large global financial institutions or state-owned PRC financial institutions operating or headquartered in Hong Kong, many of which have longer operating histories, far broader financial and other resources, and significantly greater name recognition than us and have the ability to offer a wider range of products, which may enhance their competitive position. They also regularly support services we do not provide, such as commercial lending, margin lending and other financial services and products, which puts us at a competitive disadvantage and could result in pricing pressures or lost opportunities, which in turn could materially and adversely affect our results of operations. In addition, we may be at a competitive disadvantage with regard to some of our competitors that have larger customer bases, more professionals, and the ability to provide financing that are often a crucial component of investment banking deals on which we advise.

Historically, competition in the asset management market has been fierce. In recent years, the asset management market in Hong Kong had become more saturated. Banks and brokerage firms have offered low management fees, prolonged commission-free concessions, or

extra-low

fixed commissions as incentives to attract clients, thus further intensifying the competition in this market. We expect that competition in Hong Kong’s asset management market will continue to be intense. We cannot assure you that we can compete effectively against our current and future competitors, or that competitive forces in the market will not alter the industry landscape such that our business objectives would become impractical or impossible. Under the foregoing circumstances, our business and financial condition would be adversely affected.

Our businesses depend on key management executives and professional staff, and our business may suffer if we are unable to recruit and retain them.

Our businesses depend on the skills, reputation, and professional experience of our key management executives, the network of resources and relationships they generate during the normal course of their activities, and the synergies among the diverse fields of expertise and knowledge held by our senior professionals. Therefore, the success of our business depends on the continued services of these individuals. If we lose their services, we may not be able to execute our existing business strategy effectively, and we may have to change our current business direction. These disruptions to our business may take up significant energy and resources of our company, and materially and adversely affect our future prospects.

Moreover, our business operations depend on our professional staff, our most valuable assets. Their skills, reputation, professional experience, and client relationships are critical elements in obtaining and executing client engagements. We devote considerable resources and incentives to recruiting and retaining these personnel.

However, the market for quality professional staff is increasingly competitive. We expect to face significant competition in hiring such personnel. Additionally, as we mature, current compensations scheme to attract employees may not be as effective as in the past. The intense competition may require us to offer more competitive compensation and other incentives to our talent, which could materially and adversely affect our financial condition and results of operations. As a result, we may find it difficult to retain and motivate these employees, and this could affect their decisions about whether or not they will continue to work for us. If we do not succeed in attracting, hiring and integrating quality professional staff, or retaining and motivating existing personnel, we may be unable to grow effectively.

We make strategic investments using our own capital, and may not be able to realize any profits from these investments for a considerable period of time, or may lose some or all of the principal amounts of these investments.

We derived a significant portion of our revenue from our strategic investment business. Our dividend and gain related to disposed investment accounted for 8.3%, 15.3% and 12.4% of our total revenue for the years

 

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ended December 31, 2019, 2020, and 2021, respectively, and our net fair value changes on stock loan, derivative financial asset and financial assets at fair value through profit or loss accounted for 43.5%, 30.4% and 38.9% of our total revenue for the corresponding periods, respectively. Our strategic investment portfolio primarily consists of investments in equity and equity-linked securities of public and private companies. Making a sound investment decision requires us to carefully identify and select a target company based on its business, financial condition, operations, and the industry in which it operates. In general, this process involves analytical assessment and estimation of the target company’s profitability and sustainability. We may make unsound investment decisions due to fraudulent and concealed, inaccurate or misleading statements from a target company in the course of our due diligence, which could lead us to mistakenly estimate the value of the target company and affect our ability to derive profit from such investments. In addition, our understanding of and judgment on the target company’s business and prospects, and the industry in which the target company operates may deviate and result in inaccurate investment decisions.

We make strategic investments in financial and new economy sectors globally and are subject to concentration risks. Our investment portfolio may be concentrated in certain sectors, geographic regions, individual investments, or types of securities that may or may not be listed. As of the date of this annual report, we hold investments primarily under our strategic investment business. Any significant decline in the value of our investment portfolio may therefore adversely impact our business, results of operations, and financial condition.

We also make strategic investments in the highly regulated banking sector in China. Any change in PRC laws, regulations, or policies may adversely affect our equity holding as a foreign investor, our ability to exit from the investment, or the fair value of our equity investment. See also “Risks Relating to Doing Business in Mainland China and Hong Kong—The PRC government’s significant authority to intervene in or influence the Mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of PRC, and could otherwise result in a material adverse change to our business operations, including our Hong Kong operations and cause the ADSs to significantly decline in value or become worthless,” and “ Risks Relating to Doing Business in Mainland China and Hong Kong—Uncertainties arising from the legal system in China, including uncertainties regarding the interpretation and enforcement of PRC laws and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ADSs to significantly decline in value or become worthless.”

In addition, we have limited control over all of our investee companies. Even if we have a board seat in certain investee companies, we do not have the necessary power to mandate or block material corporate actions. If these investee companies fail to carry out business in a compliant manner, incur overly excessive amount of debt or go bankrupt, or the business operations decline, the fair value of our investment in these companies may deteriorate or, in extreme cases, decrease to zero. We are subject to the risk that the majority shareholders or the management of these investee companies may act in a manner that does not serve the investee companies’ interests. The general operational risks, such as inadequate or failing internal control of these investee companies, the compliance risks, such as any lack of requisite approvals for investee companies’ businesses, and legal risks, such as violation of laws and regulations or fraudulent or otherwise improper activities, may also expose our investments to risks. Furthermore, these investee companies may fail to abide by their agreements with us, for which we may have limited or no recourse. These investee companies may not declare dividend, or even if they do, we may not be able to secure liquidity conveniently until we receive such dividend. If any of the foregoing were to occur, our business, reputation, financial condition and results of operations could be materially and adversely affected.

In recent years, there has been increasing competition for private equity investment opportunities, which may limit the availability of investment opportunities or drive up the price of available investment opportunities, and, as a result, our financial condition and results of operations may be materially and adversely affected.

 

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Our strategic investment business is subject to liquidity risks.

Some of our strategic investments are in the form of securities that are not publicly traded. In many cases, there may be prohibition by contract or by applicable laws from selling such securities for a period of time or there may not be a public market for such securities. Even if the securities are publicly traded, large holdings of securities can often be disposed of only over a substantial length of time, exposing the investment returns to risks of downward movement in market prices during the disposition period. Accordingly, under certain conditions, we may be forced to either sell securities at lower prices than we had expected to realize or defer, potentially for a considerable period of time, sales that we had planned to make. Investing in these securities can involve a high degree of risk, and we may lose some or all of the principal amount of such strategic investments.

Our results of operations and financial condition may be materially affected by fluctuations in the fair value of our equity investments in our investee companies.

Our investments are long-term, strategic in nature to reinforce our ecosystem. We have made significant equity investments in public and private companies and recognize dividend and gain related to disposed investment and net fair value changes on investments and derivatives on our consolidated statements of profit or loss and other comprehensive income. For the years ended December 31, 2019, 2020, and 2021 dividend and gain related to disposed investment accounted for 8.3%, 15.3% and 12.4%, and net fair value changes on stock loan, derivative financial asset and financial assets at fair value through profit or loss accounted for 43.5%, 30.4% and 38.9% of our total revenue, respectively. Since we intend to hold our investments on a long-term basis, fair value of our equity investments is subject to market fluctuations due to changes in the market prices of securities, interest rates, or other market factors, such as liquidity, or regulatory factors, such as changes in policies affecting the businesses of our investee companies. Technology has been one of our key sectors of focus and the fair value of our investments in technology companies may be subject to significant valuation fluctuations. For our equity investments in private companies, we measure their fair value based on an assessment of each underlying security, considering rounds of financing, third-party transactions, and market-based information, including comparable company transactions, trading multiples, and changes in market outlook. As of December 31, 2021, the aggregate fair value of our strategic investment portfolio was HK$3.8 billion (US$0.5 billion). Although we do not intend to make frequent trades on investments for profit, the nature of investment and significance of our investment holdings could adversely affect our results of operations and financial condition.

Our investments are subject to liquidity, concentration, regulatory, credit and other risks.

Our portfolio is concentrated in a limited number of portfolio companies, industries and/or sectors. As of December 31, 2021, our strategic investment portfolio reached an aggregate fair value of HK$3.8 billion (US$0.5 billion), of which our investment in the Hong Kong- and

Shenzhen-listed

Bank of Qingdao accounted for 28.1%, our investment in AMTD Digital Inc. accounted for 29.8% and our investment in AMTD Assets Alpha Group accounted for 12.8%. As a result, the aggregate returns we realize may be significantly affected adversely if any of these investments perform poorly or if we need to write down the value of any of these investments. Additionally, our investments are concentrated in relatively few industries or sectors. As a result, a downturn in any particular industry or sector in which we are invested, such as the banking sector that Bank of Qingdao operates in, the digital financial service, digital media, content, and marketing, and digital investment sectors that AMTD Digital Inc. operates in, and the hotel hospitality sector, property development and investment that AMTD Assets Alpha Group operates in could significantly impact the aggregate returns we realize and therefore materially and adversely affect our results of operations and financial condition.

As of December 31, 2021, our derivative financial asset amounted to HK$969.9 million (US$124.4 million), representing 25.8% of our strategic investment portfolio. We have entered into derivative contracts of “Upside Participation and Profit Distribution Agreements” with a counterparty in order to hedge against adverse movement in the share price of our investment in Bank of Qingdao. Consequently, the fair value of the derivative

 

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financial asset is inversely correlated to the movement in the share price of Bank of Qingdao and is subject to concentration risk. Moreover, there are no public markets for trading this kind of derivative contracts. We face liquidity risk in this regard. There is also credit risk associated with the counterparty’s ability to settle upon maturity of the derivative contracts.

Investments in private businesses involve a high degree of business and financial risk. Investments in private businesses, such as AMTD Digital Inc. and AMTD Assets Alpha Group are illiquid. We may have no or limited ability to dispose of these investments at times when it may be otherwise advantageous for us to liquidate such investments. In addition, if we were forced to immediately liquidate some or all of the investments in a portfolio company, the proceeds of such liquidation could be significantly less than the current value thereof. Furthermore, there is generally no publicly available information about the companies in which we invest. If we are unable to identify all material information about these companies, among other factors, we may fail to receive the expected return on investment or lose some or all of the money invested in these companies. In addition, these businesses may have shorter operating histories, narrower product lines, smaller market shares and less experienced management than their larger competitors and may be more vulnerable to customer preferences, market conditions, and loss of key personnel, or economic downturns, which may adversely affect the return on, or the recovery of, investments in such businesses.

As of December 31, 2021, we held an approximate 4.9% interest in the Bank of Qingdao and expect it to be a long-term investment, and our founder also serves as a director of Bank of Qingdao. Given our significant stake in, and affiliation with, Bank of Qingdao, our investment in Bank of Qingdao is also subject to liquidity and concentration risk. There may not be a readily available market to sell the shares of Bank of Qingdao. We will need to gradually sell down our holdings subject to market conditions, if we want to liquidate our position in Bank of Qingdao. In addition, the banking sector in China is highly regulated and any change in PRC laws, regulations, or policies may adversely affect our holding in Bank of Qingdao as a foreign investor, our ability to exit from the investment, or the fair value of our equity investment in Bank of Qingdao. Any adverse impact on our investment in Bank of Qingdao could materially and adversely affect our business, results of operations, and financial condition. See also “Risks Relating to Doing Business in Mainland China and Hong Kong—The PRC government’s significant authority to intervene in or influence the Mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of PRC, and could otherwise result in a material adverse change to our business operations, including our Hong Kong operations and cause the ADSs to significantly decline in value or become worthless,” and “Risks Relating to Doing Business in Mainland China and Hong Kong—Uncertainties arising from the legal system in China, including uncertainties regarding the interpretation and enforcement of PRC laws and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ADSs to significantly decline in value or become worthless.”

A substantial portion of our revenue is derived from investment banking business, which is not long-term contracted source of revenue and is subject to intense competition, and declines in these engagements could materially and adversely affect our financial condition and results of operations.

We historically have earned a substantial portion of our revenue from fees and commissions paid by our investment banking clients, which usually are payable upon the successful completion of particular transactions. Revenue derived from our investment banking business accounted for 37.9%, 33.6% and 42.7% of our total revenue for the years ended December 31, 2019, 2020, and 2021, respectively. We expect that we will continue to rely on investment banking business for a substantial portion of our revenue for the foreseeable future, and a decline in our engagements could materially and adversely affect our financial condition and results of operations.

In addition, investment banking business typically is not a long-term contracted source of revenue. Each revenue-generating engagement typically is separately awarded and negotiated. Furthermore, many of our clients

 

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do not routinely require our services. As a consequence, our engagements with many clients are not likely to be predictable. We may also lose clients each year, including as a result of the sale or merger of a client, or due to a change in a client’s senior management and competition from other investment banking firms. As a result, our engagements with clients are constantly changing and our total revenue could fluctuate or decline quickly due to these factors.

Our investment banking business depends on our ability to identify, execute, and complete projects successfully and is subject to various risks associated with underwriting and financial advisory services. We cannot assure you that the income level of our investment banking business can be sustained.

We primarily underwrite securities offerings in Hong Kong, Singapore, and the United States, and are exposed to uncertainties in the regulatory requirements in these jurisdictions. Securities offerings are subject to review and approval by various regulatory authorities, the results and timing of which are beyond our control and may cause substantial delays to, or the termination of, the offering. We receive the payment of fees and commissions in most securities offerings only after the successful completion of the transactions. If a transaction is not completed as scheduled, or at all, for any reason, we may not receive fees and commissions for services that we have provided in a timely manner, or at all, which could materially and adversely affect our results of operations.

Market fluctuations and changes in regulatory policies may adversely affect our investment banking business. Negative market and economic conditions may adversely affect investor confidence, resulting in significant industry-wide declines in the size and number of securities offerings, and market volatility may cause delays to, or even termination of, securities offerings that we underwrite, either of which could adversely affect our revenue from the investment banking business.

In addition, in acting as an underwriter in a securities offering, we may be subject to litigation, securities class action, claims, administrative penalties, regulatory sanctions, fines, or disciplinary actions, or may be otherwise legally liable in Hong Kong, Singapore, the United States, and other jurisdictions. Our reputation may be affected due to inadequate due diligence, fraud or misconduct committed by issuers or their agents or our staff, misstatements and omissions in disclosure documents, or other illegal or improper activities that occur during the course of the underwriting process, which may adversely affect our business, financial condition, and results of operations. Our investment banking business may also be affected by new rules and regulations, changes in the interpretation or enforcement of existing rules and regulations relating to the underwriting of securities offerings.

As a result, we cannot assure you that the income level of our investment banking business can be sustained.

If we cannot identify or effectively control the various risks involved in the asset management products that we offer or manage under our asset management business or otherwise achieve expected investment returns for our asset management clients, our reputation, client relationships, and asset management business will be adversely affected.

We offer our asset management clients a broad selection of third-party products, including fixed income products, equity products and structured products, for which we derive revenue through management fees and performance fees. These products often have complex structures and involve various risks, including default risks, interest rate risks, liquidity risks, market volatility and other market risks. In addition, we are subject to risks arising from any potential misconduct or violation of law by the product providers or corporate borrowers. Although the product providers or corporate borrowers of the asset management products we offer are typically directly liable to our clients in the event of a product default, these incidences could adversely affect the performance of the applicable products that we distribute and our reputation. Our success in maintaining our brand image depends, in part, on our ability to effectively control the risks associated with these products. Our asset management team not only need to understand the nature of the products but also need to accurately

 

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describe the products to, and evaluate them for, our clients. Although we enforce and implement strict risk management policies and procedures, they may not be fully effective in mitigating the risk exposure of our clients in all market environments or against all types of risks. If we fail to identify and effectively control the risks associated with the products that we offer or manage, or fail to disclose such risks to our clients in a sufficiently clear and timely manner, or to dispose timely of such investments in the clients’ investment portfolios, our clients may suffer financial loss or other damages. Poor performance of these products and services, negative perceptions of the institutions offering these products and services or failure to achieve expected investment return may impact client confidence in the products we offer them, impede the capital-raising activities in connection with our asset management business, and reduce our asset under management and revenue generated under this segment.

For discretionary account service we offer to our clients, we have a higher level of discretion in making investments. If we are unable to generate sufficient returns from our investments, including managing leverage risks on behalf of our clients, or even incur losses, our clients may become unwilling to continue to use our services, and our reputation, client relationship, business, and prospects will be materially and adversely affected.

We are subject to extensive and evolving regulatory requirements,

non-compliance

with which may result in penalties, limitations, and prohibitions on our future business activities or suspension or revocation of our licenses, and consequently may materially and adversely affect our business, financial condition, and results of operations. In addition, we may, from time to time, be subject to regulatory inquiries and investigations by relevant regulatory authorities or government agencies in Hong Kong or other applicable jurisdictions.

The Hong Kong and U.S. financial markets in which we primarily operate are highly regulated. Our business operations are subject to applicable Hong Kong and U.S. laws, regulations, guidelines, circulars, and other regulatory guidance, and many aspects of our businesses depend on obtaining and maintaining approvals, licenses, permits, or qualifications from the relevant regulators. Serious

non-compliance

with regulatory requirements could result in investigations and regulatory actions, which may lead to penalties, including reprimands, fines, limitations, or prohibitions on our future business activities or, if significant, suspension or revocation of our licenses. Failure to comply with these regulatory requirements could limit the scope of businesses in which we are permitted to engage. Furthermore, additional regulatory approvals, licenses, permits, or qualifications may be required by relevant regulators in the future, and some of our current approvals, licenses, permits, or qualifications are subject to periodic renewal. Although we have not been found by any relevant regulators to be in material

non-compliance

with any regulatory requirements since we commenced our current businesses in 2015, any such finding or other negative outcome may affect our ability to conduct business, harm our reputation and, consequently, materially and adversely affect our business, financial condition, results of operations, and prospects.

Two of our subsidiaries, AMTD Global Markets Limited and Asia Alternative Asset Partners Limited, are HKSFC-licensed companies subject to various requirements, such as remaining fit and proper at all times, minimum liquid and

paid-up

capital requirements, notification requirements, submission of audited accounts, submission of financial resources returns and annual returns, continuous professional training, under the Securities and Futures Ordinance (Cap. 571) of Hong Kong and its subsidiary legislation and the codes and the guidelines issued by the HKSFC. If any of these HKSFC licensed companies fails to meet the regulatory capital requirements in Hong Kong, the local regulatory authorities may impose penalties on us or limit the scope of our business, which could, in turn, have a material adverse effect on our financial condition and results of operations. Moreover, the relevant capital requirements may be changed over time or subject to different interpretations by relevant governmental authorities, all of which are out of our control. Any increase of the relevant capital requirements or stricter enforcement or interpretation of the same may adversely affect our business activities. In addition, AMTD Global Markets Limited is a licensed principal intermediary under the Mandatory Provident Fund Schemes Ordinance (Cap. 485) of Hong Kong and a licensed insurance intermediary for general and long term business (including linked long term business) under the Insurance Ordinance (Cap. 41) of Hong Kong. Any

non-compliance

with applicable regulatory requirements by our company or any of our subsidiaries may result in

 

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penalties, limitations, and prohibitions on our future business activities and thus may materially and adversely affect our business, financial condition, and results of operations.

From time to time, AMTD Global Markets Limited and Asia Alternative Asset Partners Limited may be subject to or required to assist in inquiries or investigations by relevant regulatory authorities or government agencies in Hong Kong or other jurisdictions, including the HKSFC and the SEC, relating to its own activities or activities of third parties such as its clients. The HKSFC conducts

on-site

reviews and

off-site

monitoring to ascertain and supervise our business conduct and compliance with relevant regulatory requirements and to assess and monitor, among other things, our financial soundness. We, our directors, or our employees, may be subject to such regulatory inquiries and investigations from time to time, regardless of whether we are the target of such regulatory inquiries and investigations. If any misconduct is identified as a result of inquiries, reviews or investigations, the HKSFC may take disciplinary actions that would lead to revocation or suspension of licenses, public or private reprimand or imposition of pecuniary penalties against us, our responsible officers, licensed representatives, directors, or other officers. Any such disciplinary actions taken against us, our responsible officers, licensed representatives, directors, or other officers may have a material and adverse impact on our business operations and financial results. In addition, we will be subject to statutory secrecy obligations under the Securities and Futures Ordinance (Cap. 571) of Hong Kong whereby we may not be permitted to disclose details on any HKSFC inquiries, reviews or investigations, if any, without the consent of the HKSFC. For further details, see “Item 4. Information on the Company—B. Business Overview—Regulation—Disciplinary Power of the HKSFC.”

Our revenue and profits are highly volatile, and fluctuate significantly from quarter to quarter, which may result in volatility of the price of our ADSs or our Class A ordinary shares.

Our revenue and profits are highly volatile and could fluctuate significantly. For example, the revenue generated from investment banking business is highly dependent on market conditions, regulatory environment and policies, and the decisions and actions of our clients and interested third parties. As a result, our results of operations will likely fluctuate from quarter to quarter based on the timing of when those fees are earned. It may be difficult for us to achieve steady earnings growth on a quarterly basis, which could, in turn, lead to large adverse movements in the ADS or Class A ordinary share price or increasing volatility in the ADS or Class A ordinary share price generally.

The due diligence that we undertake in the course of our business operations is inherently limited and may not reveal all facts and issues that may be relevant in connection with such businesses.

In the course of providing investment banking services, asset management services, and making strategic investments, we endeavor to conduct due diligence review that we deem reasonable and appropriate based on relevant regulatory expertise and market standards as well as the facts and circumstances applicable to each deal. When conducting due diligence, we are often required to evaluate critical and complex business, financial, tax, accounting, environmental, regulatory, and legal issues. Outside consultants, such as legal advisors, and accountants may be involved in the due diligence process in varying degrees depending on the transaction type. Nevertheless, when conducting due diligence work and making an assessment, we are limited to the resources available, including information provided by the target company or the issuer and, in some circumstances, third party investigations. The due diligence work that we conduct with respect to any investment opportunity may not reveal or highlight all relevant facts that may be necessary, helpful, or accurate in evaluating potential risks, which may subject us to potential penalties in the case of securities underwriting, or failure of investment in the case of strategic investment. We may be provided with information that is misleading, false, or inaccurate as a result of mistake, misconduct, or fraud of our employees or third parties. Moreover, such due diligence work will not necessarily result in the successful completion of a transaction, which may adversely affect the performance of our business.

 

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We face additional risks as we offer new products and services, transact with a broader array of clients and counterparties, and expose ourselves to new asset classes and geographical markets.

We are committed to providing new products and services in order to strengthen our market position in the financial services industry and client relationships. We expect to expand our product and service offerings as permitted by relevant regulatory authorities, transact with new clients not in our traditional client base and enter into new markets. These activities expose us to new and challenging risks, including, but not limited to:

 

•

we may have insufficient experience or expertise in offering new products and services and dealing with inexperienced counterparties and clients may harm our reputation;

 

•

we may be subject to stricter regulatory scrutiny, or increasing tolerance of credit risks, market risks, compliance risks, and operational risks;

 

•

we may be unable to provide clients with adequate levels of service for our new products and services;

 

•

our new products and services may not be accepted by our clients or meet our profitability expectations; and

 

•

our new products and services may be quickly copied by our competitors so that its attractiveness to our clients may be diluted; and our internal information technology infrastructure may not be sufficient to support our product and service offerings.

If we are unable to achieve the expected results with respect to our offering of new products and services, our business, financial condition, and results of operations could be materially and adversely affected.

In addition, we also intend to further expand our business geographically through establishing branch offices or acquiring financial services licenses in key financial centers in the United States and other overseas markets, such as New York City. Operating business internationally may expose us to additional risks and uncertainties. As we have limited experience in operating our business in United States and other overseas markets, we may be unable to attract a sufficient number of clients, fail to anticipate competitive conditions, or face difficulties in operating effectively in these markets. We may also fail to adapt our business models to the local market due to various legal requirements and market conditions. Compliance with applicable foreign laws and regulations, especially financial regulations, increases the costs and risk exposure of doing business in foreign jurisdictions. In addition, in some cases, compliance with the laws and regulations of one country could nevertheless cause violation of the laws and regulations of another country. Violations of these laws and regulations could materially and adversely affect our brand, international growth efforts, and business.

We may undertake acquisitions, investments, joint ventures, or other strategic alliances, which could present unforeseen integration difficulties or costs and may not enhance our business as we expect.

Our strategy includes plans to grow both organically and through possible acquisitions, joint ventures, or other strategic alliances. Joint ventures and strategic alliances may expose us to new operational, regulatory, and market risks, as well as risks associated with additional capital requirements. We may not be able, however, to identify suitable future acquisition targets or alliance partners. Even if we identify suitable targets or partners, the evaluation, negotiation, and monitoring of the transactions could require significant management attention and internal resources and we may be unable to complete an acquisition or alliance on terms commercially acceptable to us. The costs of completing an acquisition or alliance may be costly and we may not be able to access funding sources on terms commercially acceptable to us. Even when acquisitions are completed, we may encounter difficulties in integrating the acquired entities and businesses, such as difficulties in retention of clients and personnel, challenge of integration and effective deployment of operations or technologies, and assumption of unforeseen or hidden material liabilities or regulatory

non-compliance

issues. Any of these events could disrupt our business plans and strategies, which in turn could have a material adverse effect on our financial condition and results of operations. Such risks could also result in our failure to derive the intended benefits of the acquisitions, strategic investments, joint ventures, or strategic alliances, and we may be unable to recover our investment in such initiatives. We cannot assure you that we could successfully mitigate or overcome these risks.

 

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Any negative publicity with respect to us, our directors, officers, employees, shareholders, or other beneficial owners, our peers, business partners, or our industry in general, may materially and adversely affect our reputation, business, and results of operations.

Our reputation and brand recognition play an important role in earning and maintaining the trust and confidence of our existing and prospective clients. Our reputation and brand are vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Negative publicity about us, such as alleged misconduct, other improper activities, or negative rumors relating to our business, shareholders, or other beneficial owners, founder, affiliates, directors, officers, or other employees, can harm our reputation, business, and results of operations, even if they are baseless or satisfactorily addressed. These allegations, even if unproven or meritless, may lead to inquiries, investigations, or other legal actions against us by any regulatory or government authorities. Any regulatory inquiries or investigations and lawsuits against us, and perceptions of conflicts of interest, inappropriate business conduct by us or perceived wrong doing by any key member of our management team, board of directors or founder, among other things, could substantially damage our reputation regardless of their merits, and cause us to incur significant costs to defend ourselves. As we reinforce our ecosystem and stay close to our clients and other “AMTD SpiderNet” stakeholders, any negative market perception or publicity on our business partners that we closely cooperate with, or any regulatory inquiries or investigations and lawsuits initiated against them, may also have an impact on our brand and reputation, or subject us to regulatory inquiries or investigations or lawsuits. Moreover, any negative media publicity about the financial services industry in general or product or service quality problems of other firms in the industry in which we operate, including our competitors, may also negatively impact our reputation and brand. If we are unable to maintain a good reputation or further enhance our brand recognition, our ability to attract and retain clients, third-party partners, and key employees could be harmed and, as a result, our business, financial position, and results of operations would be materially and adversely affected.

Our operations may be subject to transfer pricing adjustments by competent authorities.

We may use transfer pricing arrangements to account for business activities between us and our Controlling Shareholder, the different entities within our consolidated group, or other related parties. We cannot assure you that the tax authorities in the jurisdictions where we operate would not subsequently challenge the appropriateness of our transfer pricing arrangements or that the relevant regulations or standards governing such arrangements will not be subject to future changes. If a competent tax authority later finds that the transfer prices and the terms that we have applied are not appropriate, such authority may require us or our subsidiaries to

re-assess

the transfer prices and

re-allocate

the income or adjust the taxable income. Any such reallocation or adjustment could result in a higher overall tax liability for us and may adversely affect our business, financial condition, and results of operations.

Our risk management and internal control systems, as well as the risk management tools available to us, may not fully protect us against various risks inherent in our business.

We follow our comprehensive internal risk management framework and procedures to manage our risks, including, but not limited to, reputational, legal, regulatory, compliance, operational, market, liquidity, and credit risks. However, our risk management policies, procedures, and internal controls may not be adequate or effective in mitigating our risks or protecting us against unidentified or unanticipated risks. In particular, some methods of managing risks are based upon observed historical market behavior and our experience in the financial industry. These methods may fail to predict future risk exposures, which could be significantly greater than those indicated by our historical measures. Other risk management methods depend upon an evaluation of available information regarding operating and market conditions and other matters, which may not be accurate, complete,

up-to-date,

or properly evaluated. In addition, the capital markets are constantly developing, the information and experience that we rely on for our risk management methods may become quickly outdated as capital markets and regulatory environment continue to evolve. Although we have not experienced any material deficiencies or failure in our risk management and internal control systems and procedures since we commenced our current businesses in

 

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2015 other than certain material weaknesses in our internal control over financial reporting identified as of December 31, 2019, which had been remediated in 2020, any such deficiencies or failure in our risk management and internal control systems and procedures may adversely affect our ability to identify or report our deficiencies or

non-compliance.

In addition, failure of our employees to effectively enforce such risk management and internal controls procedures, or any of the foregoing risks, may have a material and adverse effect on our business, financial condition and operating results.

Our business is subject to various cyber-security and other operational risks.

We face various cyber-security and other operational risks relating to our businesses on a daily basis. We rely heavily on financial, accounting, communication and other data processing systems as well as the people who operate them to securely process, transmit, and store sensitive and confidential client information, and communicate globally with our staff, clients, partners, and third-party vendors. We also depend on various third-party software and cloud-based storage platforms as well as other information technology systems in our business operations. These systems, including third-party systems, may fail to operate properly or become disabled as a result of tampering or a breach of our network security systems or otherwise, including for reasons beyond our control.

Our clients typically provide us with sensitive and confidential information as part of our business arrangements. We are susceptible to attempts to obtain unauthorized access of such sensitive and confidential client information. We also may be subject to cyber-attacks involving leak and destruction of sensitive and confidential client information and our proprietary information, which could result from an employee’s or agent’s failure to follow data security procedures or as a result of actions by third parties, including actions by government authorities. Although cyber-attacks have not had a material impact on our operations to date, breaches of our or third-party network security systems on which we rely could involve attacks that are intended to obtain unauthorized access to and disclose sensitive and confidential client information and our proprietary information, destroy data or disable, degrade, or sabotage our systems, often through the introduction of computer viruses and other means, and could originate from a wide variety of sources, including state actors or other unknown third parties. The increase in using mobile technologies can heighten these and other operational risks.

We cannot assure you that we or the third parties on which we rely will be able to anticipate, detect, or implement effective preventative measures against frequently changing cyber-attacks. We may incur significant costs in maintaining and enhancing appropriate protections to keep pace with increasingly sophisticated methods of attack. In addition to the implementation of data security measures, we require our employees to maintain the confidentiality of the proprietary information that we hold. If an employee’s failure to follow proper data security procedures results in the improper release of confidential information, or our systems are otherwise compromised, malfunctioning or disabled, we could suffer a disruption of our business, financial losses, liability to clients, regulatory sanctions, and damage to our reputation.

We operate in businesses that are highly dependent on proper processing of financial transactions. In our asset management business, we have to reliably obtain securities and other pricing information, properly execute and process client transactions, and provide reports and other customer service to our clients. The occurrence of trade or other operational errors or the failure to keep accurate books and records can render us liable to disciplinary action by regulatory authorities, as well as to claims by our clients. We also rely on third-party service providers for certain aspects of our business. Any interruption or deterioration in the performance of these third parties or failures of their information systems and technology could impair our operations, affect our reputation, and adversely affect our businesses.

Fraud or misconduct by our directors, officers, employees, agents, clients, or other third parties could harm our reputation and business and may be difficult to detect and deter.

It is not always possible to detect and deter fraud or misconduct by our directors, officers, employees, agents, clients, business partners, or other third parties. The precautions that we take to detect and prevent such

 

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activity may not be effective in all cases. Fraud or misconduct by any of these persons or entities may cause us to suffer significant reputational harm and financial loss or result in regulatory disciplinary actions. The potential harm to our reputation and to our business caused by such fraud or misconduct is impossible to quantify.

We are subject to a number of obligations and standards arising from our businesses. The violation of these obligations and standards by any of our directors, officers, employees, agents, clients, or other third parties could materially and adversely affect us and our investors. For example, our businesses require that we properly handle confidential information. If our directors, officers, employees, agents, clients, or other third parties were to improperly use or disclose confidential information, we could suffer serious harm to our reputation, financial position, and existing and future business relationships. Although we have not identified any material fraud or misconduct by our directors, officers, employees, agents, clients, or other third parties since we commenced our current businesses in 2015, if any of these persons or entities were to engage in fraud or misconduct or were to be accused of such fraud or misconduct, our business and reputation could be materially and adversely affected.

We may be subject to litigation and regulatory investigations and proceedings and may not always be successful in defending ourselves against such claims or proceedings.

Although we have not been the direct subject to lawsuits and arbitration claims towards our company since the commencement of our operations in 2015, operating in the financial services industry may subject us to significant risks, including the risk of lawsuits and other legal exposures relating to compliance with regulatory requirements and industry practices in areas such as information disclosure, sales or underwriting practices, fraud and misconduct, and protection of sensitive and confidential client information. From time to time we may be subject to lawsuits and arbitration claims in the ordinary course of our business brought by external parties or disgruntled current or former employees, inquiries, investigations, and proceedings by regulatory and other governmental agencies. Any such claims brought against us, with or without merits, may result in administrative measures, settlements, injunctions, fines, penalties, negative publicities, or other results adverse to us that could have material adverse effect on our reputation, business, financial condition, results of operations, and prospects. Even if we are successful in defending ourselves against these actions, the costs of such defense may be significant.

In market downturns, the number of legal claims and amount of damages sought in litigation and regulatory proceedings may increase. In addition, our affiliates may also encounter litigation, regulatory investigations, and proceedings for the practices in their business operations. Our clients may also be involved in litigation, investigation, or other legal proceedings, some of which may relate to transactions that we have advised, whether or not there has been any fault on our part. As we act as underwriter in U.S. securities offering transactions for non U.S. clients, we may be involved and named in securities class action lawsuits brought by shareholders. In recent years,

non-U.S.

issuers have become targets of securities lawsuits and an increasing trend of lawsuits against

non-U.S.

issuer is noted. Usually, in securities class action lawsuits, plaintiffs are alleging misrepresentation by the securities issuers in their registration statements, but it is quite a common practice that plaintiff will also name the underwriters as defendants in the lawsuit, notwithstanding that the underwriters may not be at fault or have responsibilities in relation to the allegations. In general, underwriters’ responsibilities towards registration statements are defined in the underwriting agreements, and in each U.S. securities offering, the securities issuer has undertaken and provided indemnity to each underwriter in the underwriting agreement. We cannot assure you, however, that we will not be subject to such lawsuits in relation to our role as underwriters for U.S. securities offering transactions.

We may not be able to fully detect money laundering and other illegal or improper activities in our business operations on a timely basis or at all, which could subject us to liabilities and penalties.

We are required to comply with applicable anti-money laundering and anti-terrorism laws and other regulations in the jurisdictions where we operate. Although we have adopted policies and procedures aimed at detecting, and preventing being used for, money-laundering activities by criminals or terrorist-related

 

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organizations and individuals or improper activities (including but not limited to market manipulation and aiding and abetting tax evasion), such policies and procedures may not completely eliminate instances where our networks may be used by other parties to engage in money laundering and other illegal or improper activities. Furthermore, we primarily comply with applicable anti-money laundering laws and regulations in Hong Kong and we may not fully detect violations of anti-money laundering regulations in other jurisdictions or be fully compliant with the anti-money laundering laws and regulations in other jurisdictions to which we are required. As a publicly listed company in the United States, we are subject to the U.S. Foreign Corrupt Practices Act of 1977 and other laws and regulations in the United States, including regulations administered by the U.S. Department of Treasury’s Office of Foreign Asset Control. Although we have not identified any failure to detect material money laundering activities since we commenced our current businesses in 2015, if we fail to fully comply with applicable laws and regulations, the relevant government agencies may impose fines and other penalties on us, which may adversely affect our business.

We regularly encounter potential conflicts of interest, and failure to identify and address such conflicts of interest could adversely affect our business.

We face the possibility of actual, potential, or perceived conflicts of interest in the ordinary course of our business operations. Conflicts of interest may exist between (i) our different businesses; (ii) us and our clients; (iii) our clients; (iv) us and our employees; (v) our clients and our employees, or (vi) us and our Controlling Shareholder and other beneficial owners. As we expand the scope of our business and our client base, it is critical for us to be able to timely address potential conflicts of interest, including situations where two or more interests within our businesses naturally exist but are in competition or conflict. We have put in place extensive internal control and risk management procedures that are designed to identify and address conflicts of interest. However, appropriately identifying and managing actual, potential, or perceived conflicts of interest is complex and difficult, and our reputation and our clients’ confidence in us could be damaged if we fail, or appear to fail, to deal appropriately with one or more actual, potential, or perceived conflicts of interest. It is possible that actual, potential, or perceived conflicts of interest could also give rise to client dissatisfaction, litigation, or regulatory enforcement actions. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially and adversely affect our business in a number of ways, including a reluctance of some potential clients and counterparties to do business with us. Any of the foregoing could materially and adversely affect our reputation, business, financial condition, and results of operations.

The current tensions in international economic relations may negatively affect the demand for our services, and our results of operations and financial condition may be materially and adversely affected.

Recently there have been heightened tensions in international economic relations, such as the one between the United States and China and also as a result of the conflict in Ukraine and sanctions on Russia.

The U.S. government has recently imposed, and has recently proposed to impose additional, new, or higher tariffs on certain products imported from China to penalize China for what it characterizes as unfair trade practices. China has responded by imposing, and proposing to impose additional, new, or higher tariffs on certain products imported from the United States. On September 17, 2018, former president Trump announced his decision to impose a 10% tariff on the third list of US$200 billion in imports from China to the United States effective September 24, 2018. On May 8, 2019, the U.S. government announced it would increase these tariffs to 25%. These tariffs are in addition to two earlier rounds of tariffs implemented against Chinese products on June 6, 2018 and August 16, 2018 that amount to tariffs on US$50 billion of Chinese products imported into the United States. On May 13, 2019, China responded by imposing tariffs on certain U.S. goods on a smaller scale, and proposed to impose additional tariffs on U.S. goods. On January 15, 2020, the United States and China entered into a phase one trade deal which became effective on February 14, 2020. In addition, political tensions between the United States and China have escalated due to, among other things, trade disputes, the

COVID-19

pandemic, the passage of Safeguarding National Security in the Hong Kong Special Administrative Region by

 

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the Standing Committee of the PRC National People’s Congress, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the PRC central government and the executive orders issued by the U.S. government that prohibit certain transactions with certain selected Chinese technology companies, and the Executive Order 13959 issued in November 2020 targeting transactions by U.S. persons in certain securities of designated “Communist Chinese military companies.”

Uncertainty surrounding the escalating conflict between Russia and Ukraine could negatively impact global and regional financial markets. Poor relations between the United States and Russia, sanctions by the United States and the European Union against Russia, and any escalation of political tensions or economic instability could increase the threat of armed conflict, cyberwarfare and economic instability that could further increase market volatility and uncertainty.

As a financial services firm with business exposure in Hong Kong and Mainland China and operation in Hong Kong, our businesses are materially affected by the financial markets and economic conditions in Hong Kong, Mainland China, and elsewhere in the world. Rising political tensions could reduce levels of trades, investments, technological exchanges, and other economic activities between the two major economies, which would materially and adversely affect the global economic conditions and the stability of global financial markets. Escalations of the tensions that affect trade relations may lead to slower growth in the global economy in general, which in turn could negatively affect our clients’ businesses and materially reduce demand for our services, thus potentially negatively affect our business, financial condition, and results of operations.

We may be subject to legal and financial liabilities in connection with the retail financial advisory and insurance brokerage businesses we engaged in previously.

Prior to 2015, we engaged in retail financial advisory and insurance brokerage businesses, which were regulated by the Hong Kong Confederation of Insurance Brokers and the HKSFC. On September 23, 2019, the Hong Kong Insurance Authority took over the regulation of insurance intermediaries from the Hong Kong Confederation of Insurance Brokers. Majority of the operations under such legacy businesses began to terminate in 2015 and the businesses were ultimately disposed of in 2018. Although we no longer carry out retail financial advisory and insurance brokerage businesses, we may be subject to regulatory complaints or claims lodged against us by previous clients in relation to the past services provided by us under the legacy businesses as we were the named insurance broker in certain insurance arrangements between our previous clients and the insurance company under these past businesses. Any action brought against us, with or without merits, may result in administrative measures, settlements, injunctions, fines, penalties, negative publicities, or other results adverse to us, which could have a material adverse effect on our reputation, business, financial condition, results of operations, and prospects. Even if we are successful in defending ourselves against these actions, the costs of such defense may be significant. See “Item 8. Financial Information—Other Matters.”

We may need additional funding but may not be able to obtain it on favorable terms or at all.

We may require additional funding for further growth and development of our business, including any investments or acquisitions we may decide to pursue. If our existing resources are insufficient to satisfy our requirements, we may seek to issue additional equity or debt securities or perpetual securities or obtain new or expanded credit facilities. Our ability to obtain external financing in the future is subject to a variety of uncertainties, including our future financial condition, results of operations, cash flows, share price performance, liquidity of international capital and lending markets, and global financial industry. For example, the terms of our US$1.0 billion medium term note program, or MTN Program, and our Controlling Shareholder’s medium term note program impose certain restrictions on our ability to obtain secured or unsecured external financing through the issuance of debt securities in the public market. In addition, incurring indebtedness would subject us to increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that we will be able to secure additional financing in a timely manner or in amounts or on terms favorable to us, or at all. Any failure to raise needed funds on terms favorable to us, or at all,

 

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could severely restrict our liquidity as well as have a material adverse effect on our business, financial condition, and results of operations. Moreover, any issuance of equity or equity-linked securities could result in significant dilution to our existing shareholders.

We may be exposed to legal or regulatory liabilities if we are unable to protect the personal and sensitive data and confidential information of our clients.

We collect, store, and process certain personal and sensitive data from our clients, particularly under our asset management business. We are required to protect the personal and sensitive data and confidential information of our clients under applicable laws, rules, and regulations. While we have taken steps to protect the personal and sensitive data and confidential information of clients that we have access to, our security measures could be breached. The relevant authorities may impose sanctions or issue orders against us if we fail to protect the personal and sensitive data and confidential information of our clients, and we may have to compensate our clients if we fail to do so. We routinely transmit and receive personal and sensitive data and confidential information of our clients through the internet and other electronic means. Any misuse or mishandling of such personal and sensitive data and confidential information could result in legal liabilities, regulatory actions, reputational damage to us, which could in turn materially and adversely affect our business prospects and results of operation.

If our insurance coverage is insufficient, we may be subject to significant costs and business disruption.

Although we carry office, computer, and vehicle insurance for our properties, professional indemnity insurance for certain of our regulated activities, directors and officers insurance, employee compensation insurance, and license holders insurance in connection with our securities dealing business covered by the Type 1 license granted by the HKSFC against fidelity and crime risks, we cannot assure you that we have sufficient insurance to cover all aspects of our business operations. We do not have

key-man

insurance for any of our executive officers or other key personnel. However, we consider our insurance coverage to be reasonable in light of the nature of our business, but we cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policies on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition, and results of operations could be materially and adversely affected.

If we do not appropriately maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, we may be unable to accurately report our financial results and the market price of our Class A ordinary shares and/or ADSs may be adversely affected.

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of the company’s internal control over financial reporting. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2021. See “Item 15. Controls and Procedures.” An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2012 relating to internal controls over financial reporting. Our independent registered public accounting firm, after conducting its own independent testing, may issue an adverse report if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.

 

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If we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our Class A ordinary shares and ADSs. Furthermore, we have incurred and may need to incur additional costs and use additional management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.

We may face intellectual property infringement claims, which could be time-consuming and costly to defend and may result in the loss of significant rights by us.

Although we have not been subject to any litigation, pending or threatened, alleging infringement of third parties’ intellectual property rights, we cannot assure you that such infringement claims will not be asserted against us in the future. Third parties may own copyrights, trademarks, trade secrets, ticker symbols, internet content, and other intellectual properties that are similar to ours in jurisdictions where we currently have no active operations. If we expand our business to or engage in other commercial activities in those jurisdictions using our own copyrights, trademarks, trade secrets, and internet content, we may not be able to use these intellectual properties or face potential lawsuits from those third parties and incur substantial losses if we fail to defend ourselves in those lawsuits. We have policies and procedures in place to reduce the likelihood that we or our employees may use, develop, or make available any content or applications without the proper licenses or necessary third-party consents. However, these policies and procedures may not be effective in completely preventing the unauthorized posting or use of copyrighted material or the infringement of other rights of third parties.

Intellectual property litigation is expensive and time-consuming and could divert resources and management attention from the operation of our business. If there is a successful claim of infringement, we may be required to alter our services, cease certain activities, pay substantial royalties and damages to, and obtain one or more licenses from third parties. We may not be able to obtain those licenses on commercially acceptable terms, or at all. Any of those consequences could cause us to lose revenues, impair our client relationships and harm our reputation.

Any failure to protect our intellectual property could harm our business and competitive position.

We maintain a number of registered domain names and are licensed to use certain registered trademarks by our Controlling Shareholder. Although we do not currently own any registered trademarks, we may in the future acquire new intellectual property such as trademarks, copyrights, domain names, and

know-how.

We will rely on a combination of intellectual property laws and contractual arrangements to protect our intellectual property rights. It is possible that third parties may copy or otherwise obtain and use our trademarks without authorization or otherwise infringe on our rights. We may not be able to successfully pursue claims for infringement that interfere with our ability to use our trademarks, website, or other relevant intellectual property or have adverse impact on our brand. We cannot assure you that any of our intellectual property rights would not be challenged, invalidated, or circumvented, or such intellectual property will be sufficient to provide us with competitive advantages. In addition, other parties may misappropriate our intellectual property rights, which would cause us to suffer economic or reputational damages.

Fluctuations in the value of Renminbi and regulatory controls on the convertibility and offshore remittance of Renminbi may adversely affect our results of operations and financial condition.

Many of our clients are Chinese nationals, institutions, or corporates, and they are subject to the relevant controls of the PRC government as well as risks relating to foreign currency exchange rate fluctuations. The change in value of Renminbi against Hong Kong dollars and other currencies is affected by various factors, such as changes in political and economic conditions in China. Any significant revaluation of Renminbi may

 

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materially and adversely affect the cash flows, revenues, earnings, and financial position of our Chinese clients. In addition, the PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, currency remittance out of China. Since 2016, the PRC government has tightened its foreign exchange policies and stepped up its scrutiny of outbound capital movement. In addition, under the existing regulations on offshore investment, approval from or registration with appropriate government authorities is required when Renminbi is to be converted into foreign currency for the purpose of offshore investment. Revaluation of the Renminbi and PRC laws and regulations in connection with the convertibility of the Renminbi into foreign currencies or offshore remittance of the Renminbi may limit the ability of our Chinese clients to engage our services, especially in our asset management business, which may in turn have a material adverse effect on our results of operations and financial condition.

We may be affected by the currency peg system in Hong Kong.

Since 1983, Hong Kong dollars have been pegged to the U.S. dollars at the rate of approximately HK$7.80 to US$1.00. We cannot assure you that this policy will not be changed in the future. If the pegging system collapses and Hong Kong dollars suffer devaluation, the Hong Kong dollar cost of our expenditures denominated in foreign currency may increase. This would in turn adversely affect the operations and profitability of our business.

Increases in labor costs may adversely affect our business and results of operations.

The economy in Hong Kong and globally has experienced general increases in inflation and labor costs in recent years. As a result, average wages in Hong Kong and certain other regions are expected to continue to increase. In addition, we are required by Hong Kong laws and regulations to pay various statutory employee benefits, including mandatory provident fund to designated government agencies for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee benefits, and those employers who fail to make adequate payments may be subject to fines and other penalties. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to control our labor costs or pass on these increasing labor costs, our financial condition and results of operations may be adversely affected.

We may incur losses or experience disruption of our operations as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, or natural disasters.

Our business could be materially and adversely affected by catastrophic events or other business continuity problems, such as natural or

man-made

disasters, pandemics, war, riots, terrorist attacks, or other public safety concerns. If we were to experience a natural or

man-made

disaster, disruption due to political unrest, or disruption involving electronic communications or other services used by us or third parties with which we conduct business, our operations will partially depend on the availability of our people and office facilities and the proper functioning of our computer, software, telecommunications, transaction processing, and other related systems. A disaster or a disruption in the infrastructure that supports our businesses, a disruption involving electronic communications or other services used by us or third parties with whom we conduct business, or a disruption that directly affects our headquarters, could have a material adverse impact on our ability to continue to operate our business without interruption. Our business and operations could also be adversely affected if our employees are adversely affected by epidemics, pandemics, natural or

man-made

disasters, disruptions due to civil or political unrest or disruption involving electronic communications. Epidemics and pandemics could include various outbreaks of various local and global public health outbreaks. If any of our employees is suspected of having contracted a contagious disease, we may be required to apply quarantines or suspend our operations. Furthermore, any future outbreak may restrict economic activities in affected regions, resulting in reduced business volume, temporary closure of our offices or otherwise disrupt our business operations and adversely affect our results of operations. In addition, our results of operations could be adversely affected to the extent that any epidemic or pandemic harms the Chinese or Hong Kong economy in general. The incidence and

 

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severity of disasters, pandemics, or other business continuity problems are unpredictable, and our inability to timely and successfully recover could materially disrupt our businesses and cause material financial loss, regulatory actions, reputational harm, or legal liability.

The recent outbreak of

COVID-19

has caused, and may continue to cause, companies in Hong Kong, Singapore, and Mainland China, including us and certain of our clients, to implement temporary adjustment of work schedules and travel plans, mandating employees to work from home and collaborate remotely. As a result, we may experience lower efficiency and productivity, internally and externally, which may adversely affect our service quality. Moreover, our business operations depend on our professional staff and the continued services of these individuals. If any of our employees is suspected of having contracted

COVID-19,

we may be required to apply quarantines or suspend our operations. The extent to which this outbreak impacts our results of operations will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity of this outbreak and future actions we take, if any, to contain this outbreak or treat its impact, among others.

Risks Relating to Our Relationship with the Controlling Shareholder

We have limited experience operating as a stand-alone public company.

AMTD IDEA Group (formerly known as AMTD International Inc.) was incorporated in February 2019 as a wholly-owned subsidiary of our Controlling Shareholder. We have limited experience conducting our operations as a stand-alone public company. Prior to our initial public offering in August 2019, our Controlling Shareholder has provided us with financial, administrative, human resources, and legal services, and also has provided us with the services of a number of its executives and employees. After we became a stand-alone public company, our Controlling Shareholder has continued to provide us with certain support services, but to the extent our Controlling Shareholder does not continue to provide us with such support, we will need to create our own support system. We may encounter operational, administrative, and strategic difficulties as we adjust to operating as a stand-alone public company. This may cause us to react more slowly than our competitors to industry changes and may divert our management’s attention from running our business or otherwise harm our operations.

In addition, since we have become a public company, our management team has been required to develop the expertise necessary to comply with the numerous regulatory and other requirements applicable to public companies, including requirements relating to corporate governance, listing standards and securities and investor relationships issues. As a stand-alone public company, our management has to evaluate our internal controls system with new thresholds of materiality, and to implement necessary changes to our internal controls system. We cannot guarantee that we will be able to do so in a timely and effective manner.

Our financial information included in this annual report may not be representative of our financial condition and results of operations if we had been operating as a stand-alone company.

Prior to our establishment, the operations of our investment banking, asset management, and strategic investments businesses were carried out by companies owned or controlled by our Controlling Shareholder. For all periods presented, our consolidated financial statements include all assets, liabilities, revenues, expenses, and cash flows that were directly attributable to our investment banking, asset management, and strategic investment businesses whether held or incurred by our Controlling Shareholder or by us. Only those assets and liabilities that are specifically identifiable to our businesses are included in our consolidated statements of financial position. With respect to costs of operations of the investment banking, asset management, and strategic investment businesses, an allocation of certain costs and expenses of our Controlling Shareholder were also included. These allocations were made using a proportional cost allocation method by considering the proportion of revenues and actual usage metrics, among other things, attributable to us for all respective accounting periods. Since we entered into a transition services agreement with our Controlling Shareholder, we received administrative support, marketing and branding support, and other services from our Controlling Shareholder at a fixed cost of

 

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HK$24 million per annum plus other actual costs incurred arising from the services rendered. We made numerous estimates, assumptions, and allocations in our historical financial statements because our Controlling Shareholder did not account for us, and we did not operate as a stand-alone company for any period prior to our initial public offering. Although our management believes the assumptions underlying our financial statements and the above allocations are reasonable, our financial statements may not necessarily reflect our results of operations, financial position, and cash flows as if we operated as a stand-alone public company during the periods presented. See “Item 7.B. Major Shareholders and Related Party Transactions—Related Party Transactions—Transactions with Our Controlling Shareholder” for our arrangements with our Controlling Shareholder and “Item 5. Operating and Financial Review and Prospects” and the notes to our consolidated financial statements included elsewhere in this annual report for our historical cost allocation. In addition, upon becoming a stand-alone public company, we are gradually establishing our own financial, administrative, and other support systems to replace our Controlling Shareholder’s systems, the cost of which could be significantly different from cost allocation with our Controlling Shareholder for the same services. Therefore, you should not view our historical results as indicators of our future performance.

We may not continue to receive the same level of support from our Controlling Shareholder.

We have benefitted significantly from our Controlling Shareholder’s strong market position and brand recognition, as well as its expertise in investment banking, asset management, and strategic investment businesses. Although we entered into a series of agreements with our Controlling Shareholder relating to our ongoing business operations and service arrangements with our Controlling Shareholder, we cannot assure you we will continue to receive the same level of support from our Controlling Shareholder as we now operate as a stand-alone public company. This effort may not be successful, which could materially and adversely affect our business, financial condition, and results of operations.

Our agreements with our Controlling Shareholders or any of its controlling shareholders may be less favorable to us than similar agreements negotiated between unaffiliated third parties. In particular, our

non-competition

agreement with our Controlling Shareholder limits the scope of business that we are allowed to conduct.

We have entered into a series of agreements with our Controlling Shareholder and the terms of such agreements may be less favorable to us than would be the case if they were negotiated with unaffiliated third parties. In particular, under the

non-competition

agreement we entered into with our Controlling Shareholder, we agree during the

non-competition

period (which will end on the later of (1) two years after the first date when our Controlling Shareholder ceases to own in aggregate at least 20% of the voting power of our then outstanding securities and (2) the fifth anniversary of August 5, 2019, being the date of our initial public offering of the ADSs listed and traded on the NYSE) not to compete with our Controlling Shareholder in the businesses currently conducted by our Controlling Shareholder, except that we may (i) continue to provide to our existing individual clients investment banking and asset management products and services, and (ii) own

non-controlling

equity interest in any company competing with our Controlling Shareholder. Such contractual limitations significantly affect our ability to diversify our revenue sources and may materially and adversely impact our business and prospects should the growth of our businesses slow down. In addition, pursuant to our master transaction agreement with our Controlling Shareholder, we have agreed to indemnify our Controlling Shareholder for liabilities arising from litigation and other contingencies related to our business and assumed these liabilities as part of our restructuring. The allocation of assets and liabilities between our Controlling Shareholder and our company may not reflect the allocation that would have been reached by two unaffiliated parties. Moreover, so long as our Controlling Shareholder continues to control us, we may not be able to bring a legal claim against our Controlling Shareholder or its controlling shareholders in the event of contractual breach, notwithstanding our contractual rights under the agreements described above and other inter-company agreements entered into from time to time.

 

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We are a “controlled company” within the meaning of the NYSE Listed Company Manual and, as a result, can rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

Our Controlling Shareholder continues to control a majority of the voting power of our issued and outstanding ordinary shares. As a result, we are a “controlled company” within the meaning of the NYSE Listed Company Manual. Under these rules, a listed company of which more than 50% of the voting power for the election of directors is held by an individual, group, or another company is a “controlled company.” As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements. We elect to rely on exemption with respect to the requirement that we have a compensation committee that is composed entirely of independent directors. Therefore, our shareholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.

We may have conflicts of interest with our Controlling Shareholders or any of its controlling shareholders and, because of our Controlling Shareholder’s controlling ownership interest in our company, we may not be able to resolve such conflicts on terms favorable to us.

As of December 31, 2021, our Controlling Shareholder beneficially owned 45.4% of our outstanding ordinary shares, representing 95.1% of our total voting power. Accordingly, our Controlling Shareholder continues to be our controlling shareholder and may have significant influence in determining the outcome of any corporate actions or other matters that require shareholder approval, such as mergers, consolidations, change of our name, and amendments of our memorandum and articles of association.

While we are committed to adhering to internal rules and policies on related party transactions (e.g. related party transactions must be reported to our management and approved by the audit committee and the board of directors before they are entered into), the concentration of ownership and voting power may cause transactions to occur in a way that may not be beneficial to you as a holder of the ADSs or Class A ordinary shares and may prevent us from doing transactions that would be beneficial to you. Conflicts of interest may arise between our Controlling Shareholder or any of its controlling shareholders and us in a number of areas relating to our past and ongoing relationships. Potential conflicts of interest that we have identified include the following:

 

•

Indemnification arrangements with our Controlling Shareholder . We have entered into a master transaction agreement under which we agree to indemnify our Controlling Shareholder with respect to lawsuits and other matters relating to our investment banking and asset management businesses, including operations of those businesses when we were a private company and a subsidiary of our Controlling Shareholder. There are no exceptions for such indemnities and such indemnifications relate to transactions that had taken place prior to, on and following, our restructuring and listing on the NYSE (as we and our Controlling Shareholder have obligations, based on the master transaction agreement, that continue after our listing on the NYSE). These indemnification arrangements could result in our having interests that are adverse to those of our Controlling Shareholder, for example, with respect to settlement arrangements in litigation. In addition, under these arrangements, we have agreed to reimburse our Controlling Shareholder for liabilities incurred (including legal defense costs) in connection with any third party claim if it is ultimately determined that we are obligated to indemnify our Controlling Shareholder with respect to such third party claim. There is no limit on such amount of indemnity under the master transaction agreement.

 

•

Non-competition arrangements with our Controlling Shareholder . We have entered into a non-competition agreement under which our Controlling Shareholder agrees not to compete with us in our investment banking and asset management businesses that are both primarily targeting institutional and corporate clients, except for owning non-controlling equity interest in any company competing with us. We have agreed not to compete with our Controlling Shareholder in businesses currently conducted by our Controlling Shareholder, except that we may (i) continue to provide investment

 

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banking and asset management products and services to our existing individual clients, and (ii) own non-controlling equity interests in any company competing with our Controlling Shareholder.

 

•

Employee recruiting and retention . Because both we and our Controlling Shareholder are engaged in financial service-related businesses in Hong Kong, we may compete with our Controlling Shareholder in the hiring of new employees. We have entered into a non-competition agreement and have a non-solicitation arrangement with our Controlling Shareholder that restricts us and our Controlling Shareholder from hiring any of each other’s employees.

 

•

Our board members or executive officers may have conflicts of interest . Our chief executive officer, William Fung, is also the group vice president of our Controlling Shareholder. Our chief financial officer, Xavier Ho Sum Zee, is also the chief financial officer of our Controlling Shareholder. The chairman of our executive management committee is also the executive vice chairman and chairman of the executive management committee of our Controlling Shareholder. Two of our directors also serve as directors of our Controlling Shareholder. As a result, they may not have sufficient capacity to perform their duties in our company. These overlapping relationships could create, or appear to create, conflicts of interest when these persons are faced with decisions with potentially different implications for our Controlling Shareholder and us.

 

•

Sale of shares or assets in our company . Upon expiration of the lock-up period and subject to certain restrictions under relevant securities laws and stock exchange rules, as well as other relevant restrictions, our Controlling Shareholder may decide to sell all or a portion of our shares that it holds to a third party, including to one of our competitors, thereby giving that third party substantial influence over our business and our affairs. In addition, our Controlling Shareholder may decide, or be obligated under any of its applicable debt covenant, to sell all or a portion of our shares or our assets in the event of default of our Controlling Shareholder or any of its controlling shareholders under any applicable debt or other obligations or otherwise becomes insolvent. Such a sale of our shares or our assets could be contrary to the interests of our employees or our other shareholders. In addition, our Controlling Shareholder may also discourage, delay, or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of the ADSs or Class A ordinary shares.

 

•

Allocation of business opportunities . Business opportunities may arise that both we and our Controlling Shareholder find attractive, and which would complement our respective businesses. Although we have entered into a master transaction agreement under which our Controlling Shareholder agrees not to pursue investment opportunities without first presenting them to us, our Controlling Shareholder may discourage, delay, or prevent a profitable investment opportunity before our board of directors or shareholders and subsequently decide to pursue investment opportunities or take business opportunities for itself, which would prevent us from taking advantage of those opportunities. These actions may be taken even if they are opposed by our other shareholders.

 

•

Developing business relationships with our Controlling Shareholder’s competitors . So long as our Controlling Shareholder remains as our controlling shareholder, we may be limited in our ability to do business with its competitors, such as other insurance brokerage companies. This may limit our ability to market our services for the best interests of our company and our other shareholders.

Although our company has become a stand-alone public company, we expect to operate, for as long as our Controlling Shareholder is our controlling shareholder, as an affiliate of our Controlling Shareholder. Our Controlling Shareholder may from time to time make strategic decisions that it believes are in the best interests of its business as a whole, including our company. These decisions may be different from the decision that we would have made on our own. Our Controlling Shareholder’s decisions with respect to us or our business may be resolved in ways that favor our Controlling Shareholder and therefore our Controlling Shareholder’s own shareholders, which may not coincide with the interests of our other shareholders. We may not be able to resolve any potential conflicts, and even if we do so, the resolution may be less favorable to us than if we were dealing

 

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with a

non-controlling

shareholder. Even if both parties seek to transact business on terms intended to approximate those that could have been achieved among unaffiliated parties, this may not succeed in practice.

Risks Relating to the ADSs and Our Ordinary Shares

An active public market may not develop for the ADSs on the NYSE or our Class A ordinary shares on the

SGX-ST,

and you may not be able to resell the ADSs or Class A ordinary shares at or above the price you paid, or at all.

Although the ADSs are listed on the NYSE and our Class A ordinary shares are listed on the

SGX-ST,

we cannot assure you that a liquid public market for the ADSs or Class A ordinary shares will develop. If an active public market for the ADSs or Class A ordinary shares does not develop, the market price of the ADSs or Class A ordinary shares may decline and the liquidity of the ADSs or Class A ordinary shares may decrease significantly. We cannot assure you that the price at which the ADSs or Class A ordinary shares are traded will not decline below the initial public offering price on the NYSE or secondary listing price on the

SGX-ST,

respectively. As a result, investors in the ADSs or Class A ordinary shares may experience a significant decrease in the value of their ADSs or Class A ordinary shares due to insufficient or a lack of market liquidity of the ADSs or Class A ordinary shares, as applicable.

The trading price of the ADSs or Class A ordinary shares may be volatile, which could result in substantial losses to you.

Since the ADSs became listed on the NYSE on August 5, 2019, the trading price of the ADSs has ranged from US$2.2 to US$16.53. The trading prices of the ADSs or Class A ordinary shares are likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen due to broad market and industry factors, such as performance and fluctuation in the market prices or underperformance or deteriorating financial results of other U.S.- or Singapore-listed companies based in the Greater China. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances of other Hong Kong and Chinese companies’ securities after their offerings may affect the attitudes of investors towards Hong Kong- and Mainland China-based, U.S.-listed or Singapore-listed companies, which consequently may affect the trading performance of the ADSs or Class A ordinary shares, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or matters of other Hong Kong and Chinese companies may also negatively affect the attitudes of investors towards Hong Kong and Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. Furthermore, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, which may have a material and adverse effect on the trading price of the ADSs or Class A ordinary shares.

In addition to the above factors, the price and trading volume of the ADSs or Class A ordinary shares may be highly volatile due to multiple factors, including the following:

 

•

regulatory developments affecting us or our industry;

 

•

variations in our revenue, profit, and cash flow;

 

•

changes in the economic performance or market valuations of other financial services firms;

 

•

actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;

 

•

changes in financial estimates by securities research analysts;

 

•

detrimental negative publicity about us, our services, our officers, directors, Controlling Shareholder, other beneficial owners, our business partners, or our industry;

 

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•

announcements by us or our competitors of new service offerings, acquisitions, strategic relationships, joint ventures, capital raisings or capital commitments;

 

•

additions to or departures of our senior management;

 

•

litigation or regulatory proceedings involving us, our officers, directors, or Controlling Shareholders;

 

•

release or expiry of any transfer restrictions on our outstanding shares or the ADSs; and

 

•

sales or perceived potential sales of additional ordinary shares or ADSs.

Any of these factors may result in large and sudden changes in the volume and price at which the ADSs or Class A ordinary shares will trade.

In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

The characteristics of the U.S. capital markets and the Singapore capital markets are different

The NYSE and

SGX-ST

have different trading hours, trading characteristics (including trading volume and liquidity), trading and listing rules, and investor bases (including different levels of retail and institutional participation). As a result of these differences, the trading prices of the ADSs and our Class A ordinary shares might not be the same, even allowing for currency differences. Fluctuations in the price of the ADSs due to circumstances peculiar to its home exchange could materially and adversely affect the price of our Class A ordinary shares, and vice versa. Because of the different characteristics of the U.S. and Singapore equity markets, the historic market prices of the ADSs and our Class A ordinary shares may not be indicative of the performance of our securities going forward.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against us or our directors and officers named in the annual report based on foreign laws.

We are a company incorporated under the laws of the Cayman Islands, we conduct substantially all of our operations in Hong Kong, and substantially all of our assets are located in Hong Kong. A majority of our directors and executive officers are nationals or residents of jurisdictions other than the United States or Singapore and most of their assets are located outside the United States or Singapore.

As a result, it may be difficult for a shareholder to effect service of process within the United States or Singapore upon these individuals, to bring an action against us or these individuals in the United States, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

The United States and the Cayman Islands do not have a treaty providing for reciprocal recognition and enforcement of judgments of U.S. courts in civil and commercial matters and that there is uncertainty as to whether the courts of the Cayman Islands would (i) recognize or enforce judgments of U.S. courts obtained against us or our directors or officers, predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (ii) entertain original actions brought in the Cayman Islands against us or our directors or officers, predicated upon the securities laws of the United States or any state in the United States. A judgment obtained in any federal or state court in the United States will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the

 

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underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (i) is given by a foreign court of competent jurisdiction, (ii) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (iii) is final and conclusive, (iv) is not in respect of taxes, a fine or a penalty, and (v) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. There is uncertainty as to whether the courts of the Cayman Islands would recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. Such uncertainty relates to whether a judgment obtained from the United States courts under the civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company or its directors and officers. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.

Judgment of United States courts will not be directly enforced in Hong Kong. There are currently no treaties or other arrangements providing for reciprocal enforcement of foreign judgments between Hong Kong and the United States. However, the common law permits an action to be brought upon a foreign judgment. That is to say, a foreign judgment itself may form the basis of a cause of action since the judgment may be regarded as creating a debt between the parties to it. In a common law action for enforcement of a foreign judgment in Hong Kong, the enforcement is subject to various conditions, including but not limited to, that the foreign judgment is a final judgment conclusive upon the merits of the claim, the judgment is for a liquidated amount in a civil matter and not in respect of taxes, fines, penalties, or similar charges, the proceedings in which the judgment was obtained were not contrary to natural justice, and the enforcement of the judgment is not contrary to public policy of Hong Kong. Such a judgment must be for a fixed sum and must also come from a “competent” court as determined by the private international law rules applied by the Hong Kong courts. The defenses that are available to a defendant in a common law action brought on the basis of a foreign judgment include lack of jurisdiction, breach of natural justice, fraud, and contrary to public policy. However, a separate legal action for debt must be commenced in Hong Kong in order to recover such debt from the judgment debtor.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

The dual listing of our equity securities in different markets is costly to maintain and may result in price variations, which may adversely affect the price of our ADSs or our ordinary shares.

The ADSs are listed for trading on the NYSE and our Class A ordinary shares are listed for trading on the

SGX-ST.

Maintaining dual listings may generate additional costs, including legal, accounting, investor relations, and other expenses that we would not incur if we were listed only on a single market. In addition, price variations between these two markets may result from the dual listing. Trading in ADSs and Class A ordinary shares on these markets, respectively, is in different currencies, with U.S. dollars on the NYSE and Singapore dollars on the

SGX-ST,

and at different times as a result of different time zones, different trading days and different public holidays in the United States and Singapore. Given these and other factors, such as differences in exchange rates, the ADSs and our Class A ordinary shares may trade at different prices on NYSE and

SGX-ST,

respectively. Furthermore, market influences in one market may influence the price in the other. All of the foregoing factors may adversely affect the price of the ADSs or our Class A ordinary shares.

 

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If securities or industry analysts do not publish or publish inaccurate or unfavorable research about our business, or if they adversely change their recommendations regarding the ADSs or our Class A ordinary shares, the market price or trading volume for the ADSs or our Class A ordinary shares could decline.

The respective trading markets for the ADSs and our Class A ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades the ADSs or our Class A ordinary shares or publishes inaccurate or unfavorable research about our business, the market price for the ADSs or our Class A ordinary shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSs or our Class A ordinary shares to decline.

The sale or availability for sale of substantial number of the ADSs or our Class A ordinary shares in the public market could adversely affect their market price.

Sales of substantial numbers of the ADSs or our Class A ordinary shares in the public market, or the perception that these sales could occur, could adversely affect the market price of the ADSs or our Class A ordinary shares and could materially impair our ability to raise capital through equity offerings in the future. As of the date of this annual report, we have 144,077,210 Class A ordinary shares, including 23,333,210 Class A ordinary shares represented by ADSs, and 233,526,979 Class B ordinary shares outstanding, respectively. All of the ADSs representing our Class A ordinary shares are freely tradable by persons other than our “affiliates” without restriction or further registration under the Securities Act of 1933, as amended, or the Securities Act.

Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

Under our dual-class share structure, our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. In respect of matters requiring the votes of shareholders, holders of Class B ordinary shares will be entitled to twenty votes per share, while holders of Class A ordinary shares will be entitled to one vote per share based on our dual-class share structure. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment, or disposition of any Class B ordinary shares by a holder thereof to any person other than our founder, Dr. Calvin Choi, or any other person or entity designated by Dr. Choi, such Class B ordinary shares are automatically and immediately converted into an equal number of Class A ordinary shares.

As of the date of this annual report, our Controlling Shareholder and Dr. Choi beneficially owned all of our issued and outstanding Class B ordinary shares. These Class B ordinary shares constitute approximately 43.5% of our total issued and outstanding ordinary shares and 95.8% of the aggregate voting power of our total issued and outstanding ordinary shares due to the disparate voting powers associated with our dual-class share structure. See “Item 6.E. Directors, Senior Management and Employees—Share Ownership.” As a result of the dual-class share structure and the concentration of ownership, holders of Class B ordinary shares will have considerable influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. Such holders may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of the ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.

 

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The dual-class structure of our ordinary shares may adversely affect the trading market for the ADSs or our Class A ordinary shares.

S&P Dow Jones and FTSE Russell have announced changes to their eligibility criteria for inclusion of shares of public companies in certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class capital structures. As a result, the dual-class structure of our ordinary shares may prevent the inclusion of the ADSs or our Class A ordinary shares in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for the ADSs or our Class A ordinary shares. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of the ADSs or our Class A ordinary shares.

Because the amount, timing, and whether or not we distribute dividends at all is entirely at the discretion of our board of directors, you must rely on price appreciation of the ADSs or our Class A ordinary shares for return on your investment.

Although we currently intend to distribute dividends in the future, the amount, timing, and whether or not we actually distribute dividends at all is entirely at the discretion of our board of directors.

Our board of directors has complete discretion as to whether to distribute dividends. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under the Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in the ADSs or our Class A ordinary shares will likely depend entirely upon any future price appreciation of the ADSs or our Class A ordinary shares. We cannot assure you that the ADSs or our Class A ordinary shares will appreciate in value in the future or even maintain the price at which you purchased the ADSs or our Class A ordinary shares. You may not realize a return on your investment in, and you may even lose your entire investment in, the ADSs or our Class A ordinary shares.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct how the Class A ordinary shares represented by your ADSs are voted.

Holders of ADSs do not have the same rights as our registered shareholders. As a holder of ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings.

You will only be able to exercise the voting rights that are carried by the underlying Class A ordinary shares represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary. If we instruct the depositary to ask for your instructions, then upon receipt of your voting instructions, the depositary will try, as far as practicable, to vote the underlying Class A ordinary shares represented by your ADSs in accordance with your instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary

 

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shares represented by your ADSs unless you withdraw the shares and become the registered holder of such shares prior to the record date for the general meeting. Under our currently effective memorandum and articles of association, the minimum notice period required to be given by our company to our registered shareholders for convening a general meeting is seven (7) days.

When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw the Class A ordinary shares underlying your ADSs and become the registered holder of such shares to allow you to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our currently effective memorandum and articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the Class A ordinary shares underlying your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We have agreed to give the depositary at least 40 days’ prior notice of shareholder meetings. Nevertheless, we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying Class A ordinary shares represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the Class A ordinary shares underlying your ADSs are voted and you may have no legal remedy if the Class A ordinary shares underlying your ADSs are not voted as you requested.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirement is available. Under the deposit agreement, the depositary will not make rights available to you unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from the registration requirement under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings in the future and may experience dilution in your holdings.

You may not receive cash dividends if the depositary decides it is impractical to make them available to you.

The depositary will pay cash distributions on the ADSs only to the extent that we decide to distribute dividends on our Class A ordinary shares or other deposited securities. To the extent that there is a distribution, the depositary has agreed to pay you the cash dividends or other distributions it or the custodian receives on our Class A ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs.

We and the depository are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement, and we may terminate the deposit agreement, without the prior consent of the ADS holders.

We and the depository are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such agreement, without the prior consent of the ADS holders. We and the depositary

 

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may agree to amend the deposit agreement in any way we decide is necessary or advantageous to us. Amendments may reflect, among other things, operational changes in the ADS program, legal developments affecting ADSs or changes in the terms of our business relationship with the depositary. In the event that the terms of an amendment are disadvantageous to ADS holders, ADS holders will only receive 30 days’ advance notice of the amendment, and no prior consent of the ADS holders is required under the deposit agreement. Furthermore, we may decide to terminate the ADS facility at any time for any reason. For example, terminations may occur when we decide to list our shares on a

non-U.S.

securities exchange and determine not to continue to sponsor an ADS facility or when we become the subject of a takeover or a going-private transaction. If the ADS facility will terminate, ADS holders will receive at least 90 days’ prior notice, but no prior consent is required from them. Under the circumstances that we decide to make an amendment to the deposit agreement that is disadvantageous to ADS holders or terminate the deposit agreement, the ADS holders may choose to sell their ADSs or surrender their ADSs and become direct holders of the underlying Class A ordinary shares, but will have no right to any compensation whatsoever.

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiffs in any such action.

The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim that they may have against us or the depositary arising out of or relating to our ordinary shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual

pre-dispute

jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual

pre-dispute

jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has

non-exclusive

jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual

pre-dispute

jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.

Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems it expedient in connection with the performance of its duties. The

 

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depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts or Singapore courts may be limited, because we are incorporated under Cayman Islands law.

We are a company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Act of the Cayman Islands (as revised) and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under the Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under the Cayman Islands law may not be as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands may have a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, the Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

Shareholders of Cayman Islands companies like us have no general rights under the Cayman Islands law to inspect corporate records, other than the memorandum and articles of association and any special resolutions passed by such companies, and the registers of mortgages and charges of such companies. Our directors have discretion under our currently effective memorandum and articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from requirements for companies incorporated in other jurisdictions such as the United States and Singapore. Currently, we do not rely on home country practice with respect to our corporate governance. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. and Singapore domestic issuers.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of our board of directors, or our Controlling Shareholder than they would as public shareholders of a company incorporated in the United States or Singapore.

Our currently effective memorandum and articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares, including Class A ordinary shares represented by the ADSs, at a premium.

Our currently effective memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in

change-of-control

transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium

 

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over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to create and issue new classes or series of shares (including preferred shares) and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADSs or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs or our Class A ordinary shares may fall and the voting and other rights of the holders of our ordinary shares and the ADSs may be materially and adversely affected.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.

Because we qualify as a foreign private issuer under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

 

•

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;

 

•

the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

 

•

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

•

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

We are required to file an annual report on Form

20-F

within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and material events will also be furnished to the SEC on Form

6-K.

However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that may differ significantly from the NYSE listing standards and the

SGX-ST

listing standards and as a “controlled” company we are permitted to rely on certain other exemptions from the NYSE listing standards; we are not generally subject to the continuing listing requirements of the

SGX-ST

and Rule 210(10) of the Listing Manual does not apply to our company due to our secondary listing on the

SGX-ST;

these practices may afford less protection to shareholders than they would enjoy if we complied fully with the NYSE listing standards or

SGX-ST

listing standards.

As a Cayman Islands company and a “controlled” company listed on the NYSE and

SGX-ST,

we are subject to the NYSE listing standards and certain

SGX-ST

listing standards. However, we are not generally subject to the continuing listing requirements of the

SGX-ST

and Rule 210(10) of the Listing Manual does not apply to our company due to our secondary listing on the

SGX-ST,

and the NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country or a “controlled” company like us to rely on exemptions from the NYSE rules. Similarly, the

SGX-ST

generally relies on the NYSE to regulate our company. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE listing standards and the

SGX-ST

listing standards. Currently, we do not plan to

 

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rely on home country practices with respect to our corporate governance, but instead we comply with the applicable corporate governance rules of the NYSE listing standards. Currently, we rely on the exemptions applicable to “controlled” companies under the NYSE Listed Company Manual with respect to the requirements that the compensation committee is composed entirely of independent directors (under Section 303A.05 of the NYSE Listed Company Manual). and we follow certain home country practices as a foreign private issuer such as with respect to the requirements of shareholder approval for certain types of transactions. Our shareholders may be afforded less protection than they would otherwise enjoy under the NYSE listing standards applicable to U.S. domestic issuers or the

SGX-ST

listing standards applicable to Singapore domestic issuers or foreign issuers with a primary listing on the

SGX-ST.

There can be no assurance that we will not be a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year. If we are a PFIC for any taxable year, United States investors in the ADSs or ordinary shares could be subject to significant adverse United States income tax consequences.

We will be classified as a passive foreign investment company, or PFIC, for any taxable year if either (i) 75% or more of our gross income for such year consists of certain types of “passive” income, or (ii) 50% or more of the value of our assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income (the “asset test”). Based upon our current and expected income and assets, including goodwill and the value of the assets held by our strategic investment business, we do not believe we were a PFIC for 2021 and do not expect to be one for the foreseeable future.

While we do not expect to be a PFIC, there can be no assurance in this regard because our PFIC status is a factual determination made annually that will depend, in part, upon the composition of our income and assets. Fluctuations in the market price of our ADSs or Class A ordinary shares may cause us to become a PFIC for subsequent taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to our market capitalization, which is based on the market price of our ADSs or Class A ordinary shares from time to time (which may be volatile). The determination of whether we will be or become a PFIC will also depend, in part, on the composition and classification of our income, including the relative amounts of income generated by and the value of assets of our strategic investment business as compared to our other businesses. Because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income and assets as

non-passive,

which may result in our being or becoming a PFIC in any single year. In addition, the composition of our income and assets will also be affected by how, and how quickly, we use our liquid assets. If we determine not to deploy significant amounts of cash for active purposes, our risk of being a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for any single year.

If we are a PFIC in any taxable year, a U.S. Holder (as defined in “Item 10.E. Additional Information—Taxation—United States Federal Income Tax Considerations”) may incur significantly increased United States income tax on gain recognized on the sale or other disposition of our ADSs or ordinary shares and on the receipt of distributions on our ADSs or ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under the U.S. federal income tax rules, and such holder may be subject to burdensome reporting requirements. Further, if we are a PFIC for any year during which a U.S. Holder holds our ADSs or our ordinary shares, there is uncertainty whether we will be treated as a PFIC for succeeding years during which such U.S. Holder holds our ADSs or our ordinary shares. For more information see “ Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”

 

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We incur additional costs as a result of being a public company, particularly after we cease to qualify as an emerging growth company.

We are a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002 and the rules subsequently implemented by the SEC and the NYSE detailed requirements concerning corporate governance practices of public companies. As a company with less than US$1.07 billion in net revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2012 relating to internal controls over financial reporting.

We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. Our management is and may continue to be required to devote substantial time and attention to our public company reporting obligations and other compliance matters. In addition, we incur additional costs associated with our public company reporting requirements and it may be more difficult for us to find qualified persons to serve on our board of directors or as executive officers.

In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material and adverse effect on our financial condition and results of operations.

 

ITEM 4.

INFORMATION ON THE COMPANY

 

A.	History and Development of the Company

Our Company

In 2015, our Controlling Shareholder commenced our current investment banking, asset management, and strategic investment businesses. From February to April 2019, we carried out a restructuring to carve out our investment banking, asset management, and strategic investment businesses from our Controlling Shareholder.

As part of the restructuring, in February 2019, AMTD International Inc. was incorporated under the laws of the Cayman Islands initially as a wholly-owned subsidiary of our Controlling Shareholder. In April 2019, we completed our restructuring and AMTD International Inc. became the holding company of our businesses. In March 2022, with the approval of our shareholders, we changed our company name from “AMTD International Inc.” to “AMTD IDEA Group.”

We are a holding company incorporated in the Cayman Islands and conduct our businesses through our subsidiaries in Hong Kong. See “Item 4.C. Information on the Company—Organizational Structure” for a diagram illustrating our corporate structure as of the date of this annual report.

On August 5, 2019, our ADSs commenced trading on the NYSE. We issued and sold a total of 23,873,655 ADSs representing 23,873,655 Class A ordinary shares at an initial offering price of US$8.38 per ADS. Our ADSs are currently traded under the ticker symbol “AMTD.”

 

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In December 2019, we issued and sold (i) a total of 7,307,692 Class A ordinary shares and 4,526,627 Class B ordinary shares for an aggregate amount of US$100 million (representing a per share price of US$8.45) to Value Partners Greater China High Yield Income Fund, Ariana Capital Investment Limited, and Infinity Power Investments Limited, and (ii) a convertible note due 2023, or the VP Note, in an aggregate principal amount of US$15 million to Value Partners Greater China High Yield Income Fund, all in the form of private placement pursuant to an exemption from registration with the SEC under the Securities Act. Infinity Power Investments Limited is a British Virgin Islands company wholly owned by Dr. Calvin Choi, our founder. The VP Note bears interest at a rate of 2.00% per annum and will mature in June 2023, unless previously converted in accordance with its terms prior to such date. The VP Note will be convertible into the ADSs at the option of the holder, based on an initial conversion rate of 99.44 ADSs per US$1,000 principal amount of VP Note (which is equivalent to an initial conversion price of approximately US$10.0560 per ADS) in integral multiples of US$10,000,000 principal amount, at any time after six months following the date of issuance and prior to the close of business on the second business day immediately preceding the maturity date, provided, however, that the holder can only exercise such right to convert no more than twice. The conversion rate for the VP Note is subject to adjustment upon the occurrence of certain events. The VP Note has been converted in January 2022.

In March 2020, we listed a US$1.0 billion medium term note program, or the MTN Program, for a period of twelve months by way of debt issues to professional investors (as defined in Chapter 37 of the Rules Governing the Listing of Securities on SEHK and in the Securities and Futures Ordinance (Cap. 571) of Hong Kong) on the SEHK. Under the MTN Program, we may from time to time issue medium term notes or perpetual securities up to an aggregate amount of US$1.0 billion. We intend to use the net proceeds from the issuances of debt securities under the MTN Program for long-term development needs, international expansion, and general corporate purposes. In April 2020, we dual-listed the MTN Program on the

SGX-ST.

Later in the same month, we extended an invitation to holders of the US$200 million 7.625% senior perpetual securities of AMTD Group, or the Existing Securities, to offer exchange any and all of their outstanding Existing Securities for new securities, or the New Securities, to be issued by us under our MTN Program, or the Exchange Offer. In May 2020, we issued US$200 million 7.25% senior perpetual securities and S$50 million 4.5% senior perpetual securities. In October 2021, we redeemed perpetual securities with a principal amount of approximately S$11.2 million (US$8.3 million) as part of our active balance sheet management targeting for early repayment of outstanding exposures.

On April 8, 2020, we dual listed by way of introduction of 23,873,655 Class A ordinary shares on the

SGX-ST

under the symbol “HKB,” being Class A ordinary shares that have been registered with the SEC as part of our initial public offering and listing on the NYSE in August 2019, and which were previously represented by the ADSs listed for trading on the NYSE.

In May 2020, we entered into a long-term strategic partnership with the Singapore Exchange to promote the development of Singapore’s capital markets and strengthen connectivity between Singapore, ASEAN, the Greater Bay Area, the rest of China, and the Middle East. Through this collaboration, we and

SGX-ST

will work together to meet the growing market needs for improved capital market access and connectivity to Singapore and beyond.

AMTD Capital Co., Ltd., or AMTD Capital, is our subsidiary headquartered in Hengqin, Zhuhai City. In March 2021, Airstar Digital, a subsidiary of Xiaomi Corporation, or Xiaomi, invested in AMTD Capital to own 49.87% of its shares.

Also in March 2021, we partnered with 36KR (Nasdaq: KRKR) and Xiaomi (SEHK:1810) to establish a new joint venture, AK73 Capital, to build a full lifecycle service platform for new economy enterprises. AK73 Capital aims to support and empower the new generation of new economy leaders to capitalize on the tremendous opportunities in dynamic global capital markets.

In September 2021, we repurchased approximately 69.1 million Class B ordinary shares from AMTD Group for HK$5 billion (US$0.6 billion).

 

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Subsequent to December 31, 2021, we issued an aggregate of 8,411,214 Class A ordinary shares and 3,271,028 Class B ordinary shares through a private placement of US$50 million to a number of reputable professional investors.

In January 2022, we proposed the change of company’s name from “AMTD International Inc.” to “AMTD IDEA Group” and we also announced that the ticker symbol for the Company’s ADSs would be changed to “AMTD” effective on January 31, 2022. AMTD IDEA Group’s name was approved and adopted by way of extraordinary general meeting of shareholders on March 1, 2022.

In February 2022, we acquired a total of 31,732,000 Class A ordinary shares and 24,202,000 Class B ordinary shares of AMTD Digital Inc., priced at US$17.75 per share, from certain of its shareholders, including our Controlling Shareholder, for a total consideration of approximately US$992.6 million (HK$7,742.2 million). We issued a total of 67,200,330 Class A ordinary shares and 51,253,702 Class B ordinary shares in settlement of the consideration payable for the acquisition. AMTD Digital Inc. is a comprehensive one-stop digital solutions platform in Asia and was a subsidiary of AMTD Group prior to the acquisition. AMTD Digital Inc. became our consolidated subsidiary as a result of the acquisition.

Also in January 2022, we entered into a definitive agreement to acquire 100% of the equity interest in L’Officiel Inc. SAS, a global fashion media holding group. We are currently negotiating with the counterparties to finalize the closing conditions and the transaction has yet to be closed as of the date of this annual report.

Our principal executive offices are located at 23/F Nexxus Building, 41 Connaught Road Central, Hong Kong. Our telephone number at this address is [phone]. Our registered office in the Cayman Islands is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman,

KY1-1111,

Cayman Islands. Our agent for service of process in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, DE 19711. Our website is

https://www.amtdinc.com

. The information on our websites should not be deemed to be part of this annual report. The SEC also maintains a website at

https://www.sec.gov

that contains reports, proxy, and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.

 

B.	Business Overview

We are a leading Hong Kong-headquartered comprehensive financial institution. We are one of the few independent financial institutions with extensive financial industry knowledge and experience across Greater China that is majority-owned and managed by local Hong Kong entrepreneurs and professionals. Our clientele includes PRC banks, privately-owned companies primarily in new economy sectors, and Asia-based families and blue-chip conglomerates, among others.

We operate a full-service platform encompassing three business lines: investment banking, asset management, and strategic investment.

 

•

Investment Banking . We offer a broad range of investment banking services, including equity underwriting, debt underwriting, advisory (on credit rating, financing, and mergers and acquisitions transactions), securities brokerage, institutional sales and distribution, and research, among others.

 

•

Asset Management . We provide professional investment management and advisory services primarily to corporate and other institutional clients.

 

•

Strategic Investment . We make long-term strategic investments focusing on global financial and new economy sectors. Through investing in market leaders and technological innovators, we gain access to unique opportunities and resources that complement our other businesses and augment our “AMTD SpiderNet” ecosystem.

We align ourselves with clients, shareholders, business partners, and investee companies to build an ever-extending, inter-connected network that creates value for all stakeholders, or the “AMTD SpiderNet” ecosystem.

 

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We believe that our “AMTD SpiderNet” ecosystem is the bedrock of our success. We actively help stakeholders in our ecosystem explore business collaboration opportunities among themselves and provide financial solutions or additional resources needed to facilitate such collaboration. This, in turn, results in enduring relationships within the network, and expand the network by attracting corporations, industry associations, and other institutions seeking business opportunities and efficient channels of resources. This unique “AMTD SpiderNet” ecosystem, coupled with our ability to provide innovative and bespoke solutions, is a key growth driver of our overall businesses.

Our Partnership Approach

We discover and selectively engage a broad range of promising clients with diverse backgrounds and at various stages of development. We offer comprehensive financial services to fulfill the needs of our clients throughout their lifecycles. We stay close to our clients to understand and anticipate their needs. Our services are tailored with a collaborative overlay, providing clients with

one-stop

solutions.

With each business opportunity, we consider ourselves a business partner for the prospective client, rather than merely a service agency of a particular product or service. We strive to unlock and maximize the extraordinary value embedded in each relationship and to expand opportunities for collaboration and partnership both between us and our clients, as well as among clients. This forms the foundation of our “AMTD SpiderNet” ecosystem and defines our shared firm-wide core values and culture.

Our Services

Investment Banking

Since October 2015, we have operated our investment banking business through one of our wholly-owned subsidiaries, AMTD Global Markets Limited, which is licensed by HKSFC to engage in certain activities regulated under the Securities and Futures Ordinance (Cap. 571) of Hong Kong, such as dealing in securities and future contracts, advising on securities and corporate finance, and providing asset management services. For further details, see “Item 4. Information on the Company—B. Business Overview—Regulation—Licensing Regime Under the HKSFO.” Under our investment banking business, we provide our clients with a full suite of corporate finance services, including underwriting equity and debt offerings, and advising on various financing and mergers and acquisitions transactions.

Our investment banking business provides a

one-stop

solution for corporate and other institutional clients, both benefiting from and enhancing the synergies within our “AMTD SpiderNet” ecosystem. To this end, we deliver our investment banking services with the following features.

 

•

Full service capabilities . We offer our clients a full suite of services for capital markets transactions, covering equity and debt offerings, credit rating advisory, other financing transactions, and merger and acquisitions. Based on our full product coverage, we are able to serve clients and develop long-term relationships through multiple engagements.

 

•

Full value chain’s client focuses . We focus on client needs and always strive to explore long-term business collaboration rather than completing individual transactions, because we recognize that our clients are the foundation of our “AMTD SpiderNet” ecosystem and our relationship with them is key to our sustainable development and success. Leveraging our strong client relationship and our unique “AMTD SpiderNet” ecosystem, we are able to create synergies and proactively develop innovative products and services based on specific client needs to be serviced by our own abilities or those of our partners in the “AMTD SpiderNet” ecosystem.

 

•

Industry expertise . Our services are enriched by our experience and expertise in certain important industries, allowing us to better understand and anticipate clients’ circumstances and needs. We have particular expertise in the regional banks and new economy sectors.

 

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•

Senior bankers’ participation . In addition to managing and maintaining client relationships, our senior bankers and professionals also actively participate in client coverage and deal execution to ensure seamless execution and satisfactory client experience.

We derive underwriting commissions and financial advisory fees from our investment banking business. We generally charge fees and commissions based on a percentage of transaction value. This percentage is negotiated and determined by a number of factors including (i) the type of transaction, (ii) the size of the transaction, (iii) the complexity of the transaction, (iv) state of the market, and (v) client relationship dynamic.

Global Markets

We are licensed to provide underwriting services for equity and debt offerings in Hong Kong. Our underwriting capabilities have accelerated rapidly since October 2015.

We have built a solid track record and established our market position and brand recognition for issuers in Hong Kong, the United States, and the other international capital markets. From October 2015 when we commenced our investment banking business to March 31, 2022, we completed 80 equity offerings in Hong Kong, the United States, and Singapore, as an underwriter or financial advisor, with an aggregate transaction value of US$33.4 billion, including through the exercise of over-allotment options. During the same period, we also completed 145 debt offerings, with an aggregate transaction value of US$52 billion.

In line with market practice, we generally split fees and commissions with other underwriters in capital markets transactions based on (i) the percentages of our underwriting commitment, (ii) our other contributions to the transaction, (iii) trading profits from IPO stabilization actions in the aftermarket, (iv) commercial negotiations on a case by case basis, and (v) the strength of the client relationship. We may also charge brokerage fees to investors that subscribe to products that we distribute, which is usually 1% of the investment amount being sourced by us in Hong Kong IPOs and on a negotiated basis in other types of offerings. We may also charge financial advisory fees based on services provided on a negotiated basis.

Our equity and debt product offerings are distributed through our sales and channels team. For further details, see “Our Services—Investment Banking—Sales and Channels.”

Financial Advisory and Execution

We advise on both public and private financing and mergers and acquisitions transactions, covering companies at all stages of developments and value chains. Many of our advisory services involve tailored solutions in which we leverage our experience and the strength of our “AMTD SpiderNet” ecosystem to propose unique and innovative structures. We are able to introduce quality investors through our sales and channels team and potential strategic investors through our “AMTD SpiderNet” ecosystem.

In conjunction with any financial advisory role, we advise on the capital structure and assist in long-term capital planning and liability rearrangement. We believe that providing financial advisory services to growth-stage clients allows us to build relationships with our clients at an early stage and paves the way for us to provide a variety of additional services with higher fee returns through global markets as our relationship with the client deepens and as the client’s business and financing needs evolve.

 

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The following table sets forth a breakdown of our investment banking revenue by fee type for the periods presented.

 

		For the Year Ended December 31,
		2019								2020								2021
		HK$				%				HK$				%				HK$				US$				%
		(in thousands, except for percentages)
Investment Banking Revenue
Underwriting commission and brokerage fee			403,574				88.5				165,473				44.0				29,052				3,725				4.9
Financial advisory fee			52,382				11.5				210,852				56.0				568,046				72,830				95.1
Total			455,956				100.0				376,325				100.0				597,098				76,555				100.0

Sales and Channels

We have an experienced sales and channels team, which supports product distribution activities across our businesses. The sales and channels function focuses on institutional clients and family offices and is an important element of our overall distribution capabilities. Our institutional sales team actively participates in our investment banking transactions by introducing institutional clients and Asian families to the various products that we offer, and provides institutional investors and family offices with value-added corporate access services. In addition, we also provide a comprehensive trading platform for clients to trade various types of products available on the market, such as equity, fixed income, and mutual fund instruments.

Research

Research plays a critical part in defining our professional standpoints and demonstrating our industry insights. Our research team presents original ideas on company-specific valuations and research analyzes, as well as from industry and thematic perspectives. Our analysts hold an independent position on the research landscape, with coverage universe established through cooperation with key client-servicing businesses and utilizing our firm-wide “AMTD SpiderNet.”

Our research team covers a broad range of sectors, such as banking, financial technology, hardware, internet, real estate, and education sectors. Our research team is based in Hong Kong and focuses on research coverage on listed companies in Asia. Our research analysts provide investment insights, suggestions on valuation methodologies, and industry

know-how

to our institutional investor base across the world.

Our independent research capabilities constitute a key building element of our

one-stop

professional services and supports to institutional investors. By obtaining first-hand professional investment advices across various sectors, investors can establish referencing foundations for making investment decisions. Being viewed as a professional advisor, we believe that this encourages institutional investors to trust our investment banking team and potentially participate in offerings that our investment banking team underwrites or advises on.

Asset Management

Through our asset management business, we provide professional investment management and advisory services primarily to regional banks, corporate and other institutional clients, and family offices. We help manage offshore liquidity for many of our China-based clients, allowing them to tap the flexibility and diversity of investment products available only in the offshore markets. Our goal in the asset management business is to produce superior risk-adjusted investment returns and provide investment solutions customized for our clients’ unique needs.

Through our discretionary account services, we manage assets with diverse risk and return profiles, providing clients with comprehensive, customized investment strategies based on our understanding of their

 

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investment needs, risk tolerance, investment goals, and expected return.

Non-discretionary

account services are managed pursuant to clients’ agreed methodology, conditions, requirements, and restrictions.

Where appropriate, we look to deploy our synergies and introduce clients to the broader network and resources within our “AMTD SpiderNet” ecosystem. Based on their specific needs and risk tolerance levels, our clients have exclusive access to products with tailor-made features to meet their financial and investment needs and optimize their asset allocation.

Our AUM decreased by 0.4% from HK$26.2 billion as of December 31, 2019 to HK$26.1 billion as of December 31, 2020 and was maintained at HK$26.1 billion (US$3.4 billion) as of December 31, 2021. As of December 31, 2021, 68.4% of the AUM was invested in fixed income products, 30.0% in equity products, and 1.6% in other products. 94.3% of the AUM was managed on behalf of corporate and other institutional clients, including banks, pension funds, insurance companies, and family offices, and 5.7% of the AUM was managed on behalf of individual client relationships, which are principally with

high-net

worth individuals.

We derive revenues from our asset management business primarily through (i) recurring management fees based on a fixed percentage of our AUM, which is negotiated on a

case-by-case

basis, (ii) performance-based income from assets with discretionary management, which usually is a split of the excess returns above a certain

pre-agreed

threshold, and (iii) trading and other fee income derived through the provision of services to our clients across various businesses.

The following table sets forth a breakdown of our asset management revenue by fee type for the periods presented.

 

		For the Year Ended December 31,
		2019								2020								2021
		HK$				%				HK$				%				HK$				US$				%
		(in thousands, except for percentages)
Asset Management Revenue
Management fee and performance-based incentive fees			103,509				83.4				196,352				85.0				57,230				7,338				68.6
Brokerage, handling, and other fees			20,541				16.6				34,586				15.0				26,150				3,352				31.4
Total			124,050				100.0				230,938				100.0				83,380				10,690				100.0

Strategic Investment

We commenced our strategic investment business in 2015. Our strategic investment business focuses on long-term equity investments using our own capital. We view it as a natural extension of our other businesses, allowing us to deepen our relationship with clients by participating in their value creation and engaging them into the “AMTD SpiderNet.”

Investment Approach

We typically source investment opportunities identified through “AMTD SpiderNet,” and focus on investing in innovative digital platforms, financial technology companies, other new economy companies, and other financial institutions. Our

buy-side

resources allow us to stay close to the market and provide early access to leading players in key industries that benefit from China’s globalization developments and rapid growth in innovation industry.

 

•

Leveraging “AMTD SpiderNet.” We leverage “AMTD SpiderNet” throughout the investment process to source investments, evaluate opportunities, and provide value added solutions to the investees alongside the whole value chain of their businesses after our investment. Our portfolio companies are our strategic partners.

 

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•

Value investment . We focus on long-term value creation from our investment and how the investments can contribute to our stakeholder of the “AMTD SpiderNet,” rather than looking for short-term returns. Therefore, we do not trade our investments frequently in the secondary market for profit. We have not disposed of any portion of the strategic investments in our current portfolio since the acquisition.

 

•

Synergy with portfolio companies . We have an experienced team for post-investment value creation. We have a board seat in most of our portfolio companies and we devote a lot of our resources to work closely with their management to advise on their strategy, capital markets plan, and support them in their execution process.

Investment Process

After a potential target with strategic significance is identified, our investment professionals assess the suitability and prospects of investing in the target considering a wide range of factors, including the track record of the target’s management team, the target’s operating market, macroeconomic conditions, market cycle and industry background, business model, and other quantitative financial analyzes. We also engage professional third parties, such as financial advisors, accountants, and lawyers, to conduct due diligence investigations prior to making an investment, as may be required on a

case-by-case

basis.

Although we make investment decisions on a

case-by-case

basis, we are generally interested in businesses that possess the following attributes:

 

•

management team with strong track record and complementary industry expertise;

 

•

high growth potential with sustainability;

 

•

core competitive advantage in the relevant sector; and

 

•

potential for significant synergies with our existing businesses.

We make strategic investment decisions through our investment committee, which consists of key management team members covering finance, operations, legal and compliance, investments, and examines and assesses investment proposals following consultations with senior management. All investment proposals will be presented to our investment committee following the satisfactory completion of assessment and due diligence investigation. Our investment committee also assesses, reviews, and modifies our investment strategies from time to time based on accumulated deal execution experience and the latest developments in the financial market, economic conditions, and government policies. Our investment committee is different and separate from that of our Controlling Shareholder.

We closely monitor our investee companies in accordance with the guidelines set by investment committee. Specifically, we track the business development, our holding positions, unrealized profit or loss, and our risk exposure of each investee. We will escalate any significant incidents in our investees to the investment committee and, for material incidents, to our board of directors.

Investment Portfolio

As of December 31, 2021, our investment portfolio reached an aggregate fair value of HK$3.8 billion (US$0.5 billion), in which (i) our strategic investment in the Hong Kong- and

Shenzhen-listed

Bank of Qingdao accounted for 28.1%, (ii) derivative assets and our investment in other companies accounted for 42.1%, and (iii) our investment in AMTD Digital Inc. accounted for 29.8%.

Through investment in financial institutions with stable annual dividend distribution, we are able to connect more business partners in this sector, such as members of Regional Banks+ Strategic Cooperation Alliance.

 

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The Regional Banks + Strategic Cooperation Alliance is a financial cooperation and communication platform as well as economic and social organization initiated by AMTD Group, and jointly established by four leading regional banks of China including Bank of Qingdao, Guangzhou Rural Commercial Bank, Jiangxi Bank and Zhongyuan Bank (arranged in alphabetical order). Rooted in China and embracing openness as well as inclusiveness, the Alliance includes major Chinese regional banks (including city commercial banks and rural commercial banks) and other strategically cooperated financial institutions and welcomes other similar global institutions and partners to join hands . The purpose of the Alliance is “Mutual Cooperation, Synergic Team-up, Innovated Developments”. Under the premise of complying with relevant laws and regulations as well as economic and financial policies, the Alliance operates with the principle of “Leading Innovation, Reciprocity, Fairness, Openness, and Independence”, empowers the traditional financial business to be promoted by fintech, develops the new model of fintech, smart finance, inclusive finance and green finance, as well as promotes the international innovation development and corporation models of the Alliance members.

Through the connection, we are able to provide the most efficient and effective professional financial solutions and promoting cooperation among them, which will in return contribute to our growth and create value through synergies.

We also expand our investments in new economy sectors globally for the discovery and incubation of outstanding enterprises with innovative technology, committing to serving as a “super-connector” to connect different capital market participants, innovation companies, and to match their needs in the area of capital and technology.

Intellectual Property

As of the date of this annual report, we own one registered trademark. We are licensed by our Controlling Shareholder to use certain trademarks. We maintain seven registered domain names, including amtdinc.com.

Competition

The financial services industry is intensely competitive, and we expect it to remain so. While we are based in Hong Kong, we compete both globally and on a regional basis. We compete on the basis of a number of factors, including strength of client relationships, reputation, industry expertise, and deal execution skills.

With respect to our investment banking and asset management businesses, our competitors are other investment banking firms and financial advisory firms. Our primary competitors in these businesses are international investment banking firms and other large financial institutions, many of which have greater financial and other resources as well as scale and are capable of offering a wider range of products and services, such as loans, deposit-taking, and a full range of investment banking services. Some of our competitors also have the ability to support investment banking (including financial advisory services) with revenues derived from commercial banking, insurance, and other financial services in an effort to gain market share. In addition, we operate these businesses in a highly competitive environment and the barriers to entry into these businesses are low. Nevertheless, we believe that we have a unique competitive edge and are capable of expanding rapidly by leveraging our “AMTD SpiderNet” network, relationships and comprehensive capabilities.

With respect to our strategic investment business, we believe that we do not compete with other private equity funds, specialized investment funds, hedge fund sponsors, financial institutions and other players. Our investments have been made primarily for strategic reasons rather than for pure financial gain, and the funds for the investments are entirely our own.

We face intense competition for the recruiting and retention of qualified, experienced professionals. Our ability to continue to compete effectively in our businesses will depend upon our ability to attract new employees and retain and motivate our existing employees.

 

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For additional information concerning the competitive risks that we face, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—The financial services industry is intensely competitive. If we are unable to compete effectively, we may lose our market share and our results of operations and financial condition may be materially and adversely affected.”

Regulation

This section summarizes all of the significant laws and regulations that materially affect our business activities in Hong Kong.

Introduction

The Securities and Futures Ordinance (Cap. 571) of Hong Kong, or the HKSFO, including its subsidiary legislation, is the principal legislation regulating the securities and futures industry in Hong Kong, including the regulation of securities and futures markets and leveraged foreign exchange trading, the offering of investments to the public in Hong Kong, and intermediaries and their conduct of regulated activities. In particular, Part V of the HKSFO and the relevant guidelines and codes issued by the HKSFC deal with licensing and registration matter.

The HKSFO is administered by the HKSFC, which is the statutory regulatory body that governs the securities and futures markets and

non-bank

retail leveraged foreign exchange market in Hong Kong.

In addition, the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong including its subsidiary legislation also provides that the HKSFC is responsible for authorizing the registration of prospectuses for offerings of shares and debentures in Hong Kong and/or granting exemptions from strict compliance with the provisions in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong. The HKSFO provides that the HKSFC is also responsible for authorizing certain securities (including the relevant offering documents) that are not shares or debentures.

The Hong Kong securities and futures market (with respect to listed instruments) is also governed by the rules and regulations introduced and administered by the SEHK and the Hong Kong Futures Exchange Limited, or HKFE.

The HKSFC

The HKSFC is an independent statutory body which administers the HKSFO and is responsible for regulating the securities and the futures industry in Hong Kong. The HKSFC works to strengthen and protect the integrity and soundness of Hong Kong’s securities and futures markets for the benefit of investors and the industry.

As set out in the HKSFO, HKSFC’s regulatory objectives are:

 

•

to maintain and promote the fairness, efficiency, competitiveness, transparency, and orderliness of the securities and futures industry;

 

•

to promote understanding by the public of financial services including the operation and functioning of the securities and futures industry;

 

•

to provide protection for members of the public investing in or holding financial products;

 

•

to minimize crime and misconduct in the securities and futures industry;

 

•

to reduce systemic risks in the securities and futures industry; and

 

•

to assist the Financial Secretary of Hong Kong in maintaining the financial stability of Hong Kong by taking appropriate actions in relation to the securities and futures industry.

 

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The HKSFC has five operational divisions, which are corporate finance, enforcement, intermediaries (including licensing and intermediaries supervision), investment products, and supervision of markets. The HKSFC is also supported by the corporate affairs and legal services divisions.

Below are some of the participants in the securities and futures market that HKSFC regulates in achieving the regulatory objectives under the HKSFO:

 

•

Brokers, investment advisers, fund managers, and intermediaries carrying out the regulated activities as listed in “—Licensing Regime Under the HKSFO—Types of Regulated Activities” below,

 

•

Listed companies,

 

•

Hong Kong Exchanges and Clearing Limited, and

 

•

Market participants (including investors).

Licensing Regime Under the HKSFO

The functions of the HKSFC, as a gatekeeper of standards for individuals and corporations seeking approval to enter into the securities and futures markets of Hong Kong, include the following:

 

•

grant licenses to those who are appropriately qualified and can demonstrate their fitness and properness to be licensed under the HKSFO;

 

•

maintain online a public register of licensed persons and registered corporations;

 

•

monitor the ongoing compliance of licensing requirements by licensees, substantial shareholders of licensed corporations, and directors of licensed corporations; and

 

•

initiate policies on licensing issues.

The HKSFC operates a system of authorizing corporations and individuals (through licenses) to act as financial intermediaries. Under the HKSFO, a corporation that is not an authorized financial institution (as defined in section 2(1) of the Banking Ordinance (Cap. 155) of Hong Kong) and is:

 

•

carrying on a business in a regulated activity (or holding out as carrying on a regulated activity), or

 

•

actively marketing, whether in Hong Kong or from a place outside Hong Kong, to the public such services it provides, would constitute a regulatory activity if provided in Hong Kong,

must be licensed by the HKSFC to carry out that regulatory activity, unless one of the exemptions under the HKSFO applies.

In addition to the licensing requirements on corporations, any individual who: (i) performs any regulated function in relation to a regulated activity carried on as a business, or (ii) holds himself out as performing such regulated activity, must be licensed separately under the HKSFO as a Licensed Representative accredited to his principal.

Types of Regulated Activities

The HKSFO provides a licensing regime under which a person needs a license to carry on different types of regulated activities as specified in Schedule 5 of the HKSFO. The different types of regulated activities are set out as follows:

Type 1: dealing in securities;

Type 2: dealing in futures contracts;

 

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Type 3: leveraged foreign exchange trading;

Type 4: advising on securities;

Type 5: advising on futures contracts;

Type 6: advising on corporate finance;

Type 7: providing automated trading services;

Type 8: securities margin financing;

Type 9: asset management;

Type 10: providing credit rating services;

Type 11: Dealing in OTC derivative products or advising on OTC derivative products; and

Type 12: Providing client clearing services for OTC derivative transactions.

The amendments to the HKSFO in relation to Type 11 regulated activity is, as of the date of this annual report, not yet in operation. The day on which the Type 11 regulated activity will come into operation will be appointed by the Hong Kong Secretary for Financial Services and the Treasury by notice published in the Gazette.

The Type 12 regulated activity came into operation on September 1, 2016 pursuant to the Securities and Futures (Amendment) Ordinance 2014 (Commencement) Notice 2016 (L.N. 27 of 2016), in so far as it relates to paragraph (c) of the new definition of “excluded services” in Part 2 of Schedule 5 to the HKSFO. The licensing requirement with respect to Type 12 regulated activity is, as of the date of this annual report, not yet in operation and the effective date will be appointed by the Hong Kong Secretary for Financial Services and the Treasury by notice published in the Gazette.

As of the date of this annual report, our following subsidiaries were licensed under the HKSFO to conduct the following regulated activities:

 

Company		Type of Regulated Activities
AMTD Global Markets Limited (1)		Type 1, Type 2, Type 4, Type 6, and Type 9
Asia Alternative Asset Partners Limited (2)		Type 1, Type 4, and Type 9

 

Notes:

 

(1)	The following conditions are currently imposed on the HKSFC license of AMTD Global Markets Limited:

 

•

For Type 6 regulated activity, the licensee shall not act as sponsor in respect of an application for the listing on a recognized stock market of any securities.

 

•

For Type 6 regulated activity, the licensee shall not advise on matters/transactions falling within the ambit of the Codes on Takeovers and Mergers and Share Buy-backs issued by the HKSFC.

 

(2)	The following conditions are currently imposed on the HKSFC license of Asia Alternative Asset Partners Limited:

 

•

The licensee shall only provide services to professional investors. The term “professional investor” is as defined in the HKSFO and its subsidiary legislation.

 

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•

The licensee shall not hold client assets. The terms “hold” and “client assets” are as defined under the HKSFO.

 

•

For Type 1 regulated activity, the licensee shall only carry on the business of dealing in collective investment schemes. The terms “collective investment scheme” and “dealing” are as defined under the HKSFO.

Licensed Corporation

For application as a licensed corporation, the applicant has to be incorporated in Hong Kong or an overseas company registered with the Companies Registry of Hong Kong. The licensed corporation has to satisfy the HKSFC that it has proper business structure, good internal control systems and qualified personnel to ensure the proper management of risks that it will encounter in carrying on the proposed regulated activities as detailed in its business plan submitted to the HKSFC. Detailed guidelines to meet the requirements and expectations of the HKSFC are contained in the following publications of the HKSFC:

 

•

“Guidelines on Competence”;

 

•

“the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission,” or the Code of Conduct;

 

•

“the Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the HKSFC”;

 

•

“Corporate Finance Adviser Code of Conduct”; and

 

•

“Fund Manager Code of Conduct.”

Responsible Officers

For each regulated activity conducted by a licensed corporation, it must appoint no less than two responsible officers, at least one of them must be an executive director, to directly supervise the business of such regulated activity. A responsible officer is an individual approved by the HKSFC to supervise the regulated activity or activities of the licensed corporation to which he or she is accredited. For each regulated activity of a licensed corporation, it should have at least one responsible officer available at all times to supervise the business.

Qualification and Experience Required for Being a Responsible Officer

A person who intends to apply to be a responsible officer must demonstrate that he or she fulfills the requirements on both competence and sufficient authority. An applicant should possess appropriate ability, skills, knowledge, and experience to properly manage and supervise the corporation’s regulated activity or activities. Accordingly, the applicant has to fulfill certain requirements on academic and industry qualifications, relevant industry experience, management experience, and local regulatory framework paper as stipulated by the HKSFC.

Managers-in-Charge

of Core Functions, or MICs

A licensed corporation is required to designate certain individuals as MICs and provide to the HKSFC information about its MICs and their reporting lines. MICs are individuals appointed by a licensed corporation to be principally responsible, either alone or with others, for managing each of the following eight core functions of the licensed corporation:

 

(a)

overall management oversight;

 

(b)

key business lines;

 

(c)

operational control and review;

 

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(d)

risk management;

 

(e)

finance and accounting;

 

(f)

information technology;

 

(g)

compliance; and

 

(h)

anti-money laundering and counter-terrorist financing.

The management structure of a licensed corporation (including its appointment of MICs) should be approved by the board of the licensed corporation. The board should ensure that each of the licensed corporation’s MICs has acknowledged his or her appointment as MIC and the particular core function(s) for which he or she is principally responsible.

Fit and Proper Requirement

Persons who apply for licenses under the HKSFO must satisfy and continue to satisfy after the grant of such licenses by the HKSFC that they are fit and proper persons to be so licensed. Generally, a fit and proper person means one who is financially sound, competent, honest, reputable, and reliable.

Section 129(1) of the HKSFO sets out a number of matters that the HKSFC shall have regard to in assessing the fitness and properness of a person, an individual, corporation, or institution, which includes:

 

•

financial status or solvency;

 

•

educational or other qualifications or experience having regard to the nature of the functions to be performed;

 

•

ability to carry on the regulated activity concerned competently, honestly, and fairly; and

 

•

reputation, character, reliability, and financial integrity of the applicant and other relevant persons as appropriate.

The above fit and proper criteria serve as the fundamental basis when the HKSFC considers each license or registration application. Detailed guidelines are contained in “the Fit and Proper Guidelines,” “the Licensing Information Booklet,” and “the Guidelines on Competence” published by the HKSFC.

The Fit and Proper Guidelines apply to a number of persons including the following:

 

•

an individual who applies for license or is licensed under Part V of the HKSFO;

 

•

a licensed representative who applies for approval or is approved as a responsible officer under Part V of the HKSFO;

 

•

a corporation which applies for license or is licensed under Part V of the HKSFO;

 

•

an authorized financial institution which applies for registration or is registered under Part V of the HKSFO;

 

•

an individual whose name is to be or is entered in the register maintained by the Hong Kong Monetary Authority under section 20 of the Banking Ordinance (Cap. 155) of Hong Kong; and

 

•

an individual who applies to be or has been given consent to act as an executive director of a registered institution under section 71C of the Banking Ordinance (Cap. 155 of Hong Kong).

Section 129(2) of the HKSFO empowers the HKSFC to take into consideration any of the following in considering whether a person is fit and proper:

 

•

decisions made by such relevant authorities as stated in section 129(2)(a) of the HKSFO or any other authority or regulatory organization, whether in Hong Kong or elsewhere, in respect of that person;

 

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•

in the case of a corporation, any information relating to:

 

○

any other corporation within the group of companies; or

 

○

any substantial shareholder or officer of the corporation or of any of its group companies;

 

•

in the case of a corporation licensed under section 116 or 117 of the HKSFO or registered under section 119 of the HKSFO or an application for such license or registration:

 

○

any information relating to any other person who will be acting for or on its behalf in relation to the regulated activity; and

 

○

whether the person has established effective internal control procedures and risk management systems to ensure its compliance with all applicable regulatory requirements under any of the relevant provisions;

 

•

in the case of a corporation licensed under section 116 or section 117 of the HKSFO or an application for the license, any information relating to any person who is or to be employed by, or associated with, the person for the purposes of the regulated activity; and

 

•

the state of affairs of any other business which the person carries on or proposes to carry on.

The HKSFC is obliged to refuse an application to be licensed if the applicant fails to satisfy the HKSFC that the applicant is a fit and proper person to be licensed. The onus is on the applicant to make out a case that the applicant is fit and proper to be licensed for the regulated activity.

Continuing Obligations of Licensed Corporations

Licensed corporations, licensed representatives, and responsible officers must remain fit and proper as defined under the HKSFO at all times. They are required to comply with all applicable provisions of the HKSFO and its subsidiary rules and regulations as well as the codes and guidelines issued by the HKSFC.

Outlined below are some of the key continuing obligations of the licensed corporations within the Group under the HKSFO:

 

•

maintenance of minimum paid-up share capital and liquid capital, and submission of financial returns to the HKSFC in accordance with the requirements under the Securities and Futures (Financial Resources) Rules (as discussed in more detail below);

 

•

maintenance of segregated account(s), and custody and handling of client securities in accordance with the requirements under the Securities and Futures (Client Securities) Rules (Chapter 571H of the Laws of Hong Kong);

 

•

maintenance of segregated account(s), and holding and payment of client money in accordance with the requirements under the Securities and Futures (Client Money) Rules (Chapter 571I of the Laws of Hong Kong);

 

•

maintenance of proper records in accordance with the requirements prescribed under the Securities and Futures (Keeping of Records) Rules (Chapter 5710 of the Laws of Hong Kong);

 

•

maintenance of insurance against specific risks for specified amounts in accordance with the requirements under the Securities and Futures (Insurance) Rules (Chapter 571A1 of the Laws of Hong Kong); and

 

•

payment of annual fees and submission of annual returns to the HKSFC within one month after each anniversary date of the license; and implementation of appropriate policies and procedures relating to client acceptance, client due diligence, record keeping, identification, and reporting of suspicious transactions and staff screening, education, and training in accordance with the requirements under the Guideline on Anti-Money Laundering and Counter-Terrorist Financing issued by the HKSFC.

 

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Obligation for substantial shareholders

A person shall, in relation to a corporation, be regarded as a substantial shareholder of the corporation if he, either alone or with any of his associates—

 

(a)

has an interest in shares in the corporation—

 

(i)

the aggregate number of which shares is equal to more than 10% of the total number of issued shares of the corporation; or

 

(ii)

which entitles the person, either alone or with any of his associates and either directly or indirectly, to exercise or control the exercise of more than 10% of the voting power at general meetings of the corporation; or

 

(b)

holds shares in any other corporation which entitles him, either alone or with any of his associates and either directly or indirectly, to exercise or control the exercise of 35% or more of the voting power at general meetings of the other corporation, or of a further corporation, which is itself entitled, either alone or with any of its associates and either directly or indirectly, to exercise or control the exercise of more than 10% of the voting power at general meetings of the corporation.

A person shall be regarded as being entitled to exercise or control the exercise of 35% or more of the voting power at general meetings of a corporation indirectly if he, either alone or with any of his associates, has an interest in shares in a further corporation which entitles him, either alone or with any of his associates, to exercise or control the exercise of 35% or more of the voting power at general meetings of the further corporation which is itself entitled, either alone or with any of its associates, to exercise or control the exercise of 35% or more of the voting power at general meetings of the first-mentioned corporation.

Under section 132 of the HKSFO, a person (including a corporation) has to apply for HKSFC’s approval prior to becoming or continuing to be, as the case may be, a substantial shareholder of a corporation licensed under section 116 of the HKSFO. A person who has become aware that he has become a substantial shareholder of a licensed corporation without HKSFC’s prior approval should, as soon as reasonably practicable and in any event within three business days after he becomes so aware, apply to the HKSFC for approval to continue to be a substantial shareholder of the licensed corporation.

An application to the HKSFC regarding the change of substantial shareholders of AMTD Global Markets Limited and Asia Alternative Asset Partners Limited was made in February 2019 and was approved by the HKSFC in April 2019.

Supervision by the HKSFC

HKSFC supervises licensed corporations and intermediaries operating in the market. HKSFC conducts

on-site

inspections and

off-site

monitoring to ascertain and supervise intermediaries’ business conduct and compliance with relevant regulatory requirements and to assess and monitor the financial soundness of intermediaries.

Disciplinary Power of the HKSFC

Under Part IX of the HKSFO and subject to the due process for exercising disciplinary powers laid down in section 198 of the HKSFO, the HKSFC may exercise any of the following disciplinary actions against a regulated person (including a licensed person or a registered institution) if that person is found to be guilty of misconduct or the HKSFC is of the opinion that a regulated person is not fit and proper to be or remain the same type of regulated person (sections 194 and 196 of the HKSFO):

 

•

revocation or suspension of a license or a registration;

 

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•

revocation or suspension of part of a license or registration in relation to any of the regulated activities for which a regulated person is licensed or registered;

 

•

revocation or suspension of the approval granted to a responsible officer;

 

•

public or private reprimand on a regulated person;

 

•

prohibition of a regulated person from applying to be licensed or registered or to be approved as a responsible officer;

 

•

prohibition of a regulated person from applying to be given consent to act or continue to act as an executive officer of a registered institution;

 

•

prohibition of a regulated person from re-entry to be licensed or registered; and

 

•

pecuniary penalty of not exceeding the amount of HK$10 million or three times the amount of the profit gained or loss avoided as a result of the misconduct.

Exchange And Clearing Participantship

As of the date of this annual report, AMTD Global Markets Limited is a participant of the following:

 

Exchange / Clearing House		Type of Participantship
The Stock Exchange of Hong Kong Limited		Participant
Hong Kong Securities Clearing Company Limited, or HKSCC		Direct Clearing Participant

Trading Rights

In addition to the licensing requirements under the HKSFO, the rules promulgated by the SEHK and the HKFE require any person who wishes to trade on or through their respective facilities to hold a trading right, or Trading Right. The Trading Right confers on its holder the eligibility to trade on or through the relevant exchange. However, the holding of a Trading Right does not, of itself, permit the holder to actually trade on or through the relevant exchange. In order to do this, it is also necessary for the person to be registered as a participant of the relevant exchange in accordance with its rules.

Stock Exchange Trading Rights and Futures Exchange Trading Rights are issued by the SEHK and HKFE at a fee and in accordance with the procedures set out in their respective rules. Alternatively, Stock Exchange Trading Rights and Futures Exchange Trading Rights can be acquired from existing Trading Right holders subject to the rules of the respective exchanges.

Exchange Participantship

The table below sets out a summary of the requirements for becoming an exchange participant of the relevant exchange:

 

		Hong Kong Stock Exchange Participant / Stock Options / Exchange Participant		Future Exchange Participant
Legal Status		Being a company limited by shares incorporated in Hong Kong
HKSFC Registration		Being a licensed corporation qualified to carry out Type 1 regulated activity under the HKSFO		Being a licensed corporation qualified to carry out Type 2 regulated activity under the HKSFO
Trading Right		Holding a Stock Exchange Trading Right		Holding a Futures Exchange Trading Right
Financial Standing		Having good financial standing and integrity
Financial Resources Requirement		Complying with the minimum capital requirement, liquid capital requirement and other financial resources requirements as specified by the FRR

 

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Clearing Participantship

An entity must be an exchange participant of the relevant exchange before it can become a clearing participant of the following clearing houses, namely the HKSCC, HKFE Clearing Corporation Limited, and The SEHK Options Clearing House Limited.

HKSCC

HKSCC has, among others, two categories of participantship: (i) the Direct Clearing Participant; and (ii) the General Clearing Participant. The requirements of Direct Clearing Participantship are as follows:

 

•

to be an Exchange Participant of the SEHK;

 

•

to undertake to (i) sign a participant agreement with HKSCC; (ii) pay to HKSCC an admission fee of HK$50,000 in respect of each Stock Exchange Trading Right held by it; and (iii) pay to HKSCC its contribution to the Guarantee Fund of HKSCC as determined by HKSCC from time to time subject to a minimum cash contribution of the higher of HK$50,000 or HK$50,000 in respect of each Stock Exchange Trading Right held by it;

 

•

to open and maintain a single current account with one of the Central Clearing and Settlement System, or CCASS, designated banks and execute authorizations to enable the designated bank to accept electronic instructions from HKSCC to credit or debit the account for CCASS money settlement, including making payment to HKSCC;

 

•

to provide a form of insurance to HKSCC as security for liabilities arising from defective securities deposited by it into CCASS, if so required by HKSCC; and

 

•

to have a minimum liquid capital of HK$3,000,000.

Mandatory Provident Fund Scheme

Introduction

The Mandatory Provident Fund Schemes Ordinance (Cap. 485) of Hong Kong, or MPFSO, including its subsidiary legislation, is the principal legislation to provide the framework for the establishment of a system of privately managed, employment-related mandatory provident fund, or MPF, schemes to accrue MPF benefits for members of the workforce of Hong Kong when they retire.

The MPFA

The Mandatory Provident Fund Schemes Authority, or the MPFA, is a statutory body established on September 17, 1998 under section 6 of MPFSO and its role is to regulate and supervise the operations of MPF schemes and occupational retirement schemes.

MPFA works with other financial regulators in Hong Kong in overseeing MPF products and MPF intermediaries to ensure efficient and effective operation of the MPF System. It is the authority to register MPF intermediaries, to issue guidelines on compliance with statutory requirements applicable to registered MPF intermediaries, and to impose disciplinary sanctions. Hong Kong Monetary Authority, Insurance Authority, and HKSFC are given the statutory role of frontline regulators responsible for the supervision and investigation of registered MPF intermediaries.

Licensing Regime Under the MPFSO

The MPFSO stipulates that no person shall, in the course of carrying on a business or his employment, engage in any regulated MPF sales and marketing activities, or hold himself out as doing so, unless the person is registered with MPFA (and the registration is not suspended) or is exempted from registration.

 

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There are two types of MPF intermediaries, namely, principal intermediary, or PI, and subsidiary intermediary, or SI, both of which must register with MPFA.

MPF Intermediaries and Regulated Activities

MPF Intermediaries

The MPFA may register any of the following business entities (i.e., Type A regulatees) as a PI for carrying on regulated activities:

 

(a)

an authorized financial institution registered under the HKSFO for Type 1 or Type 4 regulated activity, or both;

 

(b)

a corporation licensed under the HKSFO to carry on Type 1 or Type 4 regulated activity, or both;

 

(c)

an insurer authorized under the Insurance Ordinance (Cap. 41) of Hong Kong, or IO, to carry on long term insurance business; and

 

(d)

an authorized long term insurance broker under the IO.

The MPFA may register any of the following persons (i.e., Type B regulatees) as a SI attached to a PI for carrying on regulated activity on behalf of a PI, provided the individual fulfills relevant requirements (including but not limited to examination and training requirements):

 

(a)

an individual licensed under the HKSFO to carry on Type 1 or Type 4 regulated activity, or both;

 

(b)

an individual registered under the Banking Ordinance (Chapter 155, Laws of Hong Kong) to carry on Type 1 or Type 4 regulated activity, or both;

 

(c)

a licensed individual insurance agent, as defined under the IO, who is eligible to engage in long term business;

 

(d)

a licensed insurance agency, as defined under the IO, or Licensed Insurance Agency, who is eligible to engage in long term business;

 

(e)

a licensed technical representative (agent), as defined under the IO who is appointed as an agent by a Licensed Insurance Agency; and

 

(f)

a technical representative (broker), as defined under the IO, who is appointed as an agent by a licensed insurance broker company as defined under the IO.

Regulated Activities

A person is required to be registered with MPFA as an MPF intermediary before he can engage in MPF sales and marketing activities that may influence a prospective or existing participant of an MPF scheme in making a decision that affects the latter’s benefits in an MPF scheme.

Registration is required for a person who engages in any of the following sales and marketing activities, or regulated activities, in the course of his employment, conducting business or for reward:

 

(a)

inviting or inducing, or attempting to invite or induce, another person to make a specified MPF decision; or

 

(b)

giving advice to another person concerning a specified MPF decision.

Approval Criteria for a Responsible Officer

To be approved as a responsible officer, an SI must meet the following requirements:

 

•

he or she must be attached to a PI and have sufficient authority within the PI, and will be provided with sufficient, resources, and support for carrying out specified responsibilities in relation to the PI;

 

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•

the approval of the SI as a responsible officer has not been revoked by MPFA under section 34ZW(4)(a)(i) of the MPFSO within one year immediately before the date of the application; and

 

•

he or she is not disqualified by MPFA under section 34ZW(4)(a)(ii) of the MPFSO from being approved as a responsible officer with specified responsibilities in relation to a PI.

As of the date of this annual report, AMTD Global Markets Limited was licensed under the MPFSO as PI.

Anti-Money Laundering And Counter-Terrorist Financing

Licensed corporations are required to comply with the applicable anti-money laundering and counter-terrorist financing laws and regulations in Hong Kong (including Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615) of Hong Kong as well as the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations), or Anti-Money Laundering Guideline).

The Anti-Money Laundering Guideline provides practical guidance to assist licensed corporations and their senior management in designing and implementing their own anti-money laundering and counter-terrorist financing policies, procedures and controls in order to meet the relevant legal and regulatory requirements in Hong Kong. Under the Anti-Money Laundering Guideline, licensed corporations should, among other things:

 

•

take all reasonable measures to ensure that proper safeguards exist to mitigate the risks of money laundering and terrorism financing, or ML/TF, and to prevent a contravention of any requirement;

 

•

establish and implement adequate and appropriate anti-money laundering and counter-financing of terrorism systems;

 

•

consider the characteristics of the products and wits that it offers end the extent to which these are vulnerable to ML/TF abuse;

 

•

consider its delivery/distribution chattels end the testing to which these are vulnerable to ML/TF abuse;

 

•

when assessing the customer risk, consider who their customers are, when they do and any other information that may suggest the customer is of higher risk;

 

•

be vigilant where the customer is of such a legal form that enables individuals to divest themselves of ownership of property whilst retaining an element of control over it or the business/industrial sector to which a customer has business connections is more vulnerable to corruption;

 

•

consider risks inherent in the nature of the activity of the customer sold the possibility that the transaction may itself be a criminal transaction; and

 

•

pay particular attention to countries or geographical locations of operation with which its customers and intermediaries are connected where they are subject to high levels of organized crime, increased vulnerabilities to corruption and inadequate systems to prevent and detect ML/TF.

 

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C.	Organizational Structure

Corporate Structure

The following diagram illustrates our corporate structure, including our subsidiaries as of the date of this annual report.

 

 

 

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Our Relationship with the Controlling Shareholder

As of the date of this annual report, our company is 50.6%-owned by our Controlling Shareholder, representing 88.2% of the total voting power in our company. Historically, our Controlling Shareholder has provided us with business premises, financial, accounting, administrative, legal, and human resources services, as well as the services of a number of its executive officers and other employees, the costs of which were allocated to us based on actual usage or proportion of revenues and infrastructure usage attributable to our business, among other things. We have begun to invest in our own financial, accounting, and legal functions separate from those of our Controlling Shareholder, and we will further establish other support systems of our own or contract with third parties to provide them to us after we become a stand-alone public company.

Treasury functions are conducted centrally under our Controlling Shareholder and intra-group treasury fund transfers were carried out among the entities within AMTD Group. The treasury function manages available funds at our Controlling Shareholder level and allocates the funds to various entities within AMTD Group for their operations. We may also leverage our Controlling Shareholder to settle receivables or payables arising from acquisitions or disposals of investments. As of December 31, 2021, the amount due from entities within AMTD Group in connection with intra-group treasury fund allocation was HK$2.1 billion (US$275.0 million).

We entered into agreements with our Controlling Shareholder with respect to our ongoing relationship in June 2019. These agreements include a master transaction agreement, a transitional services agreement, and a

non-competition

agreement. The following are summaries of these agreements.

Master Transaction Agreement

Pursuant to the master transaction agreement, we are responsible for all financial liabilities associated with the current and historical investment banking, asset management, and strategic investment businesses and operations that have been conducted by or transferred to us, and our Controlling Shareholder is responsible for financial liabilities associated with all of our Controlling Shareholder’s other current and historical businesses and operations, in each case regardless of the time those liabilities arise. The master transaction agreement also contains indemnification provisions under which we and our Controlling Shareholder agree to indemnify each other with respect to breaches of the master transaction agreement or any related inter-company agreement.

In addition, we agree to indemnify our Controlling Shareholder, its subsidiaries and each of their directors, officers and employees against liabilities arising from misstatements or omissions in our prospectus dated August 2, 2019 or the registration statement of which it is a part, except for misstatements or omissions relating to information that our Controlling Shareholder or any of its subsidiaries provided to us specifically for inclusion in our prospectus dated August 2, 2019 or the registration statement of which it forms a part. Our Controlling Shareholder will indemnify us including each of our subsidiaries, director, officers and employees against liabilities arising from misstatements or omissions with respect to information that our Controlling Shareholder or any of its subsidiaries provided to us specifically for inclusion in our prospectus dated August 2, 2019, the registration statement of which our prospectus dated August 2, 2019 forms a part of our annual reports or other SEC filings.

The master transaction agreement also contains a general release, under which the parties will release each other, including each party’s subsidiaries, directors, officers and employees from any liabilities arising from events occurring on or before the initial filing date of the registration statement for our initial public offering, including in connection with the activities to implement our initial public offering. The general release does not apply to liabilities allocated between the parties under the master transaction agreement, the transitional services agreement, and the

non-competition

agreement.

The master transaction agreement sets forth the investment opportunity referral procedures, pursuant to which our Controlling Shareholder agrees to first present investment opportunities to us for consideration within

 

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a specified period and to refrain from pursuing these investment opportunities. Our Controlling Shareholder agrees to pursue these investment opportunities for itself only after we forego pursuing these investment opportunities or upon expiration of the specified period should we fail to respond, with the exception of subsequent investments by our Controlling Shareholder in its existing investee companies. When determining whether or not to pursue an investment opportunity, members of our investment committee that have overlapping duties as directors or officers in our Controlling Shareholder will abstain from participating in the investment decision-making and approval process.

Furthermore, under the master transaction agreement, we agree to use our reasonable best efforts to select the same independent registered public accounting firm, or auditor, used by our Controlling Shareholder and provide to our Controlling Shareholder as much prior notice as reasonably practical of any change in our auditor until the first fiscal year end occurring after our Controlling Shareholder no longer owns in aggregate at least 20% of the voting power of our then outstanding shares.

Pursuant to the master transaction agreement, we are licensed by our Controlling Shareholder to use certain of its intellectual properties for free.

The master transaction agreement will automatically terminate on the date that is two years after the first date upon which our Controlling Shareholder ceases to own in aggregate at least 20% of the voting power of our then outstanding shares. This agreement can be terminated earlier or extended by mutual written consent of the parties. The termination of this agreement will not affect the validity and effectiveness of the transitional services agreement and the

non-competition

agreement.

Transitional Services Agreement

Under the transitional services agreement, our Controlling Shareholder agrees that, during the service period, as described below, our Controlling Shareholder will provide us with various corporate support services, including but not limited to:

 

•

administrative support;

 

•

marketing and branding support;

 

•

technology support; and

 

•

provision of office space and facilities.

Our Controlling Shareholder may also provide us with additional services that we and our Controlling Shareholder may identify from time to time in the future.

The price to be paid for the services provided under the transitional service agreement is determined according to the terms of the agreement. The transitional service agreement provides that the performance of a service according to the agreement will not subject the provider of such service to any liability whatsoever except as directly caused by the gross negligence or willful misconduct of the service provider. Liability for gross negligence or willful misconduct is limited to the lower of the price paid for the particular service or the cost of the service’s recipient performing the service itself or hiring a third party to perform the service. Under the transitional services agreement, the service provider of each service is indemnified by the recipient against all third-party claims relating to provision of services or the recipient’s material breach of a third-party agreement, except where the claim is directly caused by the service provider’s gross negligence or willful misconduct.

The service period under the transitional services agreement commenced on June 20, 2019 for a period of 18 months, and had been renewed for an additional 18 months subsequently on December 20, 2020.

 

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Non-competition

Agreement

Our

non-competition

agreement with our Controlling Shareholder provides for a

non-competition

period beginning upon our initial public offering and ending on the later of (i) two years after the first date when our Controlling Shareholder ceases to own in aggregate at least 20% of the voting power of our then outstanding shares and (ii) the fifth anniversary of our initial public offering. This agreement can be terminated earlier by mutual written consent of the parties.

Our Controlling Shareholder has agreed not to compete with us during the

non-competition

period in our investment banking and asset management businesses that are both primarily targeting institutional and corporate clients, except for owning

non-controlling

equity interest in any company competing with us. We have agreed not to compete with our Controlling Shareholder during the

non-competition

period in the businesses currently conducted by our Controlling Shareholder, except (i) for continuing to provide investment banking and asset management products and services to our existing individual clients, and (ii) for owning

non-controlling

equity interest in any company competing with our Controlling Shareholder.

The

non-competition

agreement also provides for a mutual

non-solicitation

obligation that neither our Controlling Shareholder nor we may, during the

non-competition

period, hire, or solicit for hire, any active employees of, or individuals providing consulting services to the other party, or any former employees of, or individuals providing consulting services to the other party within six months of the termination of their employment or consulting services, without the other party’s consent, except for solicitation activities through generalized

non-targeted

advertisement not directed to such employees or individuals that do not result in a hiring within the

non-competition

period.

 

D.	Property, Plants and Equipment

Our principal executive offices are located on leased premises comprising approximately 18,260 square feet in Hong Kong as of December 31, 2021. Our principal executive offices are leased by our Controlling Shareholder from independent third parties. Our Controlling Shareholder shared with us part of its office space and certain office infrastructure, who plans to renew the lease from time to time as needed.

We intend to add new premises or expand our existing premises as we add employees and expand our organization. We believe that suitable additional or alternative space will be available in the future on commercially reasonable terms to accommodate our foreseeable future expansion.

 

ITEM 4A.

UNRESOLVED STAFF COMMENTS

We received a comment letter from the staff of the SEC’s Division of Corporation Finance on September 23, 2021, November 18, 2021, January 13, 2022, and April 12, 2022, with respect to our annual report on Form 20-F for the fiscal year ended December 31, 2020 filed with the Commission on April 28, 2021, requesting us to provide certain disclosures relating to, among others, our results of operations, our corporate structure, risks associated with our corporate structure and with having operations in China, risk associated with the delisting of our securities under the Holding Foreign Companies Accountable Act and the Accelerating Holding Foreign Companies Accountable Act permission that we are required to obtain from PRC authorities to operate and issue securities to foreign investors, cash and asset transfer within our organization and dividends and distributions made by us, and regulatory development in China.

We filed responses on October 19, 2021, November 24, 2021, January 14, 2022 and April 14, 2022 and we are awaiting the SEC’s response. As of the date of this annual report, we have not received confirmation from the staff of the Division of Corporation Finance of the SEC that its review process relating to our annual report on Form 20-F for the fiscal year ended December 31, 2020 filed with the Commission on April 28, 2021 has been completed. If we receive additional comments from the staff, we intend to resolve such additional comments promptly.

 

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ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form

20-F.

This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual report.

 

A.	Operating Results

In 2019, 2020, and 2021, we derived total revenue of HK$1.2 billion, HK$1.1 billion and HK$1.4 billion (US$179.2 million), respectively, and derived total comprehensive income of HK$830.9 million, HK$1.1 billion and HK$1.2 billion (US$156.7 million), respectively.

Our business and results of operations are affected by a number of general factors affecting the financial services industry in Hong Kong, including the overall economic environment in Greater China, the conditions and trends of capital markets, and government policies and initiatives affecting the financial services industry in Greater China. Unfavorable changes in any of these general conditions could adversely affect demand for our services and materially and adversely affect our results of operations. However, the Hong Kong and PRC governments’ development plans and policies, including those relating to the development of the Greater Bay Area, are expected to boost the future development of the financial services industry in Hong Kong.

Major Factors Affecting Our Results of Operations

Revenue

Our revenue consists of (i) fee and commission income, (ii) dividend and gain related to disposed investment, and (iii) net fair value changes on financial assets at fair value through profit or loss, or FVTPL, and derivatives. The following table sets forth a breakdown of our revenue in absolute amount and as a percentage of total revenue for the periods presented.

 

		For the Year Ended December 31,
		2019								2020								2021
		HK$				%				HK$				%				HK$				US$				%
		(in thousands, except for percentages)
Revenue
Fee and commission income			580,006				48.2				607,263				54.3				680,478				87,245				48.7
Dividend and gain related to disposed investments			100,552				8.3				171,027				15.3				173,823				22,286				12.4
Net fair value changes on financial assets at FVTPL, stock loan and derivatives			523,616				43.5				340,250				30.4				543,543				69,689				38.9
Total			1,204,174				100.0				1,118,540				100.0				1,397,844				179,220				100.0

 

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Fee and commission income

The following table sets forth a breakdown of our fee and commission income in absolute amount and as a percentage of total fee and commission income for the periods presented.

 

		For the Year Ended December 31,
		2019								2020								2021
		HK$				%				HK$				%				HK$				US$				%
		(in thousands, except for percentages)
Fee and Commission Income
Investment banking fees and commissions			455,956				78.6				376,325				62.0				597,098				76,555				87.7
Asset management fees and other income			124,050				21.4				230,938				38.0				83,380				10,690				12.3
Total			580,006				100.0				607,263				100.0				680,478				87,245				100.0

We derive fee and commission income from two business lines: investment banking and asset management. Investment banking business represents the primary source of our fee and commission income, which we earn primarily from (i) underwriting IPOs and bond offerings, (ii) advising on private financing, (iii) mergers and acquisitions transactions, and (iv) financial advisory services in relation to equity or bond disposals. We also derive asset management fees and other income from asset management business.

We charge asset management fees on a

client-by-client

basis with reference to the size of AUM. The following table sets forth the rollforward of our AUM for the periods presented.

 

		For the Year Ended December 31,
		2019				2020				2021
		HK$				HK$				HK$				US$
		(in thousands)
AUM
Balance at the beginning of the period			18,263,267				26,199,526				26,097,459				3,346,000
Net change in clients’ portfolio (1)			7,936,259				(102,067	)			(1,849	)			(237	)
Balance at the end of the period			26,199,526				26,097,459				26,095,610				3,345,763

 

Note:

 

(1)	Net change in clients’ portfolio represents net deposit of clients’ cash and stock and net balance of dividend and coupon received, fee charges, and fair value change of clients’ portfolio.

The following table sets forth the weighted average asset management fee rates for the periods presented.

 

		For the Year Ended December 31,
		2019				2020				2021
Weighted Average Asset Management Fee Rate (1)			0.55	%			0.88	%			0.32	%

 

Note:

 

(1)	Calculated by dividing total asset management fee income for the period by average AUM for the corresponding period, which is in turn calculated by dividing the sum of AUM at the beginning and end of the relevant period by two.

The weighted average asset management fee rate increased from 0.55% in 2019 to 0.88% in 2020, primarily due to change in product mix and improvement in return. The weighted average asset management fee rate decreased from 0.88% in 2020 to 0.32% in 2021, primarily due to the fluctuation in the capital markets, which reflected the competitive fee rates we decided to charge over time.

 

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Dividend and gain related to disposed investment

We make equity investments with our own capital in companies of our strategic choice. Our dividend and gain related to disposed investment in 2019 solely consisted of dividend attributable to our equity holdings in Bank of Qingdao. Our dividend and gain related to disposed investment in 2020 and 2021 consisted of various strategic and financial investments.

Net fair value changes on investments and derivatives

We record net fair value changes on financial assets at fair value through profit or loss and derivative investments with respect to our strategic investments, which primarily include equity investments in both public and private companies. For a discussion of fair value measurement of our financial assets, see “Item 5. Operating And Financial Review And Prospects—A. Operating Results—Critical Accounting Estimates—Fair value of unlisted equity investments and derivatives financial assets.”

Other income

Other income consists of (i) bank interest income, (ii) interest income from Controlling shareholder, and (iii) other

non-recurring

miscellaneous income.

Other operating expenses

Our other operating expenses consist of (i) marketing and brand promotional expenses relating to brand building and promotion, (ii) premises costs and office utilities, (iii) traveling and business development expenses , (iv) commissions paid to asset management sales personnel and bank charges, (v) administrative service fee, and office and maintenance expenses, (vi) professional and consulting fees for business development, (vii) staff welfare and recruitment expenses, (viii) professional indemnity expenses, and (ix) other miscellaneous expenses.

The following table sets forth a breakdown of our operating expenses in absolute amount and as a percentage of total operating expenses for the periods presented.

 

		For the Year Ended December 31,
		2019								2020								2021
		HK$				%				HK$				%				HK$				US$				%
		(in thousands, except for percentages)
Other Operating Expenses
Marketing and brand promotional expenses			12,904				11.3				5,697				5.5				598				77				0.7
Premises costs and office utilities			21,118				18.4				20,846				20.1				22,048				2,827				26.3
Traveling and business development expenses			19,363				16.9				5,636				5.4				3,747				480				4.5
Commissions and bank charges			2,307				2.0				1,957				1.9				1,308				168				1.6
Administrative service fee, and office and maintenance expenses			13,431				11.7				24,505				23.6				24,385				3,126				29.1
Legal and professional fees			23,179				20.2				36,315				35.0				24,663				3,162				29.4
Staff welfare and staff recruitment expenses			2,472				2.2				1,224				1.2				2,322				298				2.8
Stamp duty			2,116				1.8				—				—				—				—				—
Others			17,807				15.5				7,543				7.3				4,723				606				5.6
Total			114,697				100.0				103,723				100.0				83,794				10,744				100.0

 

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Staff costs

Staff costs consist of employee salaries, bonuses, and pension scheme contributions. The following table sets forth a breakdown of our staff costs for the periods presented.

 

		For the Year Ended December 31,
		2019				2020				2021
		HK$				HK$				HK$				US$
		(in thousands)
Staff Costs
Salaries and bonuses			93,704				93,661				94,776				12,151
Pension scheme contributions (defined contribution schemes)			903				749				810				104
Total			94,607				94,410				95,586				12,255

Finance costs

Finance costs represent our interest expenses on our margin loans payable, convertible bond and bank borrowings.

Seasonality

Our results of operations are subject to fluctuations due to the nature of investment banking and asset management businesses. Seasonality of our business was not apparent historically.

Taxation

We had income tax expense of HK$158.4 million, income tax credit of HK$137.5 million and income tax expense of HK$109.3 million (US$14.0 million) for the years ended December 31, 2019, 2020, and 2021, respectively. The following summarizes our applicable tax rates in the Cayman Islands and Hong Kong.

Cayman Islands

The Cayman Islands currently levies no taxes on individuals or corporations outside of the Cayman Islands based upon profits, income, gains, or appreciation. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties, which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments.

Hong Kong

Our Hong Kong subsidiaries are subject to a 8.25% Hong Kong profit tax on the first HK$2,000,000 of the taxable income generated from operations in Hong Kong. Any taxable income above HK$2,000,000 will be subject to a 16.5% Hong Kong profit tax. Under the Hong Kong tax laws, our Hong Kong subsidiaries are exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiaries to us are not subject to any Hong Kong withholding tax.

For more information on tax regulations, see “Item 10. Additional Information—E. Taxation.”

Critical Accounting Estimates

We prepare our financial statements in accordance with IFRS issued by the IASB, which requires us to make judgments, estimates, and assumptions. We continually evaluate these estimates and assumptions based on

 

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the most recently available information, our own historical experience, and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of our accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting estimates.

The following descriptions of critical judgments and estimates should be read in conjunction with our consolidated financial statements and other disclosures included in this annual report. When reviewing our financial statements, you should consider (i) our selection of significant accounting policies, (ii) the judgments and other uncertainties affecting the application of such policies, and (iii) the sensitivity of reported results to changes in conditions and assumptions.

Some of our significant accounting policies as disclosed in note 2.4 of consolidated financial statements require critical accounting estimates and judgements. We have identified and described the critical accounting estimates in the following section.

Fair value of unlisted equity investments and derivatives financial assets

Fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety. The type and level of judgment required is dependent on the amount of observable market-based data available to the Company. For instruments valued using valuation models and techniques that use significant unobservable inputs and are therefore classified within level 3 of the fair value hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.

In determining the estimate of fair value for an instrument within level 3, the management firstly determines the appropriate and reasonable valuation model and technique to use. Second, the lack of availability of

market-based

data requires management to assess relevant empirical data in deriving valuation inputs with significant judgements and assumption. Details of the significant unobservable inputs used in the level 3 valuation are presented in note 29 “Fair Value and Fair Value Hierarchy of Financial Instruments” in the consolidated financial statements.

Estimation of unobservable market inputs or other factors can affect the amount of gain or loss recorded in the reporting period and the amount of the position as at year end. The Company believes the estimates applied to be based on reasonable assumptions, but which are inherently uncertain. As a result, actual results may differ from the assumptions and judgments used to determine fair value of the financial instruments acquired. Changes in these estimates and assumptions and valuation model or techniques may have a material effect on our financial condition and results of operations. Details of the sensitivity of fair value of the level 3 instruments to the significant unobservable inputs are presented in note 29 “Fair Value and Fair Value Hierarchy of Financial Instruments” in the consolidated financial statements.

Deferred taxation on investments

Significant judgments on the tax treatment of unrealized gain on investments under the strategic investment segment are required in determining current and deferred tax provisions. Our intentions have always been to hold these investments for capital appreciation, however there is uncertainty on whether it is probable that the unrealized gain can be treated as capital in nature and not assessable for profits tax under the relevant tax laws. As such, deferred tax provisions have been recorded under certain circumstances. These investments have also been classified as current assets accordingly for the respective periods. We carried out periodical review based on the internal policy and re-evaluated the classification of these investments and recognition of the relevant tax treatment. In cases where changes in facts and circumstances, a material further recognition or reversal of current

 

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and/or deferred tax liabilities may arise, which would be recognized in profit or loss for the period in which such further recognition or reversal takes place.

Inflation

To date, inflation in Hong Kong has not materially affected our results of operations. According to the Census and Statistics Department of Hong Kong, the year-over-year percent changes in the consumer price index for December 2019, 2020, and 2021 were increases of 2.9%, 0.3%, and 2.4%, respectively. Although we have not been materially affected by inflation in the past, we may be affected if Hong Kong experiences higher rates of inflation in the future.

Results of Operations

 

		For the Year Ended December 31,
		2019								2020								2021
		HK$				%				HK$				%				HK$				US$				%
		(in thousands, except for percentages)
Revenue
Fee and commission income			580,006				48.2				607,263				54.3				680,478				87,245				48.7
Dividend and gain related to disposed investments			100,552				8.3				171,027				15.3				173,823				22,286				12.4
Sub-total			680,558				56.5				778,290				69.6				854,301				109,531				61.1
Net fair value changes on investments, stock loan and derivatives			523,616				43.5				340,250				30.4				543,543				69,689				38.9
Total revenue			1,204,174				100.0				1,118,540				100.0				1,397,844				179,220				100.0
Other income			22,090				1.8				111,867				10.0				125,538				16,095				9.0
Impairment loss under expected credit loss made on financial assets			—				—				(17,109	)			(1.5	)			—				—				—
Other operating expenses			(114,697	)			(9.5	)			(103,723	)			(9.3	)			(83,794	)			(10,743	)			(6.0	)
Staff costs			(94,607	)			(7.8	)			(94,410	)			(8.5	)			(95,586	)			(12,255	)			(6.8	)
Finance costs			(27,706	)			(2.3	)			(21,510	)			(1.9	)			(12,826	)			(1,644	)			(0.9	)
Net fair value changes on derivative financial liability			—				—				7,765				0.7				—				—				—
Profit before tax			989,254				82.2				1,001,420				89.5				1,331,176				170,673				95.3
Income tax (expense)/credit			(158,350	)			(13.2	)			137,541				12.3				(109,295	)			(14,013	)			(7.8	)
Profit for the year			830,904				69.0				1,138,961				101.8				1,221,881				156,660				87.5

 

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Segment Information

We report our results of operations in three reportable segments: investment banking, asset management, and strategic investment, which correspond to our business lines. The following table sets forth certain financial information of our reportable segments for the periods presented.

 

		For the Year Ended December 31,
		2019				2020				2021
		HK$				HK$				HK$				US$
		(in thousands)
Investment Banking
Segment revenue			455,956				376,325				597,098				76,555
Segment results (1)			413,354				339,933				580,773				74,462
Asset Management
Segment revenue			124,050				230,938				83,380				10,690
Segment results (1)			109,182				225,338				77,731				9,966
Strategic Investment
Segment revenue			624,168				511,277				717,367				91,975
Segment results (1)			624,168				511,277				717,367				91,975
Total segment results			1,146,704				1,076,548				1,375,871				176,403

 

Note:

 

(1)	The segment results represent segment revenue that excludes (i) unallocated corporate and other expenses, (ii) unallocated finance costs, and (iii) unallocated other income.

For reconciliation of segment revenue to consolidated revenue and reconciliation of segment results to consolidated profit before tax, see note 4 to our consolidated financial statements for the years ended December 31, 2019, 2020, and 2021.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenue

Fee and commission income

. Our fee and commission income increased by 12.1% from HK$607.3 million in 2020 to HK$680.5 million (US$87.2 million) in 2021, primarily due to:

 

•

Investment banking segment . Our fee and commission income from the investment banking segment increased by 58.7% from HK$376.3 million in 2020 to HK$597.1 million (US$76.6 million) in 2021, primarily due to our successful branching out to secondary markets as well as the maintenance of our core strengths to capture opportunities in the primary markets.

 

•

Asset management segment . Our fee and commission income from the asset management segment decreased by 63.9% from HK$230.9 million in 2020 to HK$83.4 million (US$10.7 million) in 2021, primarily due to the expiration of existing asset management agreement and our offering of more competitive fee rates in the middle of difficult market condition, globally.

Dividend and gain related to disposed investments

. Our dividend and gain related to disposed investment increased by 1.6% from HK$171.0 million in 2020 to HK$173.8 million (US$22.3 million) in 2021, primarily due to an increase in net gain from disposal of financial instruments .

Net fair value changes on investments, stock loan and derivatives

. The net fair value gain amounted to HK$543.5 million (US$69.7 million) in 2021, representing an increase of 59.7% as compared to 2020, primarily due to an increase in the fair value of our investment portfolio partially offset by a reduction in derivative financial assets. The net fair value gain arising from investments in equity securities of related parties were HK$545.2 million (US$69.9 million) and HK$336.4 million for the years ended December 31, 2021 and 2020, respectively.

 

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Other income

Our other income increased by 12.2% from HK$111.9 million in 2020 to HK$125.5 million (US$16.1 million) in 2021, primarily attributable to an increase in the net average outstanding balance due from our immediate holding company, which was interest bearing.

Other operating expenses

Our other operating expenses decreased by 19.2% from HK$103.7 million in 2020 to HK$83.8 million (US$10.7 million) in 2021, primarily due to (i) a decrease in professional and consulting fees of HK$11.7 million (US$1.5 million), and (ii) a decrease of an aggregate of HK$7.0 million (US$0.9 million) in marketing and brand promotion expenses as well as traveling and business development expenses as a result of the persisting pandemic situation.

Staff costs

Our staff costs remained stable from HK$94.4 million in 2020 to HK$95.6 million (US$12.3 million) in 2021.

Finance costs

Our finance costs decreased by 40.4% from HK$21.5 million in 2020 to HK$12.8 million (US$1.6 million) in 2021, primarily due to the active liability management effected to proactively reduce the gearing ahead of maturities to continuously improve our financial metrics.

Income tax (expense)/credit

Income tax credit of HK$137.5 million and income tax expense of HK$109.3 million (US$14.0 million) were recorded for 2020 and 2021, respectively. The change was primarily due to a reversal of deferred tax liability of HK$242.9 million provided on fair value changes of certain investments in prior period, which were considered to be capital gains in nature and therefore not subject to profits tax.

Profit for the year

As a result of the foregoing, our profit increased by 7.3% from HK$1,139.0 million in 2020 to HK$1,221.9 million (US$156.7 million) in 2021.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Revenue

Fee and commission income

. Our fee and commission income increased by 4.7% from HK$580.0 million in 2019 to HK$607.3 million in 2020, primarily due to:

 

•

Investment banking segment . Our fee and commission income from the investment banking segment decreased by 17.5% from HK$456.0 million in 2019 to HK$376.3 million in 2020, primarily due to a decrease in our fees and commissions for (i) equity offerings and financial advisory services, and (ii) debt capital market deals.

 

•

Asset management segment . Our fee and commission income from the asset management segment increased by 86.1% from HK$124.1 million in 2019 to HK$230.9 million in 2020, primarily due to an increase in fee income attributable to new institutional clients and related performance fee charged.

 

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Dividend and gain related to disposed investment

. Our dividend and gain related to disposed investment increased by 70.0% from HK$100.6 million in 2019 to HK$171.0 million in 2020, primarily due to increase in net gain from disposed investment contributed by disposal of an equity linked note with a gain of HK$82.9 million in 2020.

Net fair value changes on investment and derivative

. The net fair value gain amounted to HK$340.3 million in 2020, representing a decrease of 35.0% as compared to 2019, primarily due to the fluctuation in the fair value of strategic investment portfolio primarily driven by the market condition and the business development of the portfolio companies. The net fair value gain arising from investments in equity securities of related parties were HK$336.4 million for the year ended December 31, 2020.

Other income

Our other income increased by 406.4% from HK$22.1 million in 2019 to HK$111.9 million in 2020, primarily attributable to the increase in interest income earned from our Controlling Shareholder. Starting from August 5, 2019 when our ADSs became listed on the NYSE, we charged an interest of 2% per annum on the net outstanding balance of advances to our Controlling Shareholder pursuant to the intercompany financing agreement. The increase in the average outstanding balance and the full year effect have resulted in the significant increase in interest income from our Controlling Shareholder of HK$83.6 million in 2020.

Impairment loss under expected credit loss made on accounts receivable

Our impairment loss allowance on accounts receivable increased from nil in 2019 to HK$17.1 million in 2020, primarily due to write off on receivables with gross amount of HK$17.1 million arising from investment banking services without realistic prospect of recovery.

Other operating expenses

Our other operating expenses decreased by 9.6% from HK$114.7 million in 2019 to HK$103.7 million in 2020, primarily due to a decrease in net foreign exchange differences of HK$9.4 million and traveling and business development expenses of HK$13.7 million, and offset by an increase in administrative service fee of HK$12.3 million.

Income tax (expense)/credit

Income tax expense of HK$158.4 million and income tax credit of HK$137.5 million were recorded for 2019 and 2020, respectively. The change was primarily due to reversal of deferred tax liability provided on fair value changes of certain investments which are concluded to be capital gains in nature and therefore not subject to profits tax charge.

Profit for the year

As a result of the foregoing, our profit increased by 37.1% from HK$830.9 million in 2019 to HK$1,139.0 million in 2020.

 

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Selected Items on the Consolidated Statements of Financial Position

The following table sets forth certain selected consolidated statements of financial position data as of the dates indicated:

 

		As of December 31,
		2019				2020				2021
		HK$				HK$				HK$				US$
		(in thousands)
Selected Consolidated Statements of Financial Position Data
Assets:
Accounts receivable			346,380				77,350				86,515				11,092
Due from immediate holding company			2,921,839				6,477,266				2,144,975				275,011
Financial assets at fair value through profit or loss—current			1,572,698				62,520				—				—
Stock loan—current			1,200,980				—				—				—
Financial assets at fair value through profit or loss—non-current			—				1,315,337				2,574,696				330,106
Stock loan—non-current			—				878,483				211,331				27,095
Derivative financial asset			1,165,220				1,023,903				969,895				124,352
Total assets			8,270,693				10,526,291				6,686,838				857,331
Liabilities and Equity:
Accounts payable			492,039				201,986				155,021				19,875
Margin loans payable			317,722				—				—				—
Bank borrowings			—				232,280				388,871				49,857
Total liabilities			1,442,198				802,115				897,965				115,129
Perpetual securities			—				1,834,685				1,771,043				227,068
Total equity			6,828,495				9,724,176				5,788,873				742,202
Total liabilities and equity			8,270,693				10,526,291				6,686,838				857,331

Accounts receivable

Our accounts receivable consists of (i) receivable from investment banking services, (ii) receivable from brokers and clearing house, and (iii) clients’ receivables. The following table sets forth a breakdown of our accounts receivable as of the dates indicated.

 

		As of December 31,
		2019				2020				2021
		HK$				HK$				HK$				US$
		(in thousands)
Accounts receivable:
Receivable from investment banking services			66,740				21,977				54,764				7,021
Receivable from brokers and clearing house			261,330				19,864				21,406				2,745
Clients’ receivables			18,310				35,509				10,345				1,326
Total			346,380				77,350				86,515				11,092

Our accounts receivable increased by 11.8% from HK$77.4 million as of December 31, 2020 to HK$86.5 million (US$11.1 million) as of December 31, 2021, primarily due to an increase in receivable from new businesses generated in investment banking services.

Our accounts receivable decreased significantly by 77.7% from HK$346.4 million as of December 31, 2019 to HK$77.4 million as of December 31, 2020, primarily due to a decrease in receivable from brokers and clearing house of HK$241.5 million, which in turn was primarily attributable to the fluctuation in the unsettled trade

 

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transactions near the year end from HK$257.2 million as of December 31, 2019 to HK$0.1 million as of December 31, 2020.

The settlement terms of our accounts receivable varied depending on the type of accounts receivable. The normal settlement terms of receivable from our investment banking services were specific terms ranging from due upon receipt to 120 days, which were mutually agreed between the contracting parties. Receivable from investment banking services did not bear interest. The normal settlement terms of our clients’ receivable and receivable from brokers and clearing house relating to asset management services were either two days after trade date or at specific terms agreed with brokers and clearing house. Overdue clients’ receivable was interest bearing.

The following table sets forth an aging analysis of accounts receivable as of the dates indicated, based on the invoice date, net of loss allowance.

 

		As of December 31,
		2019				2020				2021
		HK$				HK$				HK$				US$
		(in thousands)
Not yet due			294,542				67,241				74,048				9,494
Past due
– Within 1 month			41,032				7,797				54				7
– 1 to 3 months			5,232				221				5,166				662
– Over 3 months			5,574				2,091				7,247				929
Total			346,380				77,350				86,515				11,092

Our accounts receivable not yet past due increased by 10.1% from HK$67.2 million as of December 31, 2020 to HK$74.0 million (US$9.5 million) as of December 31, 2021, primarily attributable to investment banking services completed close to the year end. The decrease in accounts receivable past due within 1 month was primarily due to settlement of clients’ receivables of HK$7.7 million (US$993 thousand) in 2021. The increases in accounts receivable past due 1 to 3 months, and over 3 months were primarily due to increase in outstanding balances from certain asset management clients and investment banking services of HK$8.9 million (US$1.1 million) as of December 31, 2021.

Our accounts receivable not yet past due decreased significantly by 77.2% from HK$294.5 million as of December 31, 2019 to HK$67.2 million as of December 31, 2020, primarily attributable to the fluctuation in the unsettled trade transactions near the year end. The corresponding accounts receivable from brokers and clearing house decreased from HK$261.3 million as of December 31, 2019 to HK$19.9 million as of December 31, 2020. The decreases in accounts receivable past due within 1 month, 1 to 3 months, and over 3 months were primarily due to the settlement of outstanding balances of receivable from investment banking services of HK$45.9 million in 2020.

Due from immediate holding company

Balances with immediate holding company were primarily attributable to inter-company fund transfers carried out among the entities within AMTD Group as part of the central treasury function. On August 5, 2019, we entered into an intercompany financing agreement with our immediate holding company. Any intercompany receivables and payables balances with the immediate holding company and other subsidiaries of AMTD Group would be settled on a net basis and the net balance bears an interest at 2% per annum. Our treasury function was conducted centrally under AMTD Group. The amount of our due from immediate holding company decreased from HK$6.5 billion as of December 31, 2020 to HK$2.1 billion (US$0.3 billion) as of December 31, 2021, primarily due to the net effect of the followings (i) the share repurchase transactions amounting to HK$5.0 billion

 

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(US$0.6 billion), (ii) the purchase transactions of financial assets at fair value through profit or loss amounting to HK$174.7 million (US$22.4 million), (iii) interest income amounting to HK$116.0 million (US$14.9 million), (iv) advances to immediate holding company amounting to HK$348.7 million (US$44.7 million), and (v) the disposal transaction of financial assets at fair value through profit or loss amounting to HK$377.7 million (US$48.4 million). The amount due from immediate holding company increased from HK$2.9 billion as of December 31, 2019 to HK$6.5 billion as of December 31, 2020 primarily due to advances to immediate holding company amounting to HK$3.6 billion (US$0.5 billion).

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss primarily consist of (i) listed equity shares at quoted prices, (ii) unlisted equity shares, and (iii) unlisted equity linked note, all of which are related to our strategic investment business.

Our financial assets at fair value through profit or loss increased from HK$1.4 billion as of December 31, 2020 to HK$2.6 billion (US$0.3 billion) as of December 31, 2021, primarily attributable to (i) a net appreciation in value of HK$0.7 billion (US$85.1 million), (ii) additional investments of HK$0.8 billion (US$100.7 million) made in 2021, and (iii) disposal of investments of HK$0.3 billion (US$32.4 million) in 2021.

Our financial assets at fair value through profit or loss decreased from HK$1.6 billion as of December 31, 2019 to HK$1.4 billion as of December 31, 2020, primarily attributable to (i) partial disposal of investment in Bank of Qingdao of HK$972.2 million, (ii) additional investments of HK$592.0 million made in 2020, and (iii) net appreciation in value of HK$187.7 million in 2020.

During the year ended December 31, 2020, we carried out periodical review based on the internal policy and

re-evaluated

the classification of the investments. With the passage of time, we demonstrated our intention to hold these investments for long-term capital appreciation and hence

re-classified

the investments as

non-current

assets.

Stock loan

Our stock loan mainly represents listed equity securities that we lent to a former shareholder of our Controlling Shareholder, in connection with relevant stock borrowing and lending arrangements. The fair value of our stock loan decreased by 75.9% from HK$878.5 million as of December 31, 2020 to HK$211.3 million (US$27.1 million) as of December 31, 2021, primarily due to the settlement of stock loan from our related parties amounting to HK$631.4 million (US$80.9 million).

The fair value of our stock loan decreased by 26.9% from HK$1.2 billion as of December 31, 2019 to HK$878.5 million as of December 31, 2020, primarily due to depreciation in value of the loaned stocks.

During the year ended December 31, 2020, we carried out periodical review based on the internal policy and

re-evaluated

the classification of the investments. With the passage of time, we demonstrated our intention to hold the stock loan for long term capital appreciation and hence

re-classified

the stock loan as

non-current

assets.

Derivative financial asset

Our derivative financial asset represented the derivative contracts of “Upside Participation and Profit Distribution Agreements” entered into with a counterparty in order to hedge against adverse movement in the share price of our investments in listed shares. The fair value of our derivative financial asset decreased by 5.3% from HK$1,023.9 million as of December 31, 2020 to HK$969.9 million (US$124.4 million) as of December 31, 2021, primarily due to price movement of the underlying listed shares.

 

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Our derivative financial asset decreased by 12.1% from HK$1,165.2 million as of December 31, 2019 to HK$1,023.9 million as of December 31, 2020, primarily due to price movement of the underlying listed shares.

Accounts payable

Our accounts payable consists of (i) clients’ payables arising from brokerage business, (ii) payables to clearing house and brokers, and (iii) clients’ monies held on trust. The following table sets forth a breakdown of our accounts payable as of the dates indicated.

 

		As of December 31,
		2019				2020				2021
		HK$				HK$				HK$				US$
		(in thousands)
Accounts payable:
Clients’ payables			256,423				138				147				19
Payables to clearing house and brokers			9,063				1,312				8,590				1,101
Clients’ monies held on trust			226,553				200,536				146,284				18,755
Total			492,039				201,986				155,021				19,875

Our accounts payable decreased by 23.3% from HK$202.0 million as of December 31, 2020 to HK$155.0 million (US$19.9 million) as of December 31, 2021, primarily due to a decrease in the amount of clients’ money held on trust. Our accounts payable decreased significantly by 58.9% from HK$492.0 million as of December 31, 2019 to HK$202.0 million as of December 31, 2020, primarily due to a significant decrease in clients’ payable for HK$256.3 million, which was in turn primarily attributable to the fluctuation in the trade volume near the year end.

Payables to clearing house and brokers, and clients’ payable arising from assets management business were repayable two days after trade date or at

pre-agreed

specified terms. The following table sets forth an aging analysis of accounts payable as of the dates indicated.

 

		As of December 31,
		2019				2020				2021
		HK$				HK$				HK$				US$
		(in thousands)
Within 1 month			265,486				1,450				155,021				19,875
Repayable on demand			226,553				200,536				—				—
Total			492,039				201,986				155,021				19,875

Our accounts payable aged within 1 month increased by 107 times from HK$1.5 million as of December 31, 2020 to HK155.0 million (US$19.9 million) as of December 31, 2021, primarily attributable to an increase in pending trades at the year end. Our accounts payable aged within 1 month decreased significantly by 99.5% from HK$265.5 million as of December 31, 2019 to HK$1.5 million as of December 31, 2020, attributable to the fluctuation in the unsettled trade transactions near the year end.

Our accounts payable repayable on demand decreased by 100% from HK$200.5 million as of December 31, 2020 to nil as of December 31, 2021, primarily attributable to a decrease in the amount of client’s money held on trust. Our accounts payable repayable on demand decreased slightly by 11.5% from HK$226.6 million as of December 31, 2019 to HK$200.5 million as of December 31, 2020, primarily attributable to decrease in clients’ monies held on trust under custody arising from the asset management and other business, from HK$225.4 million as of December 31, 2019 to HK$194.9 million as of December 31, 2020.

 

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Margin loans payable

Margin loans payable were fully repaid during the year ended December 31, 2020. Margin loans payable was interest-bearing at a rate of 6.625% per annum and secured by our financial assets at fair value through profit or loss as of December 31, 2019.

Bank borrowings

Bank borrowings were unsecured, repayable in one year or on demand and bore an average interest rate of 2.1% per annum. Our total bank borrowing facilities was US$50.0 million (equivalent to HK$389.8 million) as of December 31, 2021, of which HK$388.9 million were utilized. Our total bank borrowing facilities was US$30 million (equivalent to HK$232.6 million) as of December 31, 2020, of which HK$232.3 million were utilized.

Perpetual securities

As at December 31, 2021, the total amount of active perpetual securities were US$200 million and S$38.8 million.

During the year ended December 31, 2020, we have issued US$200 million (equivalent to HK$1.6 billion) and SG$50 million (equivalent to HK$272.9 million) perpetual securities at an initial distribution rates of 7.25% and 4.5% per annum, respectively.

 

C.	Liquidity and Capital Resources

Our principal sources of liquidity to finance our operating and investing activities have been issuances of equity and equity-linked securities in our initial public offering and private placements, and perpetual securities and bank borrowings, as well as net cash provided by operating activities. As of December 31, 2021, we had HK$526.2 million (US$67.5 million) in cash and cash equivalents. Our cash and cash equivalents primarily consist of cash on hand and general bank balances excluding segregated clients’ bank account balances, which are unrestricted for withdrawal or use. We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements, capital expenditures, and debt repayment obligations for at least the next 12 months. We may from time to time decide to enhance our liquidity position or increase our cash reserve for future operations and investments through additional financing. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increasing fixed obligations and could result in operating covenants that would restrict our operations.

In August 2019, we completed our initial public offering of 23,873,655 ADSs representing 23,873,655 Class A ordinary shares and received approximately US$192.6 million in net proceeds. In December 2019, we issued and sold (i) a total of 7,307,692 Class A ordinary shares and 4,526,627 Class B ordinary shares to Value Partners Greater China High Yield Income Fund, Ariana Capital Investment Limited, and Infinity Power Investments Limited, and (ii) the VP Note to Value Partners Greater China High Yield Income Fund, all in the form of private placement, and received approximately US$115.0 million in net proceeds.

In May 2020, we issued US$200 million 7.25% senior perpetual securities and S$50 million 4.5% senior perpetual securities. In October 2021, we redeemed perpetual securities with a principal amount of approximately S$11.2 million (US$8.3 million) as part of our active balance sheet management targeting for early repayment of outstanding exposures.

In September 2020, we obtained a US$30 million banking facility and have drawn down the loans. In December 2021, we obtained an additional US$20 million banking facility and have drawn down the loan.

 

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Subsequent to December 31, 2021, we issued an aggregate of 8,411,214 Class A ordinary shares and 3,271,028 Class B ordinary shares through a private placement of US$50 million to a number of reputable professional investors.

Cash Flows

The following table sets forth a summary of our cash flows for the periods indicated:

 

		For the Year Ended December 31,
		2019				2020				2021
		HK$				HK$				HK$				US$
		(in thousands)
Summary Consolidated Cash Flow Data
Net cash generated from operating activities			709,500				1,993,977				434,760				55,741
Net cash used in investing activities			(2,957,940	)			(3,581,341	)			(358,669	)			(45,986	)
Net cash (used in)/generated from financing activities			2,888,015				1,274,407				(6,660	)			(854	)
Net increase/(decrease) in cash and cash equivalents			639,575				(312,957	)			69,431				8,901
Cash and cash equivalents at the beginning of year			126,856				766,431				453,967				58,204
Effect of foreign exchange rate change, net							493				2,808				361
Cash and cash equivalents at the end of year			766,431				453,967				526,206				67,466

Operating Activities

Net cash generated from operating activities in 2021 was HK$434.8 million (US$55.7 million), which consists of our profit before tax of HK$1,331.2 million (US$170.7 million) as adjusted for

non-cash

items and the effects of changes in operating assets and liabilities. Adjustments for

non-cash

items primarily included HK$668.7 million (US$85.7 million) of fair value gain and disposal gain on financial assets at fair value through profit or loss, stock loan and derivative financial asset in connection with our strategic investment business, partially offset by HK$12.8 million (US$1.6 million) of finance costs relating to our bank borrowings and convertible bond. The principal items accounting for the changes in operating assets and liabilities were (i) HK$9.2 million (US$1.2 million) of increase in accounts receivable, and (ii) HK21.9 million (US$2.8 million) of changes in accounts and other payables and other assets.

Net cash generated from operating activities in 2020 was HK$1,994.0 million, which consists of our profit before tax of HK$1,001.4 million as adjusted for

non-cash

items and the effects of changes in operating assets and liabilities. Adjustments for

non-cash

items primarily included HK$423.2 million of fair value gain and disposal gain on financial assets at fair value through profit or loss, stock loan and derivative financial asset in connection with our strategic investment business, partially offset by HK$21.5 million of finance costs relating to our margin loans payable, bank borrowings and convertible bond. The principal items accounting for the changes in operating assets and liabilities were (i) HK$251.9 million of decrease in accounts receivable, mainly relating to the collection from brokers and clearing house, partially offset by HK$291.6 million of decrease in accounts and other payables and accruals.

Net cash generated from operating activities in 2019 was HK$709.5 million, which consists of our profit before tax of HK$989.3 million as adjusted for

non-cash

items and the effects of changes in operating assets and liabilities. Adjustments for

non-cash

items primarily included HK$523.6 million of fair value gain on financial assets at fair value through profit or loss, stock loan and derivative financial instrument in connection with our strategic investment business, partially offset by HK$27.7 million of finance costs relating to our margin loans. The principal items accounting for the changes in operating assets and liabilities were (i) HK$185.3 million of increase in accounts receivable, mainly relating to the operations of our investment banking business, partially offset by HK$357.7 million of increase in accounts and other payables and accruals.

 

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Investing Activities

Net cash used in investing activities in 2021 was HK$358.7 million (US$46.0 million), which was mainly attributable to (i) a net increase in advance to immediate holding company for group treasury management purpose, and (ii) a result of net settlement of investment disposal proceeds collected by the immediate holding company on behalf of the Company, and consideration payable to the immediate holding company to repurchase treasury shares.

Net cash used in investing activities in 2020 was HK$3.6 billion, which was attributable to an increase in advance to immediate holding company for group treasury management purpose.

Net cash used in investing activities in 2019 was HK$3.0 billion, which was attributable to an increase in advance to immediate holding company for group treasury management purpose.

Financing Activities

Net cash used in financing activities in 2021 was HK$6.7 million (US$0.9 million), which was mainly due to repayment of redemption and distribution to holders of perpetual securities and offset by net proceeds from our bank borrowings.

Net cash generated in financing activities in 2020 was HK$1.3 billion, which was mainly due to net proceeds from our perpetual securities issued and bank borrowings and offset by repayment of margin loans and distribution to holders of perpetual securities.

Net cash generated in financing activities in 2019 was HK$2.9 billion, which was mainly due to net proceeds from our initial public offering on the NYSE, issuance of warrants and convertible bond, and private placements.

Capital Expenditures

Our capital expenditures were HK$14 thousand in 2019, HK$111 thousand in 2020 and nil in 2021. In these periods, our capital expenditures were primarily used for purchases of office equipment. We will continue to make capital expenditures to meet the expected growth of our business. We intend to fund our future capital expenditures with our existing cash balance and proceeds from our financing activities.

Holding Company Structure

AMTD IDEA Group is a holding company with no material operations of its own. We conduct our operations primarily through our Hong Kong subsidiaries. As a result, our ability to pay dividends depends upon dividends paid by our Hong Kong subsidiaries. If our existing Hong Kong subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.

 

D.	Research and Development, Patents and Licenses, etc.

Intellectual Property

As of the date of this annual report, we own one registered trademark. We are licensed by our Controlling Shareholder to use certain trademarks. We maintain seven registered domain names, including amtdinc.com. We have applied for one trademark in Hong Kong.

 

E.	Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2021 to December 31, 2021 that are reasonably

 

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likely to have a material adverse effect on our total revenues, profitability, liquidity, or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

 

F.	Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity, or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging, or product development services with us.

 

G.	Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2021.

 

		Total				Less Than 1 Year				1-3 Years				3-5 Years				More Than 5 Years
		(HK$ in millions)
Convertible bond with principal and interest			125.3				—				125.3				—				—
Bank borrowings, with principal and interest			393.6				393.6				—				—				—
Total			518.9				393.6				125.3				—				—

In December 2019, we issued the VP Note in an aggregate principal amount of US$15 million, which may be converted at any time after six months following the date of issuance and prior to the close of business on the second business day immediately preceding the maturity date of June 2023 based on an initial conversion rate of 99.44 ADSs per US$1,000 principal amount of notes, provided, however, that the holder can only exercise such right to convert no more than twice. The conversion rate is subject to adjustment upon the occurrence of certain events. The VP Note bears interest at a rate of 2.00% per year.

In March 2020, we listed our MTN Program by way of debt issuance to professional investors (as defined in Chapter 37 of the Rules Governing the Listing of Securities on SEHK and in the Securities and Futures Ordinance (Cap. 571) of Hong Kong) on the SEHK. Under the MTN Program, we may from time to time issue medium term notes or perpetual securities up to an aggregate amount of US$1.0 billion. We intend to use the net proceeds from the issuances of debt securities under the MTN Program for long-term development needs, international expansion, and general corporate purposes. In April 2020, we dual-listed the MTN Program on the

SGX-ST.

Later in the same month, we extended an invitation to holders of the Existing Securities to offer exchange any and all of their outstanding Existing Securities for New Securities to be issued by us under our MTN Program. The amount of New Securities to be delivered in exchange for a principal amount of the Existing Securities offered and accepted for exchange shall be the product of (i) such principal amount of Existing Securities and (ii) the relevant exchange ratio pursuant to the exchange instruction, subject to a minimum offer amount of US$200,000. The Exchange Offer expired on May 6, 2020. In May 2020, we issued US$200 million 7.25% senior perpetual securities and S$50 million 4.5% senior perpetual securities. In September 2020 and December 2021, we obtained a US$30 million and a US$20 million banking facility, respectively, and have drawn down the loans.

While the table above indicates our contractual obligations as of December 31, 2021, the actual amounts we are eventually required to pay may be different in the event that any agreements are renegotiated, canceled, or terminated.

 

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ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.	Directors and Senior Management

The following table sets forth information regarding our directors and executive officers as of the date of this annual report.

 

Directors and Executive Officers		Age		Position/Title
Dr. Feridun Hamdullahpur (1)(2)(3)		67		Chairman of the Board of Directors and Independent Director
Dr. Timothy Tong (1)(2)(3)		68		Independent Director
Dr. Annie Koh (1)(3)		68		Independent Director
Marcellus Wong (2)		68		Director
Raymond Yung		61		Director
Frederic Lau		70		Chairman of Executive Management Committee
William Fung		41		Chief Executive Officer
Xavier Ho Sum Zee		47		Chief Financial Officer
Jason Man Chun Chiu		37		Co-Chief Financial Officer
Bert Chun Lung Tsang		35		Chief Accounting Officer
Ming Lin Cheung		37		Head of Global Markets

 

Notes:

 

(1)	Member of our audit committee.

(2)	Member of our compensation committee.

(3)	Member of our nominating and corporate governance committee.

Pursuant to the currently effective articles of association of our company, our board of directors consists of five directors. There are no arrangement or understanding with our shareholders or other third parties with respect to the election of a director or a member of senior management. There are no family relationships among any of the directors or executive officers of our company.

Biographical Information

Dr. Feridun Hamdullahpur

is our chairman of the board of directors and independent director. Dr. Hamdullahpur has served as a director of our Controlling Shareholder since January 2019. Dr. Hamdullahpur has served as the sixth president and vice-chancellor of the University of Waterloo since 2010. Prior to that, he served as a vice-president academic and provost at the University of Waterloo from September 2009 to September 2010. Dr. Hamdullahpur has served as a member of the strategic advisory board of Sorbonne University since 2014, and member of the international advisory board of King Abdulaziz University since 2017. He has served as chair of the Waterloo Global Science Initiative since 2016. In 2015, Dr. Hamdullahpur was appointed chair of the Leadership Council for Digital Infrastructure in Canada. Dr. Hamdullahpur was named a fellow of the Canadian Academy of Engineering in July 2014. Dr. Hamdullahpur was awarded the Queen Elizabeth II Diamond Jubilee Medal in January 2013 in acknowledgement of his leadership in education and innovation. Dr. Hamdullahpur graduated from the Technical University of Nova Scotia with a bachelor’s degree in mechanical engineering in 1976 and a master’s degree in mechanical engineering from Technical University of Istanbul in 1979. Dr. Hamdullahpur received his Ph.D. in chemical engineer from the Technical University of Nova Scotia in 1985.

Dr.

 Timothy Wai Cheung Tong

is our independent director and has been instrumental in the establishment of our various initiatives with academic institutions and other industry association types to enhance and step up our contributions and support to talents out of the AMTD SpiderNet ecosystem, such as the formation of AMTD FinTech Centre of PolyU Faculty of Business as one of the rare institutions across Asia to be able to award Ph.D. degrees in FinTech. Dr. Tong was appointed as our independent director in February 2022. Dr. Tong is also the

 

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chairman and independent director of AMTD Digital Inc. Dr. Tong is the chief executive officer of AMTD Charity Foundation, and chairman of the Hong Kong Laureate Forum, which is an organization formed by distinguished personalities and academics of Hong Kong, with the full support of the Hong Kong SAR government. The mission is to connect the current and next generations of leaders in scientific pursuit, and to promote understanding and interests of the young generation in Hong Kong and around the world in various disciplines in science and technology. Dr. Tong is an internationally renowned educator and expert in heat transfer. He served as the President of The Hong Kong Polytechnic University from January 2009 to December 2018. He is also the former dean of the school of engineering and applied science at The George Washington University, the former chairman of the steering committee of the Pilot Green Transport Fund of the Environmental Protection Department, a fellow of the American Society of Mechanical Engineers, and a fellow and former president of the Hong Kong Academy of Engineering Sciences. Dr. Tong currently serves as an independent

non-executive

director of Airstar Bank, an independent

non-executive

director of Xiaomi Corporation (SEHK: 1810); an independent

non-executive

director of Gold Peak Industries (Holdings) Limited (SEHK: 40); a

non-executive

director of Freetech Road Recycling Technology (Holdings) Limited (SEHK: 6888); and an independent

non-executive

director of Gold Peak Industries Limited (SGX: G20). Dr. Tong has been a member of the National Committee of the Chinese People’s Political Consultative Conference since March 2013 to present and a Justice of the Peace in Hong Kong since July 2010. Dr. Tong received a Ph.D. degree in mechanical engineering from the University of California at Berkeley in December 1980. Dr. Tong received a master of science degree in engineering from University of California Berkeley in June 1978 and a bachelor degree of science in mechanical engineering from Oregon State University in June 1976.

Dr. Annie Koh

has served as our independent director since June 2020. Dr. Koh is a renowned conference speaker, panel moderator, and commentator. Dr. Koh is Professor Emeritus of Finance (Practice) at Lee Kong Chian School of Business of Singapore Management University (SMU) and a Senior Advisor to its Business Families Institute. Her previous portfolios at SMU included positions as Vice President for Business Development; V3 Group Professor of Family Entrepreneurship; Academic Director of Business Families Institute and International Trading Institute; Associate Dean, Lee Kong Chian School of Business; and Dean, Office of Executive and Professional Education. Dr Koh is appointed as Chairman of Prime US REIT, in addition to being a member of the World Economic Forum Global Future Council on New Agenda for Work, Wages and Job Creation. She also chairs the Asian Bond Fund 2 supervisory committee of the Monetary Authority of Singapore, and a committee member of Singapore’s Customs Advisory Council and HR Transformation Advisory Panel. She is currently an independent director of PBA Group, Prudential Assurance Company Singapore Pte Ltd and Yoma Strategic Holdings Ltd. She previously served on GovTech, Singapore’s CPF, HMI and K1 Ventures boards. Professor Koh also advises privately owned enterprises such as Flexxon Pte Ltd, Hendricks Corp. Pte Ltd, TOP International, and startups such as AvePoint EduTech, Dedoco, Elevate Tech, RootAnt Global, StashAway, StaffOnDemand, SWAT Mobility, and non-profits such as Cyber Youth Singapore and WWF Singapore. She has been an investment committee member of iGlobe Partners since July 2010 and advisor to CUBE3 Ventures since October 2021. Dr Koh was awarded the bronze and silver Singapore Public Administration medal in 2010 and 2016, respectively, and the Adult Education Prism Award in 2017 for her contributions to the education and public sectors. Dr. Koh received a Ph.D. degree in international finance with a Fulbright scholarship from Stern School of Business, New York University in 1988.

Marcellus Wong

is our director and has over 40 years of experience in accounting and taxation. Mr. Wong was chairman of our executive management committee before he stepped from the position in November 2021. Since then, Mr. Wong has been a non-executive officer of ours. Mr. Wong has been serving as the vice chairman of the board of directors of our Controlling Shareholder since October 2015, and a member of the Board of Supervisors of SEHK-listed Jiangxi Bank Co., Ltd. (SEHK: 1916) since December 2020. Mr. Wong served in a number of other positions including, from June 2015 to June 2021, independent

non-executive

director of

SEHK-listed

Xinte Energy Co., Ltd. (SEHK: 1799); from July 2012 to June 2017, senior advisor of PricewaterhouseCoopers; and, from November 2001 to October 2021, a member of the Joint Liaison Committee on Taxation that advises the government of Hong Kong on tax issues. Mr. Wong has also served as a council member of the Taxation Institute of Hong Kong from 1995 to 2017, president from 1996 to 1999, and chairman

 

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of advisory board since 2017. He was the president of CPA Australia-Hong Kong China Division from 2004 to 2005 and has served as its honorary adviser of Greater China region since July 2014. Mr. Wong joined PricewaterhouseCoopers in February 1990 and, prior to his retirement in June 2012, served as a partner and compliance leader in Hong Kong and Mainland China as well as risk and quality leader for its tax practice in the Asia Pacific region. Mr. Wong graduated from the Hong Kong Polytechnic (currently known as The Hong Kong Polytechnic University) with a higher diploma in accountancy in October 1977, and also obtained a degree through the external program from the University of London in the United Kingdom in August 1989. Mr. Wong was admitted as a fellow of the Hong Kong Institute of Certified Public Accountants in December 1987, a fellow of CPA Australia in October 2001, and a fellow of the Taxation Institute of Hong Kong in March 2004.

Raymond Yung

is our director, and has over 40 years of experience in advising financial institutions in Hong Kong and Mainland China. Mr. Yung sits on the board of Citibank (Hong Kong) Limited as an independent

non-executive

director. Mr. Yung has extensive experience in the operational, risk management, internal controls, and financial reform of many large-scale financial institutions. Mr. Yung headed PricewaterhouseCoopers’s financial services practice in China for over ten years, and has been serving on PwC’s China, Hong Kong and Singapore Firm’s Board of Partners until his retirement in 2016. From September 1992 to June 2002, Mr. Yung led Arthur Andersen’s financial services group in Hong Kong. Mr. Yung was the lead engagement partner for the restructuring and IPO of eleven licensed banks which were merged to form the BOC Hong Kong (Holdings) Limited in 2002. Between 1991 and 1992, Mr. Yung was appointed as a special advisor to the deputy chief executive of the Hong Kong Monetary Authority in relation to internal controls and accounting matters, and was subsequently appointed to serve on its banking advisory committee. Mr. Yung is a member of the Hong Kong Institute of Certified Public Accountants and a certified accountant registered with the UK Chartered Association of Certified Accountants and CPA Australia. Mr. Yung graduated from The Hong Kong Polytechnic University with a higher diploma in accountancy in November 1980.

Dr. Frederic Lau

is the chairman of our Executive Management Committee. Dr. Lau has over 30 years of experience in regulating and managing financial institutions, especially in areas such as industry development, regulatory framework, risk management, and internal control. Dr. Lau is also the executive vice chairman and chairman of the executive management committee of our Controlling Shareholder. Dr. Lau served as the executive director of the Airstar Bank since July 2018 until October 2020, since then, Dr. Lau is the non-executive director of the board. He also served as the founding chief executive since the banking license was granted in May 2019 to October 2020. Dr. Lau practiced as a regulatory professional in Hong Kong and U.S. banking sector governing agencies for years, including the Hong Kong Monetary Authority and the Office of Thrift Supervision (subsequently merged with the Office of the Comptroller of the Currency, OCC) of the U.S. Treasury Department. Dr. Lau is an independent director of Huzhou Gas Co., Ltd. Dr. Lau was an executive director and the group risk director at Dah Sing Banking Group, and a member of the board of directors of Dah Sing Bank from 2005 to 2011. Dr. Lau was also a member of board of directors of Shenzhen Development Bank (subsequently renamed as Ping An Bank) from 2011 to 2014. He was a managing director of Promontory Financial Group from 2011 to 2014. Dr. Lau received a Ph.D. in Business Management (Economics) from University of South Australia in 2004.

William Fung

is our chief executive officer and group vice president of our Controlling Shareholder, and has over 16 years of experience in global capital markets including investing, syndicating, and executing global capital markets transactions; as well as managerial experience. Prior to becoming our chief executive officer, Mr. Fung served as our chief investment officer and head of asset management from June 2019 to December 2020. Mr. Fung has served as the group vice president of our Controlling Shareholder since September 2019 and the managing director of the chief investment officer of AMTD Global Markets Limited since March 2016. From September 2009 to February 2016, Mr. Fung worked at UBS AG Hong Kong as an executive director. Prior to that, he worked at Nomura International (Hong Kong) Limited from September 2008 to September 2009. From January 2005 to September 2008, Mr. Fung worked at Lehman Brothers Asia Limited. Prior to that, Mr. Fung also practiced professional engineering in the United States. Mr. Fung received a bachelor of science degree in

 

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industrial engineering from Purdue University in May 2002 and a master of science degree in financial engineering from the University of Michigan in December 2004.

Xavier Ho Sum Zee

is our chief financial officer and chief financial officer of our Controlling Shareholder. Mr. Zee joined our Controlling Shareholder in November 2020. Mr. Zee was admitted to the partnership of PricewaterhouseCoopers in July 2008, and has over 24 years of experience in providing assurance, business advisory, and capital market services to companies, especially in the financial service industry, in Mainland China and Hong Kong. Mr. Zee obtained his bachelor’s degree in business administration with first class honors in The Chinese University of Hong Kong in December 1996. Mr. Zee is currently a member of Hong Kong Institute of Certified Public Accountants and American Institute of Certified Public Accountants, and is a Chartered Global Management Accountant.

Jason Man Chun Chiu

is our

co-chief

financial officer. Mr. Chiu is specialized in financial reporting with more than five years of financial management experience in public companies and nine years of external auditing experience focusing on financial institutions including investment banks, securities brokerage companies and asset management companies. Mr. Chiu joined our Controlling Shareholder in January 2020 and was previously the finance director before being promoted to his current position as

co-chief

financial officer of our Company in April 2021. Prior to joining our Controlling Shareholder, Mr. Chiu worked as financial controller and company secretary for several listed companies in Hong Kong from July 2015 to January 2020. Mr. Chiu worked as an audit manager at Deloitte Touche Tohmatsu from September 2006 to July 2015. Mr. Chiu is a member of the Hong Kong Institute of Certified Public Accountants. Mr. Chiu received a bachelor’s degree in economics and finance from the University of Hong Kong in 2006.

Bert Chun Lung Tsang

is our chief accounting officer who is specialized in financial reporting with six years of external auditing experience in property agency, retailing, securities dealings, investment advisory, asset management and corporate finance industries. Mr. Tsang joined our Controlling Shareholder in July 2016 and was previously the assistant manager before being promoted to his current position as chief accounting officer of our Company in April 2021. Prior to joining our Controlling Shareholder, Mr. Tsang worked as an audit senior at RSM Hong Kong from November 2011 to July 2016. Mr. Tsang is a member of the Hong Kong Institute of Certified Public Accountants. Mr. Tsang received a bachelor’s degree in business administration in accounting with first class honors from the City University of Hong Kong in July 2010.

Ming Lin Cheung

 is our head of global markets, and has over 11 years of experience in investment banking and equity capital markets. Since January 2017, Mr. Cheung has been serving as the head of advisory and equity capital markets of AMTD Global Markets Limited, where he served as vice president from December 2015 to December 2016. From September 2014 to December 2015, Mr. Cheung was an associate at Deutsche Bank AG Hong Kong branch. Prior to that, he worked at UBS AG Hong Kong branch with the latest position as associate director from July 2010 to September 2014. Mr. Cheung received his bachelor and master degrees in engineering, economics, and management from University of Oxford in July 2010.

Employment Agreements and Indemnification Agreements

We have entered into employment agreements with our senior executive officers. Pursuant to these agreements, we are entitled to terminate a senior executive officer’s employment for cause at any time without remuneration for certain acts of the officer, such as being convicted of any criminal conduct, any act of gross or willful misconduct or any serious, willful, grossly negligent or persistent breach of any employment agreement provision, or engaging in any conduct which may make the continued employment of such officer detrimental to our company. Each executive officer agrees that we shall own all the intellectual property developed by such officer during his or her employment. We also enter into standard confidentiality and

non-compete

agreements with our senior management in accordance with market practice.

 

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We have entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify them against certain liabilities and expenses that they incur in connection with claims made by reason of their being a director or officer of our company.

 

B.	Compensation

For the year ended December 31, 2021, we paid an aggregate of HK$2.6 million (US$335 thousand) in cash compensation (inclusive of directors’ fees) to our directors. Directors are reimbursed for all expenses incurred in connection with each board of directors meeting and when carrying out their duties as directors of our company.

For the year ended December 31, 2021, we paid an aggregate of HK$19.9 million (US$2.5 million) in cash compensation to our executive officers, excluding compensation paid to the executive officers who also serve and receive compensation as our directors.

We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers. Our Hong Kong subsidiaries are required by the Hong Kong Mandatory Provident Fund Schemes Ordinance to make monthly contributions to the mandatory provident fund scheme in an amount equal to at least 5% of an employee’s salary subject to a cap of HK$1,500 per month per employee.

Stock Incentive Plan

AMTD SpiderMan Share Incentive Plan

In June 2019, our board of directors approved the AMTD SpiderMan Share Incentive Plan, or the 2019 Plan, to attract and retain the best available personnel, provide additional incentives to employees, directors, and consultants, and promote the success of our business. The maximum aggregate number of ordinary shares that may be issued under the Plan is initially 20,000,000 and on January 1 of each year after the effective date of the 2019 Plan, will automatically increase to the number of shares that is equal to ten percent (10%) of the total issued and outstanding share capital of our company as of December 31 of the preceding year. In addition, on January 1 of each year after the effective date of the Plan, the aggregate number of shares that may be issued under the 2019 Plan will automatically increase by the number of shares representing 1.0% of the total issued and outstanding share capital of our company as of December 31 of the preceding year, or such less number as our board of directors may determine. As of the date of this annual report, no awards have been granted under the Plan. As of the date of this annual report, no awards have been granted under the Plan.

The following paragraphs summarize the principal terms of the 2019 Plan.

Type of Awards

. The 2019 Plan permits the awards of options, restricted share units, restricted shares, or other types of award approved by the plan administrator.

Plan Administration

. Our board of directors or a committee appointed by the board of directors will administer the 2019 Plan. The plan administrator will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each grant.

Award Agreement

. Awards granted under the 2019 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

Eligibility

. We may grant awards to our directors, employees and consultants.

Vesting Schedule

. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.

 

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Exercise of Options

. The plan administrator determines the exercise price for each award, which is stated in the relevant award agreement. Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator determines at the time of grant. However, the maximum exercisable term is ten years from the date of grant.

Transfer Restrictions

. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the 2019 Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.

Termination and Amendment of the Plan

. Unless terminated earlier, the 2019 Plan has a term of ten years from the date of effectiveness of the 2019 Plan. Our board of directors has the authority to terminate, amend, suspend or modify the 2019 Plan in accordance with our articles of association. However, without the prior written consent of the participant, no such action may adversely affect in any material way any award previously granted pursuant to the 2019 Plan.

 

C.	Board Practices

Board of Directors

Our board of directors consists of five directors. A director is not required to hold any shares in our company to qualify to serve as a director. Subject to the NYSE rules and disqualification by the chairman of the board of directors, a director may vote with respect to any contract, proposed contract, or arrangement in which he or she is materially interested. A director may exercise all the powers of the company to borrow money, mortgage its business, property, and uncalled capital and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party.

Executive Management Committee of the Board of Directors

We have established an executive management committee under the board of directors as the core of our management decision hub and comprehensive and robust risk management system to conclude key management decisions, evaluate risks across our business lines, and ensure compliance with relevant laws and regulations.

Our executive management committee is responsible for (i) overseeing our operational and business activities, (ii) managing risks across all business units and mid-to-back office functions, and (iii) implementing and executing policies and strategies as determined by our board of directors. The executive management committee supervises our chief executive officer and the rest of the management team, and our chief executive officer regularly reports to the executive management committee as part of our overall corporate management and oversight.

Our executive management committee is chaired by Dr. Frederic Lau. Members of our executive management committee will be appointed on a rotation basis by the chairperson of the executive management committee or the chairman of the audit committee, among different members of the senior management team and/or invitation of external industry experts, depending on the specific agenda to be discussed and resolved by the executive management committee.

Other Committees of the Board of Directors

We have an audit committee, a compensation committee, and a nominating and corporate governance committee, under the board of directors. We have adopted a charter for each of these committees. Each committee’s members and functions are described below.

Audit Committee

. Our audit committee consists of Dr. Feridun Hamdullahpur, Dr. Timothy Tong, and Dr. Annie Koh, and is chaired by Dr. Feridun Hamdullahpur. Dr. Feridun Hamdullahpur, Dr. Timothy Tong, and

 

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Dr. Annie Koh each satisfies the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange and meet the independence standards under Rule

10A-3

under the Exchange Act. We have determined that Dr. Timothy Tong qualifies as an “audit committee financial expert.” The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:

 

•

selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm;

 

•

reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response;

 

•

reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;

 

•

discussing the annual audited financial statements with management and the independent registered public accounting firm;

 

•

reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;

 

•

annually reviewing and reassessing the adequacy of our audit committee charter;

 

•

meeting separately and periodically with management and the independent registered public accounting firm; and reporting regularly to the board.

All decisions at any meeting of the audit committee are decided by a majority of votes of the members presents and voting and such decision at all times exclude the vote, approval or recommendation of any member who has a conflict of interest in the subject matter under consideration.

Compensation Committee

. Our compensation committee consists of Dr. Timothy Tong, Mr. Marcellus Wong, and Dr. Feridun Hamdullahpur, and is chaired by Dr. Timothy Tong. Dr. Timothy Tong and Dr. Feridun Hamdullahpur each satisfies the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated upon. The compensation committee will be responsible for, among other things:

 

•

reviewing the total compensation package for our executive officers and making recommendations to the board with respect to it;

 

•

reviewing the compensation of our non-employee directors and making recommendations to the board with respect to it; and periodically reviewing and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, and employee pension and welfare benefit plans.

All decisions at any meeting of the compensation committee are decided by a majority of votes of the members presents and voting and such decision at all times exclude the vote, approval or recommendation of any member who has a conflict of interest in the subject matter under consideration.

Nominating and Corporate Governance Committee

. Our nominating and corporate governance committee consists of Dr. Feridun Hamdullahpur, Dr. Timothy Tong, and Dr. Annie Koh, and is chaired by Dr. Feridun Hamdullahpur. Dr. Feridun Hamdullahpur, Dr. Timothy Tong, and Dr. Annie Koh each satisfies the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporate governance committee will assist the board in selecting individuals

 

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qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:

 

•

recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board;

 

•

reviewing annually with the board the current composition of the board with regards to characteristics such as independence, age, skills, experience and availability of service to us;

 

•

selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself;

 

•

monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance; and

 

•

undertaking generally such other functions and duties as may be required by law or the Listing Manual of the SGX-ST, and by amendments made thereto from time to time.

 

•

All decisions at any meeting of the nominating and corporate governance committee are decided by a majority of votes of the members presents and voting and such decision at all times exclude the vote, approval or recommendation of any member who has a conflict of interest in the subject matter under consideration.

Duties of Directors

Under Cayman Islands law, our directors owe fiduciary duties to us, including a duty of loyalty, a duty to act honestly, in good faith and with a view to our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to act with skill and care. English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association and the class rights vested thereunder in the holders of the shares. A shareholder may in certain limited exceptional circumstances have the right to seek damages in our name if a duty owed by our directors is breached.

Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:

 

•

convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;

 

•

declaring dividends and distributions;

 

•

appointing officers and determining the term of office of the officers;

 

•

exercising the borrowing powers of our company and mortgaging the property of our company; and

 

•

approving the transfer of shares in our company, including the registration of such shares in our share register.

Terms of Directors and Officers

Members of our executive management committee will be appointed on a rotation basis by the chairperson of the executive management committee or the chairman of the audit committee, among different members of the senior management team and/or invitation of external industry experts, depending on the specific agenda to be discussed and resolved by the executive management committee.

 

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Our other officers are elected by and serve at the discretion of the board of directors. Our directors are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution of the shareholders or by the board. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; or (ii) is found by our company to be or becomes of unsound mind.

 

D.

Employees

We had 40, 46 and 39 employees as of December 31, 2019, 2020, and 2021, respectively. All of our employees are based in Hong Kong.

The following tables sets forth the number of our employees by function as of December 31, 2021.

 

Function		Number of Employees				Percentage
Executive officers			6				15.4	%
Licensed professionals			21				53.8	%
Supporting staff			12				30.8	%
Total			39				100.0	%

Our success depends on our ability to attract, retain, and motivate qualified employees. We offer employees competitive salaries, performance-based cash bonuses, comprehensive training and development programs, and other fringe benefits and incentives. We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes or work stoppages. None of our employees are represented by labor unions, and no collective bargaining agreement has been put in place.

As required by Hong Kong laws and regulations, we participate in a pension scheme under the rules and regulations of the Mandatory Provident Fund Scheme Ordinance, or MPF Scheme, for all employees in Hong Kong. The contributions to the MPF Scheme are based on a minimum statutory contribution requirement of 5% of eligible employees’ relevant aggregate income up to a maximum of HK$1,500 per employee per month. The assets of this pension scheme are held separately from those of our group in independently administered funds. Other than the contributions, we have no further obligation for the payment of retirement and other post-retirement benefits of our employees in Hong Kong.

Dual Appointments

The nominating and corporate governance committee and the board are of the view that our directors and executive officers who hold dual-appointments on both our company and AMTD Group are able to devote sufficient time to the management of our company. In addition, majority of the management’s time will rest with our company instead of AMTD Group with the management’s attention to be focused on our company first, before AMTD Group.

 

E.	Share Ownership

The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of the date of this annual report by:

 

•

each of our directors and executive officers; and

 

•

each person known to us to own beneficially more than 5% of our ordinary shares.

 

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The calculations in the shareholder table below are based on 377,604,189 ordinary shares issued and outstanding as of the date of this annual report, comprising of (i) 144,077,210 Class A ordinary shares, and (ii) 233,526,979 Class B ordinary shares.

 

		Class A Ordinary Shares				Class B Ordinary Shares				Percentage of Beneficial Ownership†				Percentage of Voting Power††
Directors and Executive Officers:*
Dr. Feridun Hamdullahpur (1)			—				—				—				—
Dr. Timothy Tong (2)			—				—				—				—
Dr. Annie Koh (3)			—				—				—				—
Marcellus Wong			—				—				—				—
Raymond Yung			—				—				—				—
Frederic Lau			—				—				—				—
William Fung			—				—				—				—
Xavier Ho Sum Zee			—				—				—				—
Jason Man Chun Chiu			—				—				—				—
Bert Chun Lung Tsang			—				—				—				—
Ming Lin Cheung			—				—				—				—
All directors and executive officers as a group			—				—				—				—
Principal Shareholders:
AMTD Group (4)			41,729,647				149,322,836				50.6				88.2
Infinity Power Investments Limited (5)			13,562,135				63,589,392				20.4				51.3
Century City International Holdings Limited (6)			21,844,724				—				5.8				0.6

 

Notes:

 

*	Less than 1% of our total outstanding ordinary shares.

**	Except as indicated otherwise below, the business address of our directors and executive officers is 23/F Nexxus Building, 41 Connaught Road Central, Hong Kong.

†

Beneficial ownership is determined in accordance with the SEC rules, and includes voting or investment power with respect to the securities. For each person and group included in this column, percentage of beneficial ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the total number of shares outstanding and the number of shares such person or group has the right to acquire upon exercise of option, warrant, or other right within 60 days after the date of this annual report.

††

For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a single class. Each holder of Class B ordinary shares is entitled to twenty votes per share, and each holder of our Class A ordinary shares is entitled to one vote per share on all matters submitted to them for a vote. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. Our Class B ordinary shares are convertible at any time by the holder thereof into Class A ordinary shares on a one-for-one basis.

(1)	The business address of Dr. Feridun Hamdullahpur is University of Waterloo, 200 University Avenue, West Waterloo, Ontario, Canada N2L3G1.

(2)	The business address of Dr. Timothy Tong is 23/F-25/F, Nexxus Building, 41 Connaught Road Central, Hong Kong.

(3)	The business address of Dr. Annie Koh is Singapore Management University, 81 Victoria Street, Singapore 188065.

(4)

AMTD Group directly holds 149,322,836 Class B ordinary shares of the Company and indirectly and effectively holds 41,729,647 Class A ordinary shares of the Company through its subsidiaries including AMTD Assets Alpha Group and AMTD Education Group. AMTD Group is a British Virgin Islands company, with its registered address at the offices of Vistra (BVI) Limited, Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. The board of directors of AMTD Group consists of Dr. Calvin Choi, Marcellus Wong, Yu Gao, and Dr. Feridun Hamdullahpur.

(5)

Infinity Power Investments Limited directly holds (i) 15,059,470 Class B ordinary shares of the Company and (ii) 32.5% of the issued and outstanding shares of AMTD Group, which in turn effectively holds 41,729,647 Class A ordinary shares and 149,322,836 Class B ordinary shares of the Company. Infinity Power Investments Limited is a British Virgin Islands company wholly-owned by Dr. Calvin Choi. The registered address of Infinity Power Investments Limited is Vistra Corporate Services Center, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.

(6)

Century City International Holdings Limited, a Bermuda company with its shares listed on the Stock Exchange of Hong Kong (stock code: 355), through its subsidiaries, namely P&R Finance Limited, Clear Radiant Limited and Unicorn Star Limited, holds 21,844,724 Class A ordinary shares of the Company. Such shareholding information is based on the information set forth in the Schedule 13D filed by P&R Finance Limited, Clear Radiant Limited, Unicorn Star Limited and Century City International Holdings Limited jointly on

 

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January 13, 2022. P&R Finance Limited is a Hong Kong company, with its registered address at 11/F, Yee Wo Street, Causeway Bay, Hong Kong, Clear Radiant Limited is a British Virgin Islands company, with its registered address at the offices of Vistra (BVI) Limited, Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands, and Unicorn Star Limited is a British Virgin Islands company, with its registered address at the offices of Vistra (BVI) Limited, Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.

To our knowledge and based on our review of our register of shareholders as of the date of this annual report, 23,333,310 Class A ordinary shares were held of record by one holder that reside in the United States, being The Bank of New York Mellon, the depositary of our ADS program. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our Class A ordinary shares in the United States. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

Enforceability of Civil Liabilities

Most of our operations are conducted in Hong Kong, and substantially all of our assets are located in Hong Kong. A majority of our directors and executive officers are nationals or residents of jurisdictions other than the United States and most of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these individuals, to bring an action against us or these individuals in the United States, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have been informed by our Cayman Islands legal counsel that the United States and the Cayman Islands do not have a treaty providing for reciprocal recognition and enforcement of judgments of U.S. courts in civil and commercial matters and that there is uncertainty as to whether the courts of the Cayman Islands would (i) recognize or enforce judgments of U.S. courts obtained against us or our directors or officers, predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (ii) entertain original actions brought in the Cayman Islands against us or our directors or officers, predicated upon the securities laws of the United States or any state in the United States. We have also been advised by our Cayman Islands legal counsel that a judgment obtained in any federal or state court in the United States will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (i) is given by a foreign court of competent jurisdiction, (ii) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (iii) is final and conclusive, (iv) is not in respect of taxes, a fine or a penalty, and (v) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.

There is uncertainty as to whether the courts of the Cayman Islands would recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. Such uncertainty relates to whether a judgment obtained from the United States courts under the civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company or its directors and officers. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.

Our Hong Kong legal counsel has advised us that judgment of United States courts will not be directly enforced in Hong Kong. There are currently no treaties or other arrangements providing for reciprocal enforcement of foreign judgments between Hong Kong and the United States. However, the common law permits an action to be brought upon a foreign judgment. That is to say, a foreign judgment itself may form the basis of a cause of action since the judgment may be regarded as creating a debt between the parties to it. In a common law

 

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action for enforcement of a foreign judgment in Hong Kong, the enforcement is subject to various conditions, including but not limited to, that the foreign judgment is a final judgment conclusive upon the merits of the claim, the judgment is for a liquidated amount in a civil matter and not in respect of taxes, fines, penalties, or similar charges, the proceedings in which the judgment was obtained were not contrary to natural justice, and the enforcement of the judgment is not contrary to public policy of Hong Kong. Such a judgment must be for a fixed sum and must also come from a “competent” court as determined by the private international law rules applied by the Hong Kong courts. The defenses that are available to a defendant in a common law action brought on the basis of a foreign judgment include lack of jurisdiction, breach of natural justice, fraud, and contrary to public policy. However, a separate legal action for debt must be commenced in Hong Kong in order to recover such debt from the judgment debtor.

 

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A.	Major Shareholders

Please refer to “Item 6.E. Directors, Senior Management and Employees—Share Ownership.”

 

B.	Related Party Transactions

Transactions with Our Controlling Shareholder

Immediately following our initial public offering in August 2019, we entered into an intercompany financing agreement with our Controlling Shareholder, pursuant to which we may from time to time incur expenses for each other, settle each other’s liabilities, and/or transfer certain excess cash to each other at an interest rate of 2% per annum, repayable upon demand.

Our Controlling Shareholder recharged staff costs, premises costs, office utilities and office renovation, and certain other operating expenses to us. Beginning from the third quarter of fiscal year 2019, our Controlling Shareholder has charged a fixed service fee of HK$6.0 million (US$0.8 million) per quarter in place of certain recharging arrangement. For the year ended December 31, 2021, HK$24.0 million (US$3.1 million) was charged by our Controlling Shareholder.

In August 2019, we entered into an intercompany financing agreement with the Controlling Shareholder, we made unsecured, interest bearing advances with no fixed term of repayment to our Controlling Shareholder and its subsidiaries for fund allocation purposes. On September 30, 2021, HK$5.0 billion (US$0.6 billion) out of the amount of the outstanding balance due from our Controlling Shareholder and its subsidiaries was offset against the consideration for the 69,144,673 Class B ordinary shares repurchased from our Controlling Shareholder. As of December 31, 2021, the amount of outstanding balance due from our Controlling Shareholder and its subsidiaries was HK$2.2 billion (US$0.3 billion). For the year ended December 31, 2021, interest income of HK$116.3 (US$14.9 million) was charged to the Controlling Shareholder.

In June 2020 and July 2021, we acquired ordinary shares of other subsidiaries of AMTD Group from the immediate holding company at considerations of HK$556.2 million and HK$163.2 million (US$20.9 million), respectively.

In February 2022, we acquired a total of 31,732,000 Class A ordinary shares and 24,202,000 Class B ordinary shares of AMTD Digital Inc., priced at US$17.75 per share, from certain of its shareholders, including our Controlling Shareholder, for a total consideration of approximately US$992.6 million (HK$7,742.2 million). We issued a total of 67,200,330 Class A ordinary shares and 51,253,702 Class B ordinary shares in settlement of the consideration payable for the acquisition. AMTD Digital Inc. is a comprehensive one-stop digital solutions platform in Asia and was a subsidiary of AMTD Group prior to the acquisition. AMTD Digital Inc. became our consolidated subsidiary as a result of the acquisition.

 

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Other Transactions with Related Parties

For the year ended December 31, 2021, the total amount of financial advisory fees that we charged entities that were previously fellow subsidiaries of AMTD Group was HK$104.3 million (US$13.4 million).

In September 2017, we entered into certain stock lending agreements with a former shareholder of our Controlling Shareholder, pursuant to which we lent listed equity shares to the shareholder. As of December 31, 2020, the value of the listed equity shares was HK$876.1 million and these shares were returned to us during the year ended December 31, 2021.

In December 2019, the controlling person of the counterparty with which we entered into certain derivative agreements in April 2019 was appointed as a director, therefore the counterparty has become a related party of our company. Pursuant to these derivative agreements, the counterparty is entitled to a certain percentage of the gain of certain underlying assets if the market price or disposal price is higher than the agreed underlying price, and shall pay a sum equivalent to the loss of certain underlying assets if the market price or disposal price is lower than the agreed underlying price. For the year ended December 31, 2020, the unrealized gain on the derivative financial asset entered into with the related party was HK$321.8 million. In June 2020, we disposed certain underlying assets to the related party at a consideration of HK$972.2 million and therefore part of the derivatives contracts have also been settled with a consideration of HK$618.7 million. For the year ended December 31, 2020, the total amount of asset management service fee income and financial advisory fee income that we earned from the counterparty were HK$2.7 million and HK$95.5 million, respectively. In December 2020, the subject director resigned from our Board and the counterparty ceased to be a related party.

In December 2019, we issued 4,526,627 Class B ordinary shares to Infinity Power Investments Limited for an aggregate subscription price of US$38.3 million in a private placement. Infinity Power Investments Limited is a British Virgin Islands company wholly owned by our founder, Dr. Calvin Choi, which owns 32.5% of the total outstanding shares of our Controlling Shareholder.

In March 2020, we listed the MTN Program on the SEHK and, subsequently in April 2020, we dual listed the MTN Program on the

SGX-ST.

Later in the same month, we extended the Exchange Offer under the MTN Program. For further details, see “Item 4.—Information on the Company—A. History and Development of the Company—Our Company.” In May 2020, we issued US$200 million 7.25% senior perpetual securities and S$50 million 4.5% senior perpetual securities. On October 27, 2021, approximately S$11.2 million 4.5% senior perpetual securities were repurchased from other subsidiaries of AMTD Group.

In May 2020, we entered into a stock lending agreement with a former fellow subsidiary of AMTD Group, pursuant to which we lent listed equity shares to such entity. As of December 31, 2020, the value of the listed equity shares was HK$2.4 million. The stock loan was settled during the year ended December 31, 2021.

In October and November 2020, we acquired two equity linked notes from former fellow subsidiaries of AMTD Group at a consideration of HK$148.7 million. During the years ended December 31, 2020 and 2021, the aforesaid equity linked notes were settled at consideration of HK$195.8 million and HK$181.6 million (US$23.3 million) respectively, and generated realized and unrealized gain of HK$109.6 million and HK$119.1 million (US$15.3 million), respectively.

In July 2021, we disposed of an investment to a former fellow subsidiary of AMTD Group for a consideration of HK$196.0 million (US$25.1 million), generating a gain on disposal of HK$6.0 million (US$0.8 million).

In December 2021, we acquired an unlisted investment from another subsidiary of AMTD Group at a consideration of HK$11.5 million (US$1.5 million).

 

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In December 2021, we entered into a stock lending agreement with an entity that was a former fellow subsidiary of AMTD Group, pursuant to which we lent listed equity shares to such entity. As of December 31, 2021, the value of the listed equity shares was HK$211.3 million (US$27.1 million).

Employment Agreements

See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Employment Agreements and Indemnification Agreements.”

Share Options

See “Item 6. Directors, Senior Management and Employees—B. Compensation—Stock Incentive Plan.”

 

C.	Interests of Experts and Counsel

Not applicable.

 

ITEM 8.

FINANCIAL INFORMATION

 

A.	Consolidated Statements and Other Financial Information

We have appended consolidated financial statements filed as part of this annual report.

Legal Proceedings

From time to time, we may become a party to various legal or administrative proceedings arising in the ordinary course of our business, including actions with respect to intellectual property infringement, conflicts with regard to third-party license or other rights, exposures to disputes with regard to contracts, or labor and employment claims. We are currently not a party to, and we are not aware of any threat of, any legal or administrative proceedings that, in the opinion of our management, are likely to have a material and adverse effect on our business, financial condition or results of operations and cash flows.

Other Matters

AMTD Global Markets Limited, or AMTD GM, our wholly-owned subsidiary, was penalized by the Hong Kong Confederation of Insurance Brokers, or HKCIB, four times from 2016 to 2019 in relation to the retail advisory business distributing investment-linked products for failure to do everything possible to satisfy the insurance requirements of client and to place the interests of client before all other considerations, as well as failure to ensure that its technical representative is a fit and proper person. HKCIB issued fines to AMTD GM ranging from HK$50,000 to HK$250,000.

AMTD Group, our Controlling Shareholder, was founded by CK Hutchison Holdings Limited in 2003. The management teams of AMTD Group as well as AMTD GM were appointed by CK Hutchison Holdings Limited. In late 2015, L.R. Capital Group Inc. (“L.R. Capital”) acquired a majority stake in AMTD Group and the then management team was replaced by the current management team in 2016. On December 31, 2020, AMTD Group and L.R. Capital entered into a share repurchase agreement, where AMTD Group repurchased certain shares in AMTD Group previously allotted to L.R. Capital. The remaining shares held by L.R. Capital in AMTD Group Company Limited were disposed to a third party with a completion on December 31, 2021. Subsequently, L.R. Capital ceased to be a shareholder of AMTD Group.

Three of four of the cases for which the AMTD GM had been penalized by HKCIB were in relation to matters of similar nature whereby the previous management team and its insurance staff had not carried out their

 

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work in accordance with regulatory standards. Three separate cases occurred in 2011, 2012, and 2014, and were recorded as each case arose from a separate complaint. These cases were concluded in April 2016, September 2016, and April 2019, respectively. These cases concluded in fines of HK$150,000, HK$50,000, and HK$250,000, respectively, on AMTD GM. Since the current management team had assumed its position in 2016, it had enhanced its internal control processes in order to prevent the reoccurrence of such lapses in proper procedures in the future.

Additionally, AMTD Group had terminated its retail advisory business distributing investment-linked products in May 2016, and had not been involved in the sale of investment-linked assurance schemes to new individual clients but remains focusing only on corporate and institutional clients.

In 2018, HKCIB had conducted a regular inspection on AMTD GM and the result was a clean report with no identified issues or

follow-up

items. In addition, the profit from insurance brokerage business constitutes around 1% of net profit to AMTD GM, which is immaterial.

Dividend Policy

Although we intend to distribute dividends in the future, the amount, timing, and whether or not we actually distribute dividends at all is at the discretion of our board of directors.

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in Hong Kong for our cash requirements, including any payment of dividends to our shareholders.

Our board of directors has complete discretion on whether to distribute dividends, subject to applicable laws. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under the Cayman Islands law, a Cayman Islands company may pay a dividend either out of profit or share premium account, provided that in no circumstances may a dividend be paid if the dividend payment would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency, and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, and other factors that the board of directors may deem relevant.

If we pay any dividends on our ordinary shares, we will pay those dividends that are payable in respect of the ordinary shares underlying our ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to our ADS holders in proportion to the ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

 

B.	Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

 

ITEM 9.

THE OFFER AND LISTING

 

A.	Offer and Listing Details

The ADSs, each representing one Class A ordinary share, have been listed on NYSE since August 5, 2019. The ADSs were previously traded under the ticker symbol “HKIB” and are currently traded under the symbol “AMTD.” Our Class A ordinary shares have been listed on

SGX-ST

since April 8, 2020 under the symbol “HKB.”

 

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B.	Plan of Distribution

Not applicable.

 

C.

Markets

The ADSs, each representing one Class A ordinary share, have been listed on NYSE since August 5, 2019. The ADSs are currently traded under the symbol “AMTD.” Our Class A ordinary shares have also been listed on

SGX-ST

since April 8, 2020 and trade under the symbol “HKB.”

 

D.	Selling Shareholders

Not applicable.

 

E.

Dilution

Not applicable.

 

F.	Expenses of the Issue

Not applicable.

 

ITEM 10.

ADDITIONAL INFORMATION

 

A.	Share Capital

Not applicable.

 

B.	Memorandum and Articles of Association

Our fourth amended and restated memorandum and articles of association became effective on March 1, 2022. The following are summaries of material provisions of our fourth amended and restated memorandum and articles of association and the Companies Act of the Cayman Islands (as revised) insofar as they relate to the material terms of our ordinary shares.

Registered Office and Objects

Pursuant to Article 2 of our fourth amended and restated memorandum of association, our registered office is at the offices of Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman,

KY1-1111,

Cayman Islands or at such other place as our board of directors may from time to time decide. Pursuant to Article 3 of our fourth amended and restated memorandum of association, the objects for which our company is established are unrestricted and our company has full power and authority to carry out any object not prohibited by the Companies Act of the Cayman Islands (as revised) as the same may be revised from time to time, or any other law of the Cayman Islands.

Directors

See “Item 6.C. Directors, Senior Management and Employees—Board Practices.”

Ordinary Shares

General

. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and

 

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conversion rights. Each Class B ordinary share shall entitle the holder thereof to twenty votes on all matters subject to vote at our general meetings, and each Class A ordinary share shall entitle the holder thereof to one vote on all matters subject to vote at our general meetings. Our ordinary shares are issued in registered form and are issued when registered in our register of members.

Conversion

. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. The right to convert shall be exercisable by the holder of the Class B ordinary share delivering a written notice to the Company that such holder elects to convert a specified number of Class B ordinary shares into Class A ordinary shares. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of any Class B ordinary shares by a holder thereof to any person other than our founder, Dr. Calvin Choi, or any other person or entity designated by Dr. Choi, each of such Class B ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary share.

Dividends

. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors or declared by our shareholders by ordinary resolution (provided that no dividend may be declared by our shareholders which exceeds the amount recommended by our directors). Our currently effective memorandum and articles of association provide that subject to any rights and restrictions for the time being attached to any shares, the directors of the Company may from time to time declare dividends (including interim dividends) and other distributions on shares in issue and authorize payment of the same out of funds of the Company lawfully available therefor. Under the laws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if the dividend payment would result in our company being unable to pay its debts as they fall due in the ordinary course of business.

Voting Rights

. Our ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law, or otherwise agreed in our currently effective memorandum and articles of association. On a poll, each holder of Class B ordinary shares is entitled to twenty votes per share, and each holder of our Class A ordinary shares is entitled to one vote per share on all matters submitted to them for a vote. On a show of hands, each holder of Class A ordinary shares or Class B ordinary shares has one vote. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more shareholders who together hold not less than 10% of the total number of votes attaching to all issued and outstanding ordinary shares which are present in person or by proxy entitled to vote at the meeting.

An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a general meeting of our company, while a special resolution requires the affirmative vote of no less than

two-thirds

of the votes cast by such shareholders as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorized representatives, at a general meeting of our company. A special resolution will be required for important matters such as a change of name or making changes to our currently effective memorandum and articles of association. Our shareholders may, among other things, divide or combine their shares by ordinary resolution.

General Meetings of Shareholders

. As a Cayman Islands exempted company with limited liability, we are not obliged by the Companies Act (as revised) to call shareholders’ annual general meetings. Our currently effective memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.

Shareholders’ general meetings may be convened by a majority of our board of directors. Advance notice of at least seven days is required for the convening of our annual general shareholders’ meeting (if any) and any

 

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other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than

one-third

of all votes attaching to all of our shares in issue and entitled to vote.

The Companies Act of the Cayman Islands (as revised) provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our currently effective memorandum and articles of association provide that upon the requisition of any one or more of our shareholders who together holds shares at the date of deposit of the requisite shares which carry in aggregate not less than

one-third

of all issued and outstanding shares of the Company that as at the date of the deposit carry the right to vote at general meetings of our company, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our currently effective memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.

Election, Removal and Remuneration of Directors

. Unless otherwise determined by our company in general meeting, our currently effective memorandum and articles of association provide that our board will consist of not less than three directors. There are no provisions relating to retirement of directors upon reaching any age limit.

The directors have the power to appoint any person as a director either to fill a vacancy on the board or as an addition to the existing board. Our shareholders may also appoint any person to be a director by ordinary resolution. A director shall not be required to hold any Shares in the Company by way of qualification.

A director may be removed with or without cause by ordinary resolution.

The remuneration of the directors may be determined by the directors or by ordinary resolution of shareholders.

Transfer of Ordinary Shares

. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

 

•

the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

 

•

the instrument of transfer is in respect of only one class of shares;

 

•

the instrument of transfer is properly stamped, if required;

 

•

in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof.

If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, after compliance with any notice required of the NYSE, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine,

 

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provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year as our board may determine.

Liquidation

. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the

paid-up

capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.

Calls on Shares and Forfeiture of Shares

. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.

Redemption, Repurchase and Surrender of Shares

. We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors. Our company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act of the Cayman Islands (as revised), the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act of the Cayman Islands (as revised) no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.

Variations of Rights of Shares

. If at any time, our share capital is divided into different classes or series of shares, the rights attached to any such class or series of shares may, subject to any rights or restrictions for the time being attached to any classes or series, only be materially adversely varied with the consent in writing of the holders of all of the issued shares of that class or series or with the sanction of an ordinary resolution passed at a separate meeting of the holders of the shares of that class or series. The rights conferred upon the holders of the shares of any class or series issued with preferred or other rights will not, subject to any rights or restrictions for the time being attached to the shares of that class or series, be deemed to be materially adversely varied by the creation, allotment, or issue of further shares ranking pari passu with or subsequent to them. The rights of the holders of shares will not be deemed to be materially adversely varied by the creation or issue of class or series of shares with preferred or other rights including, without limitation, the creation of class or series of shares with enhanced or weighted voting rights.

Issuance of Additional Shares

. Our currently effective memorandum and articles of association authorizes our board of directors to issue additional shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.

Our currently effective memorandum and articles of association also authorizes our board of directors to create from time to time one or more classes or series of preferred shares and to determine, with respect to any such class or series of preferred shares, the terms and rights of that class or series, including:

 

•

the designation of the class or series;

 

•

the number of shares of the class or series;

 

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•

the dividend rights, dividend rates, conversion rights, voting rights; and the rights and terms of redemption and liquidation preferences.

Our board of directors may issue preferred shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.

Inspection of Books and Records

. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements.

Anti-Takeover Provisions

. Some provisions of our currently effective memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:

 

•

authorize our board of directors to create and issue new classes or series of shares (including preferred shares) and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders; and

 

•

limit the ability of shareholders to requisition and convene general meetings of shareholders.

However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our currently effective memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.

Exempted Company

. We are incorporated as an exempted company with limited liability under the Companies Act of the Cayman Islands (as revised). The Companies Act of the Cayman Islands (as revised) distinguishes between ordinary resident companies and exempted companies. Any company that is incorporated in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be incorporated as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:

 

•

does not have to file an annual return of its shareholders with the Registrar of Companies;

 

•

is not required to open its register of members for inspection;

 

•

does not have to hold an annual general meeting;

 

•

may issue negotiable or bearer shares or shares with no par value;

 

•

may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

 

•

may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

 

•

may register as a limited duration company; and may register as a segregated portfolio company.

“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil)

 

C.	Material Contracts

Other than in the ordinary course of business and other than those described under this item, in “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions,” or elsewhere in this annual report, we have not entered into any material contract during the two years immediately preceding the date of this annual report.

 

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D.	Exchange Controls

There are currently no foreign exchange control restrictions in Hong Kong or similar laws, decrees, regulatory or other requirements that may affect the following:

 

(a)

The ability to transfer funds by or to the Company in the form of repatriation of capital and remittance of profits;

 

(b)

The availability of cash and cash equivalents for use by the Company; and

The remittance of dividends, interest or other payments to holders of the Company’s securities.

 

E.

Taxation

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations outside of the Cayman Islands based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ADSs or ordinary shares, nor will gains derived from the disposal of our ADSs or ordinary shares be subject to Cayman Islands income or corporation tax.

Hong Kong Taxation

The following summary of certain relevant taxation provisions under the laws of Hong Kong is based on current law and practice and is subject to changes therein. This summary does not purport to address all possible tax consequences relating to purchasing, holding or selling the ADSs and/or Class A ordinary shares, and does not take into account the specific circumstances of any particular investors, some of whom may be subject to special rules. Accordingly, holders or prospective purchasers (particularly those subject to special tax rules, such as banks, dealers, insurance companies and

tax-exempt

entities) should consult their own tax advisers regarding the tax consequences of purchasing, holding or selling the ADSs and/or Class A ordinary shares. Under the current laws of Hong Kong:

 

•

No profit tax is imposed in Hong Kong in respect of capital gains from the sale of the ADSs and/or Class A ordinary shares.

 

•

Revenue gains from the sale of ADSs and/or Class A ordinary shares by persons carrying on a trade, profession or business in Hong Kong where the gains are derived from or arise in Hong Kong from the trade, profession or business will be chargeable to Hong Kong profits tax, or Assessable Profits. Corporations will be subject to a 8.25% profit tax on the first HK$2,000,000 of any generated Assessable Profits, and any Assessable Profits above HK$2,000,000 will be subject to a 16.5% profit tax. Unincorporated businesses will be subject to a 7.5% profit tax on the first HK$2,000,000 of any generated Assessable Profits, and any Assessable Profits above HK$2,000,000 will be subject to a 15% profit tax.

 

•

Purchases and sales of ADSs and/or Class A ordinary shares are effected outside of Hong Kong such as, for example, on the NYSE, should not be subject to Hong Kong profits tax.

 

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According to the current tax practice of the Hong Kong Inland Revenue Department, dividends paid on the ADSs and/or Class A ordinary shares would not be subject to any Hong Kong tax.

No Hong Kong stamp duty is payable on the purchase and sale of the ADSs and/or Class A ordinary shares.

United States Federal Income Tax Considerations

The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of our ADSs or ordinary shares by a U.S. Holder (as defined below) that holds our ADSs or ordinary shares as “capital assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service, or the IRS, with respect to any U.S. federal income tax considerations described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion, moreover, does not address the U.S. federal estate, gift, and alternative minimum tax considerations, the Medicare tax on certain net investment income, information reporting or backup withholding or any state, local, and

non-U.S.

tax considerations, relating to the ownership or disposition of our ADSs or ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances or to persons in special tax situations such as:

 

•

banks and other financial institutions;

 

•

insurance companies;

 

•

pension plans;

 

•

cooperatives;

 

•

regulated investment companies;

 

•

real estate investment trusts;

 

•

broker-dealers;

 

•

traders that elect to use a mark-to-market method of accounting;

 

•

certain former U.S. citizens or long-term residents;

 

•

tax-exempt entities (including private foundations);

 

•

individual retirement accounts or other tax-deferred accounts;

 

•

persons liable for alternative minimum tax;

 

•

persons who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation;

 

•

investors that will hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes;

 

•

investors that have a functional currency other than the U.S. dollar;

 

•

persons that actually or constructively own 10% or more of our ADSs or ordinary shares (by vote or value); or

 

•

partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding the ADSs or ordinary shares through such entities,

all of whom may be subject to tax rules that differ significantly from those discussed below.

 

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Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and the state, local,

non-U.S.,

and other tax considerations of the ownership and disposition of our ADSs or ordinary shares.

General

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is, for U.S. federal income tax purposes:

 

•

an individual who is a citizen or resident of the United States;

 

•

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the laws of the United States or any state thereof or the District of Columbia;

 

•

an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or

 

•

a trust (i) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust, or (ii) that has otherwise validly elected to be treated as a U.S. person under the Code.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ADSs or ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding our ADSs or ordinary shares and their partners are urged to consult their tax advisors regarding an investment in our ADSs or ordinary shares.

The discussion below assumes that the representations contained in the deposit agreement are and will continue to be true, and that the obligations in the deposit agreement and any related agreement have been and will be complied with in accordance with the terms. For U.S. federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in this manner. Accordingly, deposits or withdrawals of ordinary shares for ADSs will generally not be subject to U.S. federal income tax.

Passive Foreign Investment Company Considerations

A

non-U.S.

corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income, or the asset test. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. Passive assets are those which give rise to passive income, and include assets held for investment, as well as cash, assets readily convertible into cash, and working capital. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.

Based upon our current and projected income and assets and our market capitalization, we do not believe we were a PFIC in 2021 and do not expect to be one for the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a PFIC is a factual determination made annually that will depend, in part, upon the composition and classification of our income and assets, including the relative amounts of income generated by our strategic investment business as compared to our other businesses, and the value of the assets held by our strategic investment business as compared to our other businesses. Because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income and assets as

non-passive,

which may result in our being or

 

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becoming classified as a PFIC in any single year. Furthermore, fluctuations in the market price of our ADSs or ordinary shares may cause us to become a PFIC for subsequent taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to our market capitalization, which is based on the market price of our ADSs or ordinary shares from time to time (which may be volatile). In estimating the value of our goodwill and other unbooked intangibles, we have taken into account our market capitalization. Among other matters, if our market capitalization is less than anticipated or subsequently declines, we may be or become a PFIC for future taxable years. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where our revenue from activities that produce passive income significantly increases relative to our revenue from activities that produce

non-passive

income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming a PFIC may substantially increase.

If we are a PFIC for any year during which a U.S. Holder holds our ADSs or our ordinary shares, there is uncertainty whether we will be treated as a PFIC for succeeding years during which such U.S. Holder holds our ADSs or our ordinary shares unless, in such case, we cease to be treated as a PFIC and such U.S. Holder makes a deemed sale election.

The discussion below under “—Dividends” and “—Sale or Other Disposition” is written on the basis that we will not be or become classified as a PFIC for U.S. federal income tax purposes. The U.S. federal income tax rules that apply generally if we are treated as a PFIC are discussed below under “—Passive Foreign Investment Company Rules.”

Dividends

Any cash distributions paid on our ADSs or ordinary shares out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes. Dividends received on our ADSs or ordinary shares will not be eligible for the dividends received deduction allowed to corporations in respect of dividends received from U.S. corporations.

Individuals and other

non-corporate

U.S. Holders may be subject to tax on any such dividends at the lower capital gain tax rate applicable to “qualified dividend income,” provided that certain conditions are satisfied, including that (i) our ADSs or ordinary shares on which the dividends are paid are readily tradable on an established securities market in the United States, (ii) we are neither a PFIC nor treated as such with respect to a U.S. Holder for the taxable year in which the dividend is paid and the preceding taxable year, and (iii) certain holding period requirements are met. The ADSs are listed on the NYSE, and therefore are considered to be readily tradeable on an established securities market in the United States. There can be no assurance that the ADSs will continue to be considered readily tradable on an established securities market in later years. Because the ordinary shares will not be listed on a U.S. exchange, we do not believe that dividends received with respect to ordinary shares that are not represented by ADSs will be treated as qualified dividends. U.S. Holders are urged to consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to the ADSs or ordinary shares.

For U.S. foreign tax credit purposes, dividends paid on our ADSs or ordinary shares will generally be treated as income from foreign sources and will generally constitute passive category income. The rules governing the foreign tax credit are complex and U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit in their particular circumstances.

 

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Sale or Other Disposition of ADSs or Ordinary Shares

A U.S. Holder will generally recognize gain or loss upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or ordinary shares. Such gain or loss will generally be capital gain or loss. Any such capital gain or loss will be long term if the ADSs or ordinary shares have been held for more than one year.

Non-corporate

U.S. Holders (including individuals) generally will be subject to U.S. federal income tax on long-term capital gain at preferential rates. The deductibility of a capital loss may be subject to limitations. Any such gain or loss that the U.S. Holder recognizes will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes, which could limit the availability of foreign tax credits. Each U.S. Holder is advised to consult its tax advisor regarding the tax consequences if a foreign tax is imposed on a disposition of our ADSs or ordinary shares, including the applicability of any tax treaty and the availability of the foreign tax credit under its particular circumstances.

Passive Foreign Investment Company Rules

If we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, and unless the U.S. Holder makes a

mark-to-market

election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules:

 

•

the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares;

 

•

the amount allocated to the taxable year of the sale or other disposition and to any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income; and

 

•

the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for that year, increased by an additional tax equal to the interest on the resulting tax deemed deferred with respect to each such taxable year.

As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a

mark-to-market

election with respect to such stock. If a U.S. Holder makes this election with respect to our ADSs, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the net amount previously included in income as a result of the

mark-to-market

election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the

mark-to-market

election. If a U.S. Holder makes a

mark-to-market

election in respect of our ADSs and we cease to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that we are not classified as a PFIC. If a U.S. Holder makes a

mark-to-market

election, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the

mark-to-market

election.

The

mark-to-market

election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter, or regularly traded, on a qualified

 

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exchange or other market, as defined in applicable U.S. Treasury regulations. Our ADSs, but not our ordinary shares, will be treated as marketable stock.

Because a

mark-to-market

election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.

We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.

If a U.S. Holder owns our ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621. You should consult your tax advisor regarding the U.S. federal income tax consequences of owning and disposing of our ADSs or ordinary shares if we are or become a PFIC.

 

F.	Dividends and Paying Agents

Not applicable.

 

G.	Statement by Experts

Not applicable.

 

H.	Documents on Display

We have filed with SEC a registration statement on Form

F-1

(File

No. 333-232224),

including relevant exhibits and securities under the Securities Act with respect to underlying ordinary shares represented by the ADSs. We have also filed with SEC a related registration statement on Form

F-6

(File

No. 333-232822)

to register the ADSs.

We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form

20-F,

and other information with SEC. All information filed with SEC can be obtained over the Internet at SEC’s website at

https://www.sec.gov

.

As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to shareholders, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with IFRS, and all notices of shareholders’ meeting and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports, and communications available to holders of ADSs and, upon our written request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

 

I.	Subsidiary Information

Not applicable.

 

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ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to interest rate risk primarily relates to the bank balances, loans receivable and bank borrowings. We have not been exposed to material risks due to changes in interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure. However, our future interest income may fall short of expectations due to changes in market interest rates.

Foreign Exchange Risk

Most of our revenues and expenses are denominated in Hong Kong dollar or U.S. dollar. Certain of our transactions are denominated in foreign currencies and therefore we are exposed to foreign currency risk. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although our exposure to foreign exchange risks should be limited in general, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and Hong Kong dollar because the value of our business is mainly denominated in Hong Kong dollar, while our ADSs will be traded in U.S. dollars.

In addition, foreign exchange risk also arises from the possibility that fluctuations in foreign exchange rates can impact the value of financial instruments. We are exposed to minimal foreign exchange risk since Hong Kong dollars are pegged against U.S. dollars. The impact of foreign exchange fluctuations in our earnings is included in foreign exchange differences, net in the consolidated statements of cash flows.

To the extent we need to convert U.S. dollars into Hong Kong dollars for our operations, appreciation of Hong Kong dollar against the U.S. dollar would reduce the amount in Hong Kong dollars we receive from the conversion. Conversely, if we decide to convert Hong Kong dollars into U.S. dollars for the purpose of making payments for dividends on our Class A ordinary shares or ADSs, servicing our outstanding debt, or for other business purposes, appreciation of the U.S. dollar against the Hong Kong dollar would reduce the U.S. dollar amounts available to us.

 

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

A.	Debt Securities

Not applicable.

 

B.	Warrants and Rights

Not applicable.

 

C.	Other Securities

Not applicable.

 

D.	American Depositary Shares

Fees and Charges Our ADS Holders May Have to Pay

The Bank of New York Mellon, as depositary, will register and deliver American Depositary shares, also referred to as ADSs. Each ADS will represent one ordinary share (or a right to receive one ordinary share) deposited with The Hong Kong and Shanghai Banking Corporation Limited, as custodian for the depositary in Hong Kong. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The deposited shares together with any other securities, cash or other property held by the depositary are referred to as the deposited securities. The depositary’s office at which the ADSs will be administered is located at 240 Greenwich Street, New York, New York 10286.

 

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Persons depositing or withdrawing shares or ADS holders must pay:		For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)		Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property Cancelation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
$0.05 (or less) per ADS		Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs $0.05 (or less) per ADS per calendar year		Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders Depositary services
Registration or transfer fees		Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
Expenses of the depositary		Cable and facsimile transmissions (when expressly provided in the deposit agreement) Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes		As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities		As necessary

Fees and Other Payments Made by the Depositary to Us

The depositary has agreed to reimburse us for a portion of certain expenses we incur that are related to establishment and maintenance of the ADR program, including investor relations expenses. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not related to the amounts of fees the depositary collects from investors. Further, the depositary has agreed to reimburse us certain fees payable to the depositary by holders of ADSs. Neither the depositary nor we can determine the exact amount to be made available to us because (i) the number of ADSs that will be issued and outstanding, (ii) the level of service fees to be charged to holders of ADSs and, (iii) our reimbursable expenses related to the program are not known at this time.

We did not receive any payments from the depositary for its ADR program, in 2021.

PART II.

 

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

 

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security Holders

See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.

 

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Use of Proceeds

The following “Use of Proceeds” information relates to the registration statement on Form

F-1

(File Number:

333-232224)

relating to our initial public offering of 20,759,700 ADSs representing 20,759,700 Class A ordinary shares, and the underwriters’ full exercise of their option to purchase from us 3,113,955 additional ADSs representing 3,113,955 Class A ordinary shares, at an initial offering price of US$8.38 per ADS. The registration statement was declared effective by the SEC on August 2, 2019. AMTD Global Markets Limited and Loop Capital Markets LLC were the representatives of the underwriters.

We raised approximately US$192.6 million in net proceeds from our initial public offering, after deducting underwriting commissions and the offering expenses payable by us, including the net proceeds we received from the underwriters’ full exercise of their option to purchase from us additional ADSs. For the period from August 2, 2019 to December 31, 2021, we have used approximately US$6.2 million of the net proceeds from our initial public offering for business and infrastructure expansion, branding and marketing activities and other general administrative matters.

We still intend to use the proceeds from our initial public offering, as disclosed in our registration statements on Form

F-1,

to invest in our business and infrastructure expansion, fund potential acquisitions and investments, and use the remainder for general corporate purposes.

 

ITEM 15.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule

13a-15(b)

under the Exchange Act, our senior management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures within the meaning of Rules

13a-15(e)

and

15d-15(e)

of the Exchange Act. Based upon that evaluation, our senior management has concluded that, as of December 31, 2021, our disclosure controls and procedures were effective.

Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in SEC’s rule and forms and that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules

13a-15(f)

under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon its evaluation, our senior management has concluded that, as of December 31, 2021, our internal control over financial reporting was effective.

As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified

 

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reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

See “—Management’s Annual Report on Internal Control over Financial Reporting.”

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

See “Item 6.C. Directors, Senior Management and Employees—Board Practices.”

 

ITEM 16B.

CODE OF ETHICS

Our board of directors has adopted a code of ethics that applies to all of the directors, officers and employees of us and our subsidiaries, whether they work for us on a full-time, part-time, consultative, or temporary basis. In addition, we expect those who do business with us, such as consultants, suppliers and collaborators, to also adhere to the principles outlined in the code of ethics. Certain provisions of the code of ethics apply specifically to our chief executive officer, chief financial officer, senior finance officer, controller, vice presidents and any other persons who perform similar functions for us. We have filed our code of business conduct and ethics as an exhibit to our registration statement on Form

F-1

(No.

333-232224)

in connection with our initial public offering in August 2019, which was incorporated by reference thereto in this annual report.

 

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & Young and Deloitte Touche Tohmatsu, our principal accountants, for the periods indicated. We did not pay or accrue for payment any other fees to our principal accountants during the periods except as indicated below.

 

		2020				2021
		HK$				HK$				US$
		(in thousands)
Audit Fees (1)
- Ernst & Young			4,650				1,137				146
- Deloitte Touche Tohmatsu			6,000				6,300				808
Audit-Related Fees (2)
- Ernst & Young			1,419				—				—

 

(1)

“Audit Fees” represent the aggregate fees billed for each of the fiscal years listed for professional services rendered by our principal accountant for the audit of our annual consolidated financial statements, review of quarterly financial information, and audit services that are normally provided by the principal accountant in connection with regulatory filings or engagements for those fiscal years.

 

(2)	“Audit-Related Fees” represent the aggregate fees billed in each of the fiscal years listed for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”

 

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All audit and permitted

non-audit

services provided by our principal accountant, including audit services, audit-related services, tax services, and other services as described above, must be and have been approved in advance by our audit committee.

 

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

None.

 

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

In September 2021, we repurchased approximately 69.1 million Class B ordinary shares from AMTD Group for HK$5 billion (US$0.6 billion). No shares were repurchased by or on behalf of the Company or any affiliated purchaser in the open market in 2021.

 

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Effective from January 22, 2021, we engaged Deloitte Touche Tohmatsu, or Deloitte, as our independent registered public accounting firm to rotate out Ernst & Young (“EY”), to audit our consolidated financial statements as of and for the fiscal year ended December 31, 2020. Our financial statements as of and for the fiscal year ended December 31, 2019 had previously been audited by EY. The retirement of EY and the appointment of Deloitte were made as part of the global auditor rotation process being initiated by the audit committee and approved by our board to conform with international best practices on auditor independence.

EY has issued unqualified opinions on the Company’s consolidated financial statements for the fiscal year ended December 31, 2019.

During the fiscal year ended December 31, 2019 through to December 24, 2020, which is the date of EY’s letter to the PCAOB confirming that the client-auditor relationship has ceased, there were no disagreements between the Company and EY on, any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which, if not resolved to EY’s satisfaction, would have caused EY to make reference thereto in their reports on the financial statements for such years. In addition, there were no “reportable events” as defined in Form

20-F

Item 16F(a)(1)(v) other than the material weaknesses reported in the Company’s 2019 Form

20-F

filed with the U.S. Securities and Exchange Commission on April 30, 2020.

The audit committee of our board discussed the material weaknesses with EY and authorized EY to fully respond to the inquiries of Deloitte on the material weaknesses, if any. There is no disagreement with EY on the above matters.

We provided EY with a copy of the disclosures under this Item 16F and requested from EY a letter addressed to the Securities and Exchange Commission indicating whether it agrees with such disclosures. A copy of EY’s letter dated April 28, 2021, is attached as Exhibit 16.1.

During the Company’s three most recent fiscal years and through the subsequent interim period on or prior to the engagement of Deloitte, neither the Company nor anyone on its behalf consulted with Deloitte on either (a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to us that Deloitte concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue, or (b) any matter that was the subject of a disagreement, as that term is defined in Item 16F(a)(1)(iv) of Form

20-F

(and the related instructions thereto) or a reportable event as set forth in Item 16F(a)(1)(v)(A) through (D) of Form

20-F.

 

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ITEM 16G.

CORPORATE GOVERNANCE

As a “controlled company” as defined under the NYSE Listed Company Manual, we are permitted to, and we have elected, not to comply with certain corporate governance requirements. We have elected to rely on exemptions with respect to the requirement that we have a compensation committee that is composed entirely of independent directors. We followed home country practice with respect to annual general meetings and did not hold an annual general meeting of shareholders in 2021. We also relied upon the relevant home country exemption in lieu of the requirement for shareholder approval of share issuances (i) to certain related parties where the number of shares issued exceeded either one percent of the number of shares or of the voting power outstanding before the issuance, and (ii) where such share are issued as consideration in a transaction or series of related transactions in which a related party has a five percent or greater interest (or such persons collectively have a ten percent or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction or series of related transactions and the issuance exceeded either five percent of the number of shares or of the voting power outstanding before the issuance.

Other than as described above, we are not aware of any significant differences between our corporate governance practices and those followed by domestic companies under the NYSE Listed Company Manual.

 

ITEM 16H.

MINE SAFETY DISCLOSURE

Not applicable.

PART III.

 

ITEM 17.

FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

 

ITEM 18.

FINANCIAL STATEMENTS

The consolidated financial statements of AMTD IDEA Group are included at the end of this annual report.

 

ITEM 19.

EXHIBITS

 

Exhibit Number		Document
1.1		Fourth Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.1 of Form 6-K furnished with the Securities and Exchange Commission on March 2, 2022)
1.2		Registrant’s Specimen American Depositary Receipt (incorporated by reference to Exhibit 4.1 of our Registration Statement on Form F-1 (File No. 333-232224), as amended, initially filed with the Securities and Exchange Commission on June 20, 2019)
2.1		Registrant’s Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form F-1 (File No. 333-232224), as amended, initially filed with the Securities and Exchange Commission on June 20, 2019)
2.2		Form of Deposit Agreement among the Registrant, the depositary and all holders of the American Depositary Receipts of the Registrant (incorporated by reference to Exhibit 4.3 to our Registration Statement on Form F-1 (File No. 333-232224) filed with the Securities and Exchange Commission on June 20, 2019)
2.3		AMTD SpiderMan Share Incentive Plan (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form F-1 (File No. 333-232224), as amended, initially filed with the Securities and Exchange Commission on June 20, 2019)

 

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Exhibit Number		Document
2.4		Description of Securities (incorporated by reference to Exhibit 2.4 to the annual report on Form 20-F filed by the Registrant with the Securities and Exchange Commission on April 30, 2019)
4.1		Form of Employment Agreement between the Registrant and the executive officers of the Registrant (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (File No. 333-232224) filed with the Securities and Exchange Commission on June 20, 2019)
4.2		Form of Indemnification Agreement between the Registrant and the directors and executive officers of the Registrant (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 (File No. 333-232224) filed with the Securities and Exchange Commission on June 20, 2019)
4.3		Master Transaction Agreement between the Registrant and its controlling shareholder dated June 20, 2019 (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 (File No. 333-232224) filed with the Securities and Exchange Commission on June 20, 2019)
4.4		Transitional Services Agreement between the Registrant and its controlling shareholder dated June 20, 2019 (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1 (File No. 333-232224) filed with the Securities and Exchange Commission on June 20, 2019)
4.5		Non-Competition Agreement between the Registrant and its controlling shareholder dated June 20, 2019 (incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 (File No. 333-232224) filed with the Securities and Exchange Commission on June 20, 2019)
4.6		Intercompany Financing Agreement between the Registrant and AMTD Group Company Limited dated August 5, 2019 (incorporated herein by reference to Exhibit 4.22 to our annual report on Form 20-F (File No. 001-39006) filed with the SEC on April 30, 2020)
4.7		Share Purchase Agreement between the Registrant and Value Partners Greater China High Yield Income Fund dated December 19, 2019 (incorporated herein by reference to Exhibit 4.23 to our annual report on Form 20-F (File No. 001-39006) filed with the SEC on April 30, 2020)
4.8		Share Purchase Agreement between the Registrant and Ariana Capital Investment Limited dated December 19, 2019 (incorporated herein by reference to Exhibit 4.24 to our annual report on Form 20-F (File No. 001-39006) filed with the SEC on April 30, 2020)
4.9		Share Purchase Agreement between the Registrant and Infinity Power Investments Limited dated December 19, 2019 (incorporated herein by reference to Exhibit 4.25 to our annual report on Form 20-F (File No. 001-39006) filed with the SEC on April 30, 2020)
4.10		Convertible Note Purchase Agreement between the Registrant and Value Partners Greater China High Yield Income Fund dated December 19, 2019 (incorporated herein by reference to Exhibit 4.26 to our annual report on Form 20-F (File No. 001-39006) filed with the SEC on April 30, 2020)
4.11		Fiscal Agency Agreement between the Registrant, The Bank of New York Mellon, London Branch, The Bank of New York Mellon SA/NV, Luxembourg Branch, and The Bank of New York Mellon, Hong Kong Branch dated March 30, 2020 (incorporated herein by reference to Exhibit 4.27 to our annual report on Form 20-F (File No. 001-39006) filed with the SEC on April 28, 2021)
4.12		Facility Letter between Nanyang Commercial Bank, Limited and the Registrant dated September 22, 2020 (incorporated herein by reference to Exhibit 4.28 to our annual report on Form 20-F (File No. 001-39006) filed with the SEC on April 28, 2021)

 

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Exhibit Number		Document
4.13*		Share Purchase Agreement between AMTD Group Company Limited and the Registrant dated July 9, 2021
4.14*		Share Repurchase Agreement between AMTD Group Company Limited and the Registrant dated September 30, 2021
4.15*		Share Purchase Agreement between the Registrant and Cheng Huang dated December 27, 2021
4.16*		Business Loan Agreement between the Registrant and East West Bank dated December 28, 2021
4.17*		Share Purchase Agreement between the Registrant and Unicorn Star Limited dated December 29, 2021
4.18*		Share Purchase Agreement between the Registrant and Longling Capital Ltd dated December 29, 2021
4.19*		Share Purchase Agreement between the Registrant and EverGlory Strategic Investment Limited dated December 29, 2021
4.20*		Share Purchase Agreement between the Registrant and Infinity Power Investments Limited dated December 29, 2021
4.21*		Share Purchase Agreement between the Registrant and NGSP Holdings Limited dated January 15, 2022
4.22*		Share Purchase Agreement between the Registrant and Value Partners Greater China High Yield Income Fund dated January 19, 2022
4.23*		Share Purchase Agreement between the Registrant and Maoyan Entertainment dated January 19, 2022
4.24*		Share Purchase Agreement between the Registrant and Chestnut Business Limited dated January 19, 2022
4.25*		Share Purchase Agreement between the Registrant and EverGlory Strategic Investment Limited dated January 19, 2022
4.26*		Share Purchase Agreement between the Registrant and AMTD Education Group dated January 19, 2022
4.27*		Share Purchase Agreement between the Registrant and AMTD Assets Alpha Group dated January 19, 2022
4.28*		Share Purchase Agreement between the Registrant and AMTD Group Company Limited dated January 19, 2022
4.29*		Share Purchase Agreement between the Registrant and Infinity Power Investments Limited dated January 19, 2022
4.30*		Share Purchase Agreement between the Registrant and Poly Platinum Enterprises Limited dated January 21, 2022
8.1*		List of Subsidiaries of the Registrant
11.1		Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 to our Registration Statement on Form F-1 (File No. 333-232224), as amended, initially filed with the Securities and Exchange Commission on June 20, 2019)
12.1*		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*		Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

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Exhibit Number		Document
13.1**		Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**		Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
16.1		Letter from Ernst & Young to the Securities and Exchange Commission (incorporated herein by reference to Exhibit 16.1 to our annual report on Form 20-F (File No. 001-39006) filed with the SEC on April 28, 2021)
101.INS*		Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*		Inline Taxonomy Extension Scheme Document
101.CAL*		Inline Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline Taxonomy Extension Label Linkbase Document
101.PRE*		Inline Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

 

 

*	Filed with this annual report on Form 20-F.

 

**	Furnished with this annual report on Form 20-F.

 

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form

20-F

and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

AMTD IDEA Group
By:		/s/ William Fung
		Name:		William Fung
		Title:		Chief Executive Officer
		Date:		April 18, 2022

 

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AMTD IDEA GROUP

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

		Pages
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID No. 1104)			F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated statements of profit or loss and other comprehensive income for the years ended December 31, 2019, 2020 and 2021			F-4
Consolidated statements of financial position as of December 31, 2020 and 2021			F-6
Consolidated statements of changes in equity for the years ended December 31, 2019, 2020 and 2021			F-7
Consolidated statements of cash flows for the years ended December 31, 2019, 2020 and 2021			F-9
Notes to the consolidated financial statements for the years ended December 31, 2019, 2020 and 2021			F-10 - F-7 9

 

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of AMTD IDEA Group

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of AMTD IDEA Group and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong, the People’s Republic of China

April 18,

 

2022

We have served as the Company’s auditor since 2021.

 

F-2

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Report of Independent Registered Public Accounting Firms

To the Shareholders and the Board of Directors of AMTD International Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of AMTD International Inc.

(the Company) as of December 31, 2019, the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young

We served as the Company’s auditor from 2019 to 2020.

Hong Kong

April 30,

 

2020

 

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AMTD IDEA GROUP

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND

OTHER COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021 

 

						Year ended December 31,
		Notes				2019				2020				2021
						HK$				HK$				HK$
REVENUE
Fee and commission income (including income generated from related parties of HK$46,046,698, HK$128,419,020 and HK$105,448,459 for the years ended December 31, 2019, 2020 and 2021, respectively)							580,006,276				607,263,125				680,477,636
Dividend and gain related to disposed financial assets at fair value through profit or loss (including net disposal gain generated from related parties of   HK$ Nil, HK$82,948,508 and HK$125,112,176 for the years ended December 31, 2019, 2020 and 2021, respectively)							100,551,728				171,026,667				173,823,384
							680,558,004				778,289,792				854,301,020
Net fair value changes on financial assets at fair value through profit or loss (except derivative financial assets) and stock loan			27(A)(ii )				(641,603,993	)			(31,054,945	)			597,551,244
Net fair value changes on derivative financial asset			14				1,165,220,000				371,305,326				(54,008,047	)
			5				1,204,174,011				1,118,540,173				1,397,844,217
Other income			5				22,090,268				111,867,468				125,538,171
Impairment losses under expected credit loss model on financial assets			11				—				(17,109,001	)			—
Other operating expenses			6				(114,696,855	)			(103,723,211	)			(83,794,012	)
Staff costs			7				(94,607,497	)			(94,410,281	)			(95,585,898	)
Finance costs			8				(27,705,955	)			(21,510,079	)			(12,825,923	)
Net fair value changes on derivative financial liability			23				—				7,765,148				—
PROFIT BEFORE TAX							989,253,972				1,001,420,217				1,331,176,555
Income tax (expense)/credit			9				(158,349,518	)			137,540,767				(109,295,037	)
PROFIT FOR THE YEAR							830,904,454				1,138,960,984				1,221,881,518
Attributable to:
Owners of the parent:
- Ordinary shareholders							938,272,885				1,059,973,270				1,096,452,084
- Holders of perpetual securities			25				—				78,987,714				125,742,843
Non-controlling interests							(107,368,431	)			—				(313,409	)
							830,904,454				1,138,960,984				1,221,881,518

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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AMTD IDEA GROUP

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND

OTHER COMPREHENSIVE INCOME (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 and 2021

 

						Year ended December 31,
		Notes				2019				2020				2021
						HK$				HK$				HK$
EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT
Class A ordinary shares:
Basic (HK$ per share)			10				4.34				4.34				4.81
Diluted (HK$ per share)			10				4.34				4.22				4.81
Class B ordinary shares:
Basic (HK$ per share)			10				4.34				4.34				4.81
Diluted (HK$ per share)			10				4.34				4.34				4.81
PROFIT FOR THE YEAR							830,904,454				1,138,960,984				1,221,881,518
OTHER COMPREHENSIVE INCOME
Item that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations							—				1,022,840				738,972
OTHER COMPREHENSIVE INCOME FOR THE YEAR							—				1,022,840				738,972
TOTAL COMPREHENSIVE INCOME FOR THE YEAR							830,904,454				1,139,983,824				1,222,620,490
Attributable to:
Owners of the parent:
- Ordinary shareholders							938,272,885				1,060,996,110				1,096,896,235
- Holders of perpetual securities			25				—				78,987,714				125,742,843
Non-controlling interests							(107,368,431	)			—				(18,588	)
							830,904,454				1,139,983,824				1,222,620,490

The accompanying notes are an integral part of the consolidated financial statements.

 

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AMTD IDEA GROUP

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2020 AND 2021

 

				December 31,
		Notes		2020				2021
				HK$				HK$
Assets
Current assets
Accounts receivable		11			77,350,250				86,514,680
Prepayments, deposits and other receivables		12			24,872,391				21,916,382
Due from immediate holding company		27( B )(i)			6,477,266,499				2,144,975,230
Financial assets at fair value through profit or loss		13			62,519,937				—
Derivative financial asset		14			1,023,902,566				969,894,519
Other assets		15			197,309,175				136,065,738
Cash and bank balances		16			453,966,764				526,206,108
Total current assets					8,317,187,582				3,885,572,657
Non-current assets
Property, plant and equipment		17			111,357				67,131
Intangible assets		18			15,171,170				15,171,170
Financial assets at fair value through profit or loss		13			1,315,336,778				2,574,695,685
Stock loan		13			878,483,400				211,331,400
Total non-current assets					2,209,102,705				2,801,265,386
Total assets					10,526,290,287				6,686,838,043
Equity and liabilities
Current liabilities
Accounts payable		19			201,986,202				155,020,918
Bank borrowings		20			232,280,000				388,870,500
Other payables and accruals		21			128,325,893				92,225,549
Tax payable					123,289,855				136,124,845
Total current liabilities					685,881,950				772,241,812
Non-current liabilities
Derivative financial liability		23			12,954,313				13,752,673
Convertible bond		23			103,278,429				111,970,384
Total non-current liabilities					116,232,742				125,723,057
Total liabilities					802,114,692				897,964,869
Equity
Class A ordinary shares (par value of US$0.0001 as of December 31, 2020 and 2021; 8,000,000,000 shares authorized as of December 31, 2020 and 2021; 62,327,851 shares as of December 31, 2020 and 2021)		24			48,838				48,838
Class B ordinary shares (par value of US$0.0001 as of December 31, 2020 and 2021; 2,000,000,000 shares authorized as of December 31, 2020 and 2021; 183,283,628 shares as of December 31, 2020 and 2021)		24			143,864				143,864
Treasury shares		24			—				(5,000,000,000	)
Capital reserve					4,551,187,228				4,551,183,728
Exchange reserve					1,022,840				1,466,991
Retained profits					3,337,088,284				4,449,489,995
Total equity attributable to ordinary shareholders of the Company					7,889,491,054				4,002,333,416
Non-controlling interest s					—				15,496,320
Perpetual securities		25			1,834,684,541				1,771,043,438
Total equity					9,724,175,595				5,788,873,174
Total liabilities and equity					10,526,290,287				6,686,838,043

The accompanying notes are an integral part of the consolidated financial statements.

 

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AMTD IDEA GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

		Share capital				Capital reserve				Treasury share s				Exchange reserve				Retained profits				Equity attributable to ordinary shareholders of the Company				Equity attributable to holders of perpetual securities				Non-controlling interests				Total equity
		HK$				HK$				HK$				HK$				HK$				HK$				HK$				HK$				HK$
As of January 1, 2019			156,998				1,312,802,676				—				—				1,338,842,129				2,651,801,803				—				542,600,297				3,194,402,100
Deemed disposal of non-controlling interest (Note)			—				435,231,866				—				—				—				435,231,866				—				(435,231,866	)			—
Exercise of warrants			1,308				94,196,292				—				—				—				94,197,600				—				—				94,197,600
Pre-IPO financing			6,451				419,375,698				—				—				—				419,382,149				—				—				419,382,149
Initial public offering			18,681				1,507,196,460				—				—				—				1,507,215,141				—				—				1,507,215,141
Capital injection to a subsidiary			—				9				—				—				—				9				—				—				9
New issuance of shares			9,264				782,384,227				—				—				—				782,393,491				—				—				782,393,491
Profit for the year and total comprehensive income for the year			—				—				—				—				938,272,885				938,272,885				—				(107,368,431	)			830,904,454
As of December 31, 2019			192,702				4,551,187,228				—				—				2,277,115,014				6,828,494,944				—				—				6,828,494,944
As of January 1, 2020			192,702				4,551,187,228				—				—				2,277,115,014				6,828,494,944				—				—				6,828,494,944
Profit for the year			—				—				—				—				1,059,973,270				1,059,973,270				78,987,714				—				1,138,960,984
Exchange differences on translation of foreign operations			—				—				—				1,022,840				—				1,022,840				—				—				1,022,840
Total comprehensive income for the year			—				—				—				1,022,840				1,059,973,270				1,060,996,110				78,987,714				—				1,139,983,824
Issuance of perpetual securities (Note 25)			—				—				—				—				—				—				1,818,450,452				—				1,818,450,452
Distribution to holders of perpetual securities (Note 25)			—				—				—				—				—				—				(62,753,625	)			—				(62,753,625	)
As of December 31, 2020			192,702				4,551,187,228				—				1,022,840				3,337,088,284				7,889,491,054				1,834,684,541				—				9,724,175,595

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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AMTD IDEA GROUP

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021 

 

		Share capital				Capital reserve				Treasury share s				Exchange reserve				Retained profits				Equity attributable to ordinary shareholders of the Company				Equity attributable to holders of perpetual securities				Non-controlling interests				Total equity
		HK$				HK$				HK$				HK$				HK$				HK$				HK$				HK$				HK$
As   of   January 1,   2021			192,702				4,551,187,228				—				1,022,840				3,337,088,284				7,889,491,054				1,834,684,541				—				9,724,175,595
Profit for the year			—				—				—				—				1,096,452,084				1,096,452,084				125,742,843				(313,409	)			1,221,881,518
Exchange differences on translation of foreign operations			—				—				—				444,151				—				444,151				—				294,821				738,972
Total comprehensive income for the year			—				—				—				444,151				1,096,452,084				1,096,896,235				125,742,843				(18,588	)			1,222,620,490
Redemption of perpetual   securities (Note 25)			—				—				—				—				15,949,627				15,949,627				(65,104,192	)			—				(49,154,565	)
Distribution to holders of perpetual securities (Note 25)			—				—				—				—				—				—				(124,279,754	)			—				(124,279,754	)
Capital injection by non-controlling interest			—				(3,500	)			—				—				—				(3,500	)			—				15,514,908				15,511,408
Repurchase of shares from a shareholder			—				—				(5,000,000,000	)			—				—				(5,000,000,000	)			—				—				(5,000,000,000	)
As   of   December 31, 2021			192,702				4,551,183,728				(5,000,000,000	)			1,466,991				4,449,489,995				4,002,333,416				1,771,043,438				15,496,320				5,788,873,174

 

Note:

AMTD ISG and AMTD SI were indirectly held by AMTD Group for 79.13% before the Reorgani z ation (see note 1.2). In March 2019, due to the Reorgani z ation, the non-controlling shareholders surrendered their indirect interests in AMTD ISG and AMTD SI amounting to HK$435,231,866 which represented 20.87% of the total net assets of AMTD ISG and AMTD SI. Thereafter AMTD ISG and AMTD SI became wholly-owned subsidiaries of the Company. The non-controlling interests were reclassified into capital reserves as deemed acquisition of additional interest in AMTD ISG and AMTD SI.

The accompanying notes are an integral part of the consolidated financial statements.

 

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Table of Contents

AMTD IDEA GROUP

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

						Year ended December 31,
		Notes				2019				2020				2021
						HK$				HK$				HK$
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax							989,253,972				1,001,420,217				1,331,176,555
Adjustments for:
Interest income			5				(18,677,943	)			(101,226,862	)			(116,078,163	)
Finance costs			8				27,705,955				21,510,079				12,825,923
Depreciation			6				113,919				30,374				44,226
Dividend income			5				(92,316,548	)			(88,078,159	)			(48,711,208	)
Gain related to disposed investments			5				(8,235,180	)			(82,948,508	)			(125,112,176	)
Net fair value changes on financial assets at fair value through profit or loss (except derivative financial assets) and stock loan			5				641,603,993				31,054,945				(597,551,244	)
Net fair value changes on derivative financial asset			14				(1,165,220,000	)			(371,305,326	)			54,008,047
Net fair value changes on derivative financial liability			23				—				(7,765,148	)			—
Impairment losses under expected credit loss model on financial asset			11				—				17,109,001				—
Operating cash flows before changes in working capital							374,228,168				419,800,613				510,601,960
(Increase)/decrease in accounts receivable							(185,286,520	)			251,920,323				(9,164,430	)
(Increase)/decrease in prepayments, deposits and other receivables							(3,097,113	)			11,568,581				2,956,009
Increase/(decrease) in other payables and accruals							97,893,906				(49,718,674	)			(36,178,634	)
Decrease in financial assets at fair value through profit or loss							81,711,180				972,215,580				—
Decrease in derivative financial asset							—				618,682,641				—
Changes in accounts payable and other assets							259,825,630				(241,859,529	)			14,278,153
Cash generated from operations							625,275,251				1,982,609,535				482,493,058
Profits tax paid							(9,207,649	)			(76,778,218	)			(96,460,047	)
Dividend received							92,316,548				88,078,159				48,711,208
Interest received							1,115,839				67,783				15,379
Net cash generated from operating activities							709,499,989				1,993,977,259				434,759,598
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of items of property, plant and equipment			17				(13,710	)			(110,734	)			—
Purchase of financial assets at fair value through profit or loss							—				—				(9,968,000	)
Increase in amount due from immediate holding company							(2,957,926,150	)			(3,581,230,632	)			(348,701,497	)
Net cash used in investing activities							(2,957,939,860	)			(3,581,341,366	)			(358,669,497	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares							2,767,254,756				—				—
Share issue expenses							(58,263,976	)			—				—
Proceeds from issue of warrants							15,699,600				—				—
Exercise of warrants							78,498,000				—				—
Proceeds from issue of convertible bond							116,809,500				—				—
Repayment of margin loans							(4,277,101	)			(317,722,438	)			—
Redemption of perpetual securities							—				—				(49,154,565	)
Proceeds from bank borrowings							—				232,280,000				155,926,000
Net proceeds from perpetual securities							—				1,436,368,339				—
Distribution to perpetual securities holders							—				(62,753,625	)			(124,279,754	)
Financing costs paid							(27,705,955	)			(13,765,758	)			(4,662,214	)
Capital injection by non-controlling interest							—				—				15,511,408
Net cash flows generated from/(used in) financing activities							2,888,014,824				1,274,406,518				(6,659,125	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS							639,574,953				(312,957,589	)			69,430,976
Cash and cash equivalents at beginning of year							126,855,518				766,430,471				453,966,764
Effect of foreign exchange rate change, net							—				493,882				2,808,368
CASH AND CASH EQUIVALENTS AT END OF YEAR							766,430,471				453,966,764				526,206,108
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Cash and bank balances			16				766,430,471				453,966,764				526,206,108

The accompanying notes are an integral part of the consolidated financial statements.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

1.1	CORPORATE INFORMATION

AMTD IDEA Group (the ‘‘Company’’) (formerly known as AMTD International Inc. or AMTD Inc.) is a limited liability company incorporated in Cayman Islands on 4 February 2019. The Company completed its initial public offering on New York Stock Exchange on August 5, 2019 and its shares are listed through admission on Singapore Exchange on April 8, 2020.

The Company is an investment holding company. The Company and its subsidiaries (collectively referred to as the “Group”) are involved in investment banking, the provision of financial advisory services, assets management services and strategic investments.

The Company’s immediate holding company is AMTD Group Company Limited (‘‘AMTD Group’’), a private company incorporated in the British Virgin Islands (‘‘BVI’’).

The Company’s ultimate holding company was L.R. Capital Group Inc. (“L.R. Capital”), a private company incorporated in the Cayman Islands. On December 31, 2020, AMTD Group and L.R. Capital entered into a share repurchase agreement, where AMTD Group has repurchased certain shares previously alloted to L.R. Capital. From then onwards, AMTD Group became the ultimate holding company of the Group. The remaining shares held by L.R. Capital in AMTD Group were disposed to a third party on December 31, 2021. With effect from December 31, 2021, L.R. Capital ceased to be a shareholder of AMTD Group.

Information about principal subsidiaries

Particulars of the Company’s principal subsidiaries are as follows:

 

Name		Place of incorporation		Issued and registered share capital				Percentage of equity and voting rights attributable to the Company																Principal activities
								2020								2021
								Direct				Indirect				Direct				Indirect
AMTD International Holding Group Limited (formerly known as AMTD Financial Planning Limited) (‘‘AMTD IHG’’)		Hong Kong (‘‘HK’’)		HK$	500,000				100	%			—				100	%			—			Investment holding
AMTD Securities Limited		HK		HK$	1				—				100	%			—				100	%		Investment holding
AMTD Global Markets Limited (formerly known as AMTD Asset Management Limited) (“AMTD GM”)		HK		HK$	1,561,610,980				—				100	%			—				100	%		Provision of investment banking, financial advisory services and asset management services
AMTD Global Markets Pte. Ltd.		Singapore		SGD	5,000,000				—				100	%			—				100	%		Provision of investment banking, financial advisory services
Asia Alternative Asset Partners Limited (“AMTD AAAPL”)		HK		HK$	5,000,000				—				100	%			—				100	%		Provision of investment advisory services
AMTD Strategic Investment Limited (“AMTD SI”)		HK		HK$	1				—				100	%			—				100	%		Strategic investment
AMTD Investment Solutions Group Limited (“AMTD ISG”)		HK		HK$	1				—				100	%			—				100	%		Strategic investment

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

1.1	CORPORATE INFORMATION (CONTINUED)

Information about principal subsidiaries (continued)

Particulars of the Company’s principal subsidiaries are as follows: (continued) 

 

Name		Place of incorporation		Issued and registered share capital				Percentage of equity and voting rights attributable to the Company																Principal activities
								2020								2021
								Direct				Indirect				Direct				Indirect
AMTD Overseas Limited (formerly known as AMTD Europe Holdings Limited) (‘‘AMTD Overseas’’)		HK		HK$	1				—				100	%			—				100	%		Strategic investment
AMTD Fintech Investment Limited (‘‘AMTD FI’’)		HK		HK$	1				—				100	%			—				100	%		Strategic investment
AMTD Investment Inc. (‘‘AMTD Investment’’)		Cayman Islands		US$	1				100	%			—				100	%			—			Investment holding
AMTD Strategic Investment (BVI) Limited		BVI		US$	1				—				100	%			—				100	%		Investment holding
AMTD Investment Solutions Group (BVI) Limited		BVI		US$	1				—				100	%			—				100	%		Investment holding
AMTD IDEA International Limited (formerly known as AMTD Overseas (BVI) Limited)		BVI		US$	1				—				100	%			—				100	%		Investment holding
AMTD Fintech Investment (BVI) Limited		BVI		US$	1				—				100	%			—				100	%		Investment holding
尚乘 ( 珠海 ) 股權投資基金管理有限公司 AMTD Capital Co. Ltd*		People’s Republic of China		US$	3,990,000				—				100	%			—				50.13	%		Private fund management

 

*	The translation is for identification purpose only

 

1.2	REORGANIZATION

In order to facilitate the Company’s initial public offering at the New York Stock Exchange, AMTD Group completed a Reorganization (the “Reorganization”) whereby, certain operating and their respective immediate holding entities under AMTD Group’s common control, were ultimately contributed to the Company:

 

•

On February 8, 2019, AMTD Investment was incorporated in Cayman Islands and directly held by the Company;

 

•

From March 12, 2019 to March 14, 2019, four wholly-owned subsidiaries were incorporated in the BVI and were held indirectly by the Company through AMTD Investment;

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

1.2	REORGANIZATION (CONTINUED)

 

•

On March 18, 2019, the Company entered into sale and purchase agreements with AMTD Group and its subsidiaries which held the shares of AMTD ISG, AMTD SI, AMTD Overseas and AMTD FI (collectively referred to as the “transferred entities”), pursuant to which AMTD Group and its subsidiaries agreed to contribute 100% of the share capital of the transferred entities to the Company for a total of 199,990,000 newly issued Class B ordinary shares of the Company. For AMTD ISG and AMTD SI with non-controlling interests, all shareholders had passed a resolution to provide consent to enter the sale and purchase agreements that involved the two entities and agreed that shareholders other than AMTD Group would not receive any consideration from the disposal of the two entities. The Company issued 199,990,000 Class B ordinary shares and holds the equity interests of AMTD ISG, AMTD SI, AMTD Overseas and AMTD FI indirectly through the four newly set up BVI entities.

 

•

On April 1, 2019, the Securities and Futures Commission (“SFC”) approved the shareholder change of AMTD IHG, which holds two licensed subsidiaries (AMTD GM and AMTD AAAPL) governed by the SFC in Hong Kong, from AMTD Group to the Company. The sale and purchase agreement with respect to the transfer of AMTD IHG became effective automatically upon the approval from the SFC. AMTD Group transferred 100% of share capital of AMTD IHG to the Company. In return, the Company issued one Class B ordinary share to AMTD Group.

The Reorganization was completed on April 1, 2019. Through the Reorganization, the Company became the holding company of the companies now comprising the Group. Accordingly, for the purpose of preparation of the consolidated financial statements of the Group, the Company is considered as the holding company of the companies now comprising the Group throughout the years ended December 31, 2019, 2020 and 2021.

Through the Reorganization, the Company became the holding company of the contributed businesses now comprising the Group, which were under the common control of the controlling shareholder before and after the Reorganization. Accordingly, the financial statements were prepared on a consolidated basis by applying the principles of the pooling of interest method as if the Reorganization had been completed at the date when contributed business first came under the control of the controlling party.

The consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows of the Group included the results and cash flows of all companies now comprising the Group from the earliest date presented or since the date when the subsidiaries and/or businesses first came under the common control of the controlling shareholder, whenever the period is shorter.

Equity interests in subsidiaries and/or businesses held by parties other than the controlling shareholder, and changes therein, prior to the Reorganization are presented as

non-controlling

interests in equity applying the principles of the pooling of interest method.

 

2.1	BASIS OF PRESENTATION

Basis of preparation

The Group’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘‘IFRSs’’) and the Interpretations of the International Financial Reporting Interpretations Committee (‘‘IFRIC’’) issued by the International Accounting Standards Board (“IASB”). For the purpose of preparation of the consolidated financial statements, information is considered material if such information is reasonably expected to influence decision made by primary users.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.1	BASIS OF PRESENTATION (CONTINUED)

Basis of preparation (continued)

 

The consolidated financial statements have been prepared on a historical cost basis, except for financial assets at fair value through profit or loss, stock loan, derivative financial asset and derivative financial liability which are measured at fair value. The consolidated financial statements are presented in Hong Kong Dollars (‘‘HK$’’) unless otherwise stated, which is also the functional currency of the Company.

 

2.2	APPLICATION OF AMENDMENTS TO IFRSs

Amendments to IFRSs that are mandatorily effective for current year

In the current year, the Group has applied the following amendments to IFRSs issued by the International Accounting Standards Board (“IASB”) for the first time, which are mandatorily effective for the annual periods beginning on or after 1 January 2021 for the preparation of the consolidated financial statements:

 

Amendment to IFRS 16		Covid-19-Related Rent Concession
Amendments to IFRS 9, IAS 39,		Interest Rate Benchmark Reform – Phase 2
IFRS 7, IFRS 4 and IFRS 16

Except as described below, the application of the amendments to IFRSs in the current year has had no material impact on the Group’s financial positions and performance for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

Impacts on application of Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS16 Interest Rate Benchmark Reform – Phase 2

The Group has applied the amendments for the first time in the current year. The amendments relate to changes in the basis for determining the contractual cash flows of financial assets, financial liabilities as a result of interest rate benchmark reform, specific hedge accounting requirements and the related disclosure requirements applying IFRS 7 “Financial Instruments: Disclosures” (“IFRS 7”).

As at January 1, 2021, the Group has outstanding bank borrowing

denominated in US$

 

at the carrying amount of HK$116,280,000

with

maturity date in March 2022, the

interest rate of which is indexed to benchmark rate (London Interbank Offered Rate “LIBOR”), which is still available before the maturity date of the outstanding bank borrowing. Thus, it will not be subject to the interest rate benchmark reform.

The amendments have had no impact on the consolidated financial statements as none of the relevant contract has been transitioned to the relevant replacement rates during the year.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.2	APPLICATION OF AMENDMENTS TO IFRSs (CONTINUED)

 

New and amendments to IFRSs in issue but not yet effective

The Group has not early applied the following new and amendments to IFRSs and International Accounting Standards (‘‘IASs’’) that have been issued but are not yet effective:

 

IFRS 17		Insurance Contracts and the related Amendments 3
Amendments to IFRS 3		Reference to the Conceptual Framework 2
Amendments to IFRS 10 and IAS 28		Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 4
Amendment to IFRS 16		Covid-19-Related Rent Concessions beyond 30 June 2021 1
Amendments to IAS 1		Classification of Liabilities as Current or Non-current 3
Amendments to IAS 1 and IFRS Practice Statement 2		Disclosure of Accounting Policies 3
Amendments to IAS 8		Definition of Accounting Estimate 1
Amendments to IAS 12		Deferred Tax related to Assets and Liabilities arising from a Single Transaction 3
Amendments to IAS 16		Property, Plant and Equipment: Proceeds before Intended Use 2
Amendments to IAS 37		Onerous Contracts – Cost of Fulfilling a Contract 2
Amendments to IFRSs		Annual Improvements to IFRS Standards 2018-2020 2

 

1

Effective for annual periods beginning on or after April 1, 2021

2

Effective for annual periods beginning on or after January 1, 2022

3

Effective for annual periods beginning on or after January 1, 2023

4

Effective for annual periods beginning on or after a date to be determined

Except for the impact mentioned below, the directors of the Company anticipate that the application of the other new and amendments to IFRSs will have no material impact on the consolidated financial statements in the foreseeable future.

 

2.3	ISSUED BUT NOT YET EFFECTIVE IFRSs

Amendments to IFRS 3 “Reference to the Conceptual Framework”

The amendments:

 

•

update a reference in IFRS 3 “Business Combinations” so that it refers to the Conceptual Framework for Financial Reporting 2018 issued in June 2018 (the “Conceptual Framework”) instead of Framework for the Preparation and Presentation of Financial Statements (replaced by the Conceptual Framework for Financial Reporting 2010 issued in October 2010);

 

•

add a requirement that, for transactions and other events within the scope of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” or IFRIC - Int 21 Levies, an acquirer applies IAS 37 or IFRIC - Int 21 instead of the Conceptual Framework to identify the liabilities it has assumed in a business combination; and

 

•

add an explicit statement that an acquirer does not recogni z e contingent assets acquired in a business combination.

The Group will apply the amendments prospectively to business combinations for which the date of acquisition is on or after the beginning of the first annual period beginning on or after 1 January 2022.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT

S

 (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.3	ISSUED BUT NOT YET EFFECTIVE IFRSs (CONTINUED)

 

Amendments to IAS 1 “Classification of Liabilities as Current or

Non-current”

The amendments provide clarification and additional guidance on assessment of right to defer settlement for at least twelve months from reporting date for classification of liabilities as current or

non-current,

which:

 

•

specify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period. Specifically, the amendments clarify that:

 

(i)

the classification should not be affected by management intentions or expectations to settle the liability within 12 months; and

 

(ii)

if the right is conditional on the compliance with covenants, the right exists if the conditions are met at the end of the reporting period, even if the lender does not test compliance until a later date; and

 

•

clarify that if a liability has terms that could, at the option of the counterparty, result in its settlement by the transfer of the entity’s own equity instruments, these terms do not affect its classification as current or non-current only if the entity recogni z es the option separately as an equity instrument applying IAS 32 “Financial Instruments: Presentation”.

Based on the Group’s outstanding liabilities as at 31 December 2021, the application of the amendments will not result in reclassification of the Group’s liabilities as the convertible bond has been converted in January 2022.

Amendments to IAS 1 and IFRS Practice Statement 2 “Disclosure of Accounting Policies”

IAS 1 is amended to replace all instances of the term “significant accounting policies” with “material accounting policy information”. Accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements.

The amendments also clarify that accounting policy information may be material because of the nature of the related transactions, other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other events or conditions is itself material. If an entity chooses to disclose immaterial accounting policy information, such information must not obscure material accounting policy information.

IFRS Practice Statement 2 “Making Materiality Judgements” (the “Practice Statement”) is also amended to illustrate how an entity applies the “four-step materiality process” to accounting policy disclosures and to judge whether information about an accounting policy is material to its financial statements. Guidance and examples are added to the Practice Statement.

The application of the amendments is not expected to have significant impact on the financial position or performance of the Group but may affect the disclosures of the Group’s significant accounting policies.

Amendments to IAS 8 “Definition of Accounting Estimates”

The amendments define accounting estimates as “monetary amounts in financial statements that are subject to measurement uncertainty”. An accounting policy may require items in financial statements to be measured in a way that involves measurement uncertainty — that is, the accounting policy may require such items to be measured at monetary amounts that cannot be observed directly and must instead be estimated. In such a case, an entity develops an accounting estimate to achieve the objective set out by the accounting policy. Developing accounting estimates involves the use of judgements or assumptions based on the latest available, reliable information.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.3	ISSUED BUT NOT YET EFFECTIVE IFRSs (CONTINUED)

Amendments to IAS 8 “Definition of Accounting Estimates” (continued)

 

In addition, the concept of changes in accounting estimates in IAS 8 is retained with additional clarifications.

The application of the amendments is not expected to have significant impact on the Group’s consolidated financial statements.

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the years ended December 31, 2019, 2020 and 2021. A subsidiary is an entity, directly or indirectly, controlled by the Company. Control is achieved when the Group has power over investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described above.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Profit or loss and each item of other comprehensive income, if any, is attributed to the owners of the parent of the Group (including ordinary shareholders and holders of perpetual securities) and to the

non-controlling

interests, even if this results in the

non-controlling

interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions among members of the Group are eliminated in full on consolidation.

Fair value measurement

The Group measures its derivative financial instruments, debt and equity investments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair value measurement (continued)

 

input that is significant to the fair value measurement as a whole:

 

Level 1 —		based on quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 —		based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3 —		based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recogni

z

ed in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Impairment of

non-financial

assets

At the end of the reporting period, the Group reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication that these assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss (if any). Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that they may be impaired.

The recoverable amount of property, plant and equipment, and intangible assets are estimated individually. When it is not possible to estimate the recoverable amount individually, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

In testing a cash-generating unit for impairment, corporate assets are allocated to the relevant cash-generating unit when a reasonable and consistent basis of allocation can be established, or otherwise they are allocated to the smallest group of cash generating units for which a reasonable and consistent allocation basis can be established. The recoverable amount is determined for the cash-generating unit or group of cash-generating units to which the corporate asset belongs, and is compared with the carrying amount of the relevant cash-generating unit or group of cash-generating units.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. For corporate assets or portion of corporate assets which cannot be allocated on a reasonable and consistent basis to a cash-generating unit, the Group compares the carrying amount of a group of cash-generating units, including the carrying amounts of the corporate assets or portion of corporate assets allocated to that group of cash-generating units, with the recoverable amount of the group of cash-generating units. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit or the group of cash-generating units. The carrying amount of an asset is not reduced below the highest

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of

non-financial

assets (continued)

 

of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit or the group of cash-generating units. An impairment loss is recognized immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit or a group of cash-generating units) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or a cash-generating unit or a group of cash-generating units) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

Related parties

A party is considered to be related to the Group if:

 

(a)

the party is a person or a close member of that person’s family and that person

 

(i)

has control or joint control over the Group;

 

(ii)

has significant influence over the Group; or

 

(iii)

is a member of the key management personnel of the Group or of a parent of the Group;

or

 

(b)

the party is an entity where any of the following conditions applies:

 

(i)

the entity and the Group are members of the same group;

 

(ii)

one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

 

(iii)

the entity and the Group are joint ventures of the same third party;

 

(iv)

one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

 

(v)

the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group; and the sponsoring employers of the post-employment benefit plan;

 

(vi)

the entity is controlled or jointly controlled by a person identified in (a);

 

(vii)

a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and

 

(viii)

the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the year in which it is incurred. In situations

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, plant and equipment and depreciation (continued)

 

where the recognition criteria are satisfied, the expenditure for a major inspection is capitalized in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognizes such parts as individual assets with specific useful lives and depreciates them accordingly.

Depreciation is calculated on a straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

 

Furniture and fixtures			20	%
Computer equipment			33 1 ⁄ 3	%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognized in profit or loss in the year the asset is derecognized is the difference between the net sales proceeds and the carrying amount of the relevant asset.​​​​​​​

Intangible assets (other than goodwill)

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination or asset acquisition is the fair value at the date of acquisition. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.

Licenses

Purchased licenses are stated at cost less any impairment losses and have indefinite useful life.

Financial instruments — Investments and other financial assets

Initial recognition and measurement

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of accounts receivable that do not contain a significant financing component or for which the Group has applied the practical expedient of not adjusting the effect of a significant financing component, the Group initially measures a financial asset at its fair value, plus in the case of a financial asset not at fair value through profit or loss, transaction costs. Accounts receivable that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) in accordance with the policies set out for “Revenue recognition” below.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Financial instruments — Investments and other financial assets (continued)

Initial recognition and measurement (continued)

 

In order for a financial asset to be classified and measured at amortized cost, the contractual terms needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding and the financial asset needs to be held within a business model whose objective is to collect contractual cash flows.

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows. Financial assets classified and measured at fair value through other comprehensive income are held within a business model with the objective to hold financial assets in order to sell and collect contractual cash flows. Financial assets which are not held within the aforementioned business models are classified and measured at fair value through profit or loss.

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at amortized cost (debt instruments)

Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in the consolidated statements of profit or loss when the asset is derecognized, modified or impaired.

The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are carried in the consolidated statements of financial position at fair value with net changes in fair value recognized in profit or loss.

This category includes debt investments at fair value through profit or loss, derivative instruments and equity investments which the Group had not irrevocably elected to classify at fair value through other comprehensive income. Dividend income which is derived from Group’s ordinary course of business is recognized as revenue in the consolidated statements of profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized (i.e., removed from the Group’s consolidated statements of financial position) when:

 

•

the rights to receive cash flows from the asset have expired; or

 

•

the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a “pass-through” arrangement, it evaluates if, and to what extent, it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

The Group recognizes an allowance for expected credit losses (“ECLs”) for debt instruments or financial assets at amortized cost. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

General approach

For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next

12-months

(a

12-month

ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

At each reporting date, the Group assesses whether the credit risk on a financial asset has increased significantly since initial recognition. When making the assessment, the Group compares the risk of a default occurring on the financial asset as of the reporting date with the risk of a default occurring on the financial asset as of the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information available without undue cost of effort.

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external

 

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Table of Contents

AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of financial assets (continued)

General approach (continued)

 

information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.

Financial assets at amortized cost are subject to impairment under the general approach and they are classified within the following stages for measurement of ECLs except for accounts receivable arising from IFRS 15 which apply the simplified approach as detailed below.

 

Stage 1 —		Financial assets for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12-month ECLs
Stage 2 —		Financial assets for which credit risk has increased significantly since initial recognition but that are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs
Stage 3 —		Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs

Interest income is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on amortized cost of the financial asset.

Simplified approach

For accounts receivable arising from IFRS 15 that do not contain a significant financing component or when the Group applies the practical expedient of not adjusting the effect of a significant financing component, the Group applies the simplified approach in calculating ECLs. Under the simplified approach, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date.

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at amortized cost or at fair value through profit or loss (warrants and derivative financial instruments), as appropriate.

All financial liabilities are recognized initially at fair value and, in the case of financial liabilities at amortized cost, net of directly attributable transaction costs. Transaction costs directly attributable to the acquisition of financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

The Group’s financial liabilities include accounts payable, bank borrowings, financial liabilities included in other payables and accruals, derivative financial liability and convertible bond.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Financial liabilities (continued)

 

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at amortized cost

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in finance costs in profit or loss.

Convertible bonds

If the conversion option of convertible bond exhibits characteristics of an embedded derivative (when the conversion option that will be settled other than by the exchange of a fixed amount of another financial asset for a fixed number of the Group’s own equity instruments, it is a conversion option derivation), it is separated from its liability component. On initial recognition, the derivative component of the convertible bond is measured at fair value and presented separately as derivative financial instruments. Transaction costs are apportioned between the liability and derivative components of the convertible bond based on the allocation of proceeds to the liability and derivative components when the instruments are initially recognized. The portion of the transaction costs relating to the liability component is recognized initially as part of the liability. The portion relating to the derivative component is recognized immediately in the statement of profit or loss.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in profit or loss.

Derivative financial instruments

Derivative financial asset is initially recognized at fair value on the date on which a derivative contract is entered into and is subsequently remeasured at fair value. Derivative financial instruments are carried as an asset when the fair value is positive and as a liability when the fair value is negative. Any gain or loss arising from changes in fair value of the derivative financial instruments is taken directly to profit or loss.

Day 1 profit or loss

If the fair value of the derivative financial instrument at initial recognition differs from the transaction price and the fair value is not evidenced by a quoted price in an active market for an identical asset or liability

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Derivative financial instruments (continued)

Day 1 profit or loss (continued)

 

(i.e. a Level 1 input) or a valuation technique that uses only data from observable markets, the difference between the fair value at initial recognition and the transaction price is deferred and is only recognized as a gain or loss during the term of the derivative financial instrument using a systematic basis that reflects a change in a factor (including time) that market participants would take into account when pricing the derivative financial instrument.​​​​​​​

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

Perpetual instruments, which include no contractual obligation for the Group to deliver cash or other financial assets or the Group has the sole discretion to defer payment of distribution and redemption of principal amount indefinitely are classified as equity instruments.

Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

Changes in the basis for determining the contractual cash flows as a result of interest rate benchmark reform

For changes in the basis for determining the contractual cash flows of a financial asset or financial liability to which the amortized cost measurement applies as a result of interest rate benchmark reform, the Group applies the practical expedient to account for these changes by updating the effective interest rate. Such change in effective interest rate normally has no significant effect on the carrying amount of the relevant financial asset or financial liability.

A change in the basis for determining the contractual cash flows is required by interest rate benchmark reform if and only if, both these conditions are met:

 

•

the change is necessary as a direct consequence of interest rate benchmark reform; and

 

•

the new basis for determining the contractual cash flows is economically equivalent to the previous basis (i.e. the basis immediately preceding the change).

Cash and cash equivalents

For the purpose of the consolidated statements of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known

 

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Table of Contents

AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash and cash equivalents (continued)

 

amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statements of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits with original maturity within 3 months, which are not restricted as to use.

Provisions

A provision is recognized when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognized for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in profit or loss.

Contingent liabilities

A contingent liability is a present obligation arising from past events but is not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability.

Where the Group is jointly and severally liable for an obligation, the part of the obligation that is expected to be met by other parties is treated as a contingent liability and it is not recognized in the consolidated financial statements.

The Group assesses continually to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the consolidated financial statements in the reporting period in which the change in probability occurs, except in the extremely rare circumstances where no reliable estimate can be made.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income tax (continued)

 

Deferred tax liabilities are recognized for all taxable temporary differences, except:

 

•

when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

 

•

in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, and the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carryforward of unused tax credits and unused tax losses can be utilized, except:

 

•

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

 

•

in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if and only if the Group has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxable entity by the same taxation authority in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Revenue recognition

Revenue from contracts with customers

Revenue from contracts with customers is recognized when control of goods or services is transferred to the customers at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.

When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which the Group will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue recognition (continued)

Revenue from contracts with customers (continued)

 

significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

The primary components of fee and commission income are investment banking fee and income and asset management fee.

 

(a)

Investment banking fee and income

Investment banking service income is composed of underwriting commission, brokerage fee and financial advisory fee. Underwriting commission earned from underwriting equity and debt securities is recognized at the point in time when the Group’s performance under the terms of a contractual arrangement is completed, which is typically at the closing of a transaction if there is no uncertainty or contingency related to the amount to be paid. The normal credit term is 60 to 120 days upon the completion of performance.

Brokerage fee earned from sales of equity and debt securities from underwriting is recognized at the point in time when the associated service is fulfilled, generally on the trade execution date.

Financial advisory fee is recognized as or when the services are rendered based on the contractual arrangement.

 

(b)

Asset management fee

Asset management fee primarily includes fees associated with asset management, performance-based incentive fee, brokerage and handling fee. The management fee and the performance-based incentive fee are earned for the provision of asset management services, which include portfolio diversification and rebalancing. These services represent a single performance obligation comprised of a series of distinct services which are substantially the same, being provided continuously over the contract period. Asset management fees consist of management and performance fees that are fixed or variable. Variable consideration is determined based on underlying assets under management, i.e. AUM, of a customer’s account at a specified period end. At the end of each reporting period, the Group updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. Management fee is recognized when services are performed. Fixed consideration is recognized over the schedule period on a straight-line basis because the customer simultaneously receives and consumes the benefits provided by the Company. Performance-based incentive fee is recognized when the performance target is met and the revenue is not probable of a significant reversal.

For asset management services, when a single contract contains two performance obligations, the stand-alone selling prices of each of the distinct services underlying the performance obligations (i.e. management fee and performance-based incentive fee for asset management service and brokerage and handling fee for transaction processing service) are stated separately in the contract. These are the observable prices of services when the Company sells each of them separately.

Brokerage and handling fees are recognized at the point in time when the associated service is fulfilled, generally on the trade execution date.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue recognition (continued)

 

Revenue from other sources

Fair value changes on financial assets at fair value through profit or loss, stock loan and derivative financial asset are recognized in the period in which they arise. Gain/loss recognized during the current period is recognized as gain/loss related to disposed investment, whereas gain/loss recognized for those financial assets at fair value through profit or loss, stock loan and derivative financial asset held at the end of the reporting period is recognized as net fair value changes on financial assets at fair value through profit or loss and stock loan and net fair value changes on derivative financial asset.

Dividend income is recognized when the shareholders’ right to receive payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

Contract liabilities

A contract liability is recognized when the payment is made and received or the payment is due (whichever is earlier) from a customer before the Group transfers the related goods or services. Contract liabilities are recognized as revenue when the Group performs under the contract (i.e., transfers control of the related goods or services to the customer).

For certain customers of asset management service, the Company requires upfront payment of management fee and recorded such upfront fee as contract liabilities in other payables and accruals. Upfront fee is recognized as revenue based on the time elapsed for the service period. Asset management contracts normally cover periods of one to three years.

Government Grant

Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire

non-current

assets (including property, plant and equipment) are recognized as deferred income in the consolidated statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognized in profit or loss in the period in which they become receivable. Such grants are presented under other income.

Employee benefits

Retirement benefit cost

The Group operates a defined contribution Mandatory Provident Fund retirement benefit scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance for all of its employees. Contributions are made based on a percentage of the employees’ basic salaries and are charged to profit or loss as they

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

2.4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Employee benefits (continued)

Retirement benefit cost (continued)

 

become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.​​​​​​​

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognized in profit or loss.

Non-monetary

items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

Non-monetary

items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a

non-monetary

item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognized in other comprehensive income or profit or loss is also recognized in other comprehensive income or profit or loss, respectively).

In determining the exchange rate on initial recognition of the related asset, expense or income on the derecognition of a

non-monetary

asset or

non-monetary

liability relating to an advance consideration, the date of initial transaction is the date on which the Group initially recognizes the

non-monetary

asset or

non-monetary

liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Group determines the transaction date for each payment or receipt of the advance consideration.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in an exchange reserve (attributed to

non-controlling

interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in a foreign exchange translation reserve in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

In addition, in relation to a partial disposal of a subsidiary that includes a foreign operation that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are

re-attributed

to

non-controlling

interests and are not recognized in profit or loss. For all other partial disposals, the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

3.	SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements:

Deferred tax

and

current/non-current

classification of investments

Significant judgements on the tax treatment of unrealized gain on certain investments under strategic investment segment are required in determining current income and deferred tax provisions. The Group’s intention has always been to hold these investments for capital appreciation. However, there is uncertainty on whether it is probable that the unrealized gain can be treated as capital in nature and not assessable for profit tax under the relevant tax laws. As such, deferred tax provisions have been recorded under certain circumstances. These investments have also been classified as current assets accordingly for the respective periods. Periodical reviews are performed by the Group to assess the intention of the Group and classification of the investments.

During the year ended December 31, 2020, the Group carried out periodical review based on the internal policy and

re-evaluated

the classification of these investments. With the passage of time, the Group considered there is sufficient evidential circumstance to justify the Group’s intention to hold these investments for long term capital appreciation, and

re-classified

these investments as

non-current

assets. As the unrealized gain arising from the receipts of

non-current

assets should be treated as capital in nature under the relevant tax laws, accordingly deferred tax liabilities of HK$242,913,577 on the unrealized gain on investments is reversed and recognized as deferred tax credit during the year ended December 31, 2020. In cases where there are changes in facts and circumstances, a material further recognition or reversal of current and/or deferred tax liabilities may arise, which would be recognized in profit or loss for the period in which such further recognition or reversal takes place.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below:

Fair value of unlisted equity investments

As of December 31, 2020 and 2021, the fair value of the unlisted equity investment-Investment B (Note 13) and Investment C (Note 13) were estimated using an equity valuation allocation (“EVA”) valuation technique relying on the hybrid method, considering two scenarios in a probability weighted expected return method (‘‘PWERM’’) framework, and using the option pricing method (‘‘OPM’’) to allocate value in the IPO exit scenario. The valuation requires the management to consider two scenarios in its PWERM analysis which was

non-IPO

exit event and IPO exit event and hence they were subject to uncertainty. The input of

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

3.	SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

Estimation uncertainty (continued)

Fair value of unlisted equity investments (continued)

 

the equity value of unlisted equity investment-Investment B and Investment C were estimated using forward price/earnings (“P/E”) ratio as the valuation multiple.

As of December 31, 2020, the fair value of unlisted equity investment-Investment D (Note 13) was determined by considering the prices of recent transactions of the same instruments with the same rights of the same issuers.

As of December 31, 2020, the fair value of unlisted equity investment-Investment E (Note 13) was based on the prices of recent transactions of the same instruments with the same rights of the same issuers. During the year ended December 31, 2021, the valuation technique for the fair value of Investment E has been changed due to the lack of recent transaction price. Thus, the instruments were transferred from Level 2 to Level 3 category. The fair value of this investment as at December 31, 2021 was measured using an EVA valuation technique relying on P/E ratio as the valuation multiple.

As of December 31, 2021, the fair value of unlisted equity investment-Investment G (Note 13) was estimated using an asset-based valuation. The asset-based approach measures the value of Investment G by making reference to the value of individual assets and liabilities. Adjustments are made to the balance sheet based on the differences between the fair value and book value of the assets and liabilities. The adjusted net asset value represents the fair value of Investment G.

As of December 31, 2021, the fair value of unlisted equity investment-Investment F (Note 13) and Investment H (Note 13) were determined by the recent transaction price.

As of December 31, 2020, the fair value of unlisted equity investment-Investment I (Note 13) was estimated with reference to the unadjusted market price of the underlying listed equity securities.

Fair value of derivative financial instrument

The fair value of the derivative financial assets was estimated using the Geometric Brownian Motion and simulated using the Monte Carlo Simulation (‘‘MCS’’) and was determined based on significant observable and unobservable inputs including the current stock price, dividend yield, risk-free rate, volatility of the underlying equity securities and the credit rating of the counterparty on the valuation date. MCS is a financial model that is commonly used to simulate variables that are highly unpredictable. The valuations performed using the MCS require management to estimate the volatility of the underlying equity securities and the credit rating of the counterparty and hence the valuations are subject to estimation uncertainty. The Group classifies the fair value of derivative financial instrument as Level 3.

 

4.	OPERATING SEGMENT INFORMATION

For management purposes, the Group is organized into business units based on their products and services and has three reportable operating segments as follows:

 

(a)

The investment banking segment assists customers in raising funds through equity and debt financing, providing underwriting for initial public offerings (“IPOs”), private placements and debt issuances and providing financial advisory services (including but not limited to domestic and cross border advisory services for merger and acquisitions).

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

4.	OPERATING SEGMENT INFORMATION (CONTINUED)

 

(b)

The asset management segment provides a wide range of asset management products and services, including in relation to listed equity, fixed income securities, hedge funds, structured products, foreign exchange, private equities, alternative investments, discretionary account services, investment advisory services and external asset management services.

 

(c)

The strategic investment segment engages in proprietary investments and management of investment portfolio in Hong Kong, China and Singapore.

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment result, which is a measure of profit before tax from operations. The profit before tax from operations is measured after allocation of ECL, attributable costs of specialized staff, commission paid to asset management segment and finance costs to strategic investment segment consistently with the Group’s profit before tax from operations. Net fair value change on derivative financial liability, other income and corporate expenses such as staff costs not directly attributable to segment, office rental and administrative expenses are excluded from such measurement.

Segment assets exclude property, plant and equipment, amounts due from immediate holding company, prepayments, deposits and other receivables, cash and bank balances and other unallocated head office and corporate assets as these assets are managed on a group basis.

Segment liabilities exclude tax payable, convertible bond, derivative financial liability, bank borrowings and other unallocated head office and corporate liabilities as these liabilities are managed on a group basis.

Segment revenue and results

For the year ended December

 31, 2019

 

		Investment banking				Asset management				Strategic investment				Total
		HK$				HK$				HK$				HK$
Segment revenue (Note 5)
Revenue
—from contract with customers			455,955,912				124,050,364				—				580,006,276
—others			—				—				624,167,735				624,167,735
			455,955,912				124,050,364				624,167,735				1,204,174,011
Segment results			413,354,182				109,182,198				624,167,734				1,146,704,114
Unallocated other income															22,088,780
Unallocated finance costs															(27,705,955	)
Corporate and other unallocated expenses															(151,832,967	)
Profit before tax															989,253,972
Other segment information
Depreciation															113,919
Capital expenditure															13,710

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

4.	OPERATING SEGMENT INFORMATION (CONTINUED)

Segment revenue and results (continued)

 

For the year ended December

 31, 2020

 

		Investment banking				Asset management				Strategic investment				Total
		HK$				HK$				HK$				HK$
Segment revenue (Note 5)
Revenue
—from contract with customers			376,324,880				230,938,245				—				607,263,125
—others			—				—				511,277,048				511,277,048
			376,324,880				230,938,245				511,277,048				1,118,540,173
Segment results			339,933,098				225,338,122				511,277,048				1,076,548,268
Unallocated other income															111,867,468
Unallocated finance costs															(21,510,079	)
Unallocated net changes in fair value on derivative financial liability															7,765,148
Corporate and other unallocated expenses															(173,250,588	)
Profit before tax															1,001,420,217
Other segment information
Depreciation															30,374
Capital expenditure															110,734

For the year ended December

 31, 2021

 

		Investment banking				Asset management				Strategic investment				Total
		HK$				HK$				HK$				HK$
Segment revenue (Note 5)
Revenue
—from contract with customers			597,097,663				83,379,973				—				680,477,636
—others			—				—				717,366,581				717,366,581
			597,097,663				83,379,973				717,366,581				1,397,844,217
Segment results			580,773,498				77,730,949				717,366,581				1,375,871,028
Unallocated other income															125,538,171
Unallocated finance costs															(12,825,923	)
Corporate and other unallocated expenses															(157,406,721	)
Profit before tax															1,331,176,555
Other segment information
Depreciation															44,226

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

4.	OPERATING SEGMENT INFORMATION (CONTINUED)

 

Segment assets and liabilities

 

		December 31,
		2020				2021
		HK$				HK$
Segment assets
Investment banking			21,976,920				54,763,265
Asset management			265,452,001				182,765,945
Strategic investment			3,280,242,681				3,755,921,604
Total segment assets			3,567,671,602				3,993,450,814
Unallocated corporate assets			6,958,618,685				2,693,387,229
Total assets			10,526,290,287				6,686,838,043
Segment liabilities
Asset management			249,257,201				155,651,880
Unallocated corporate liabilities			552,857,491				742,312,989
Total liabilities			802,114,692				897,964,869

Geographical information

The following table sets forth the Group’s revenue

from

contract

with

customer by geographical areas based on the location of the customers:

For the year ended December

 31, 2019

 

		Investment banking				Asset management				Total
		HK$				HK$				HK$
Hong Kong			118,086,900				21,441,042				139,527,942
Mainland China			300,078,498				92,797,260				392,875,758
United States			30,342,514				3,229,613				33,572,127
Others			7,448,000				6,582,449				14,030,449
			455,955,912				124,050,364				580,006,276

For the year ended December 31, 2020

 

		Investment banking				Asset management				Total
		HK$				HK$				HK$
Hong Kong			212,766,711				21,836,318				234,603,029
Mainland China			163,447,101				192,391,853				355,838,954
Others			111,068				16,710,074				16,821,142
			376,324,880				230,938,245				607,263,125

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

4.	OPERATING SEGMENT INFORMATION (CONTINUED)

Geographical information (continued)

 

For the year ended December 31, 2021

 

		Investment banking				Asset management				Total
		HK$				HK$				HK$
Hong Kong			567,806,733				13,407,540				581,214,273
Mainland China			29,290,930				66,206,429				95,497,359
Others			—				3,766,004				3,766,004
			597,097,663				83,379,973				680,477,636

The Group’s revenue is derived solely from its operations in Hong Kong based on the location in which contracts were executed and services were rendered.

As of December 31, 2020 and 2021,

non-current

assets, for the purpose of geographical information, consisting of property, plant and equipment and intangible assets, were all located in Hong Kong.

Information about major customers

During the year ended December 31, 2019 and 2020, no revenue derived from a single customer accounted for 10% or more of the total revenue of the Group.

During the year ended December 31, 2021, one of the customers contributed 19.7% of the revenue of the Group.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

5.	REVENUE AND OTHER INCOME

An analysis of revenue is as follows:

 

		For the year ended December 31,
		2019				2020				2021
		HK$				HK$				HK$
Revenue from contracts with customers
Investment banking
Investment banking fee and income			455,955,912				376,324,880				597,097,663
Asset management
Management fee and performance-based incentive fee			103,509,196				196,352,216				57,230,194
Brokerage and handling fees			19,383,099				33,359,007				25,356,917
Others			1,158,069				1,227,022				792,862
			124,050,364				230,938,245				83,379,973
			580,006,276				607,263,125				680,477,636
Revenue from other sources
Strategic investments
Dividend income			92,316,548				88,078,159				48,711,208
Gain related to disposed investments			8,235,180				82,948,508				125,112,176
			100,551,728				171,026,667				173,823,384
Net fair value changes on financial assets at fair value through profit or loss and stock loan
-from listed equity shares, at quoted price			(683,060,000	)			(371,305,326	)			54,008,047
-from unlisted equity shares  ( note  a)			41,456,007				313,561,520				543,543,197
-from unlisted equity linked notes			—				26,688,861				—
Total net fair value changes on financial assets at fair value through profit or loss and stock loan			(641,603,993	)			(31,054,945	)			597,551,244
Net fair value changes on derivative financial asset			1,165,220,000				371,305,326				(54,008,047	)
			624,167,735				511,277,048				717,366,581
Total revenue			1,204,174,011				1,118,540,173				1,397,844,217

Note:

 

(a)	For the year ended December 2019, 2020 and 2021, net fair value gain arising from investments in equity securities of related parties are HK$ Nil, HK$336,403,752 and HK$545,199,207, respectively (Note 27( A )(ii)).

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

5.	REVENUE AND OTHER INCOME (CONTINUED)

 

(i)

Disaggregated revenue information

The Company assesses revenues based upon the nature or type of goods or services it provides and the operating segments of the related businesses. For more information on the operating segments, see Note 4, ‘‘Operating Segment Information’’. The following tables present disaggregated revenue information:

For the year ended December 31, 2019

 

Segments		Investment banking				Asset management				Strategic investment				Total
		HK$				HK$				HK$				HK$
Investment banking
Underwriting commission and brokerage fee			403,573,912				—				—				403,573,912
Financial advisory fee			52,382,000				—				—				52,382,000
Asset management
Management fee and performance-based incentive fee			—				103,509,196				—				103,509,196
Brokerage and handling fee			—				19,383,099				—				19,383,099
Strategic investment
Net fair value changes on financial assets at fair value through profit or loss and stock loan			—				—				(641,603,993	)			(641,603,993	)
Net fair value changes on derivative financial asset			—				—				1,165,220,000				1,165,220,000
Gain related to disposed investment			—				—				8,235,180				8,235,180
Dividend income			—				—				92,316,548				92,316,548
Others			—				1,158,069				—				1,158,069
Total			455,955,912				124,050,364				624,167,735				1,204,174,011

 

Segments		Investment banking				Asset management				Total
		HK$				HK$				HK$
Timing of revenue recognition
Services transferred at a point in time			403,573,912				20,541,168				424,115,080
Services transferred over time			52,382,000				103,509,196				155,891,196
Total revenue from contracts with customers			455,955,912				124,050,364				580,006,276

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

5.	REVENUE AND OTHER INCOME (CONTINUED)

 

(i)

Disaggregated revenue information (continued)

 

For the year ended December 31, 2020

 

Segments		Investment banking				Asset management				Strategic investment				Total
		HK$				HK$				HK$				HK$
Investment banking
Underwriting commission and brokerage fee			165,472,605				—				—				165,472,605
Financial advisory fee			210,852,275				—				—				210,852,275
Asset management
Management fee and performance-based incentive fee			—				196,352,216				—				196,352,216
Brokerage and handling fee			—				33,359,007				—				33,359,007
Strategic investment
Net fair value changes on financial assets at fair value through profit or loss and stock loan			—				—				(31,054,945	)			(31,054,945	)
Net fair value changes on derivative financial asset			—				—				371,305,326				371,305,326
Gain related to disposed investment			—				—				82,948,508				82,948,508
Dividend income			—				—				88,078,159				88,078,159
Others			—				1,227,022				—				1,227,022
Total			376,324,880				230,938,245				511,277,048				1,118,540,173

 

Segments		Investment banking				Asset management				Total
		HK$				HK$				HK$
Timing of revenue recognition
Services transferred at a point in time			165,472,605				34,586,029				200,058,634
Services transferred over time			210,852,275				196,352,216				407,204,491
Total revenue from contracts with customers			376,324,880				230,938,245				607,263,125

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

5.	REVENUE AND OTHER INCOME (CONTINUED)

 

(i)

Disaggregated revenue information (continued)

 

For the year ended December 31, 2021

 

Segments		Investment banking				Asset management				Strategic investment				Total
		HK$				HK$				HK$				HK$
Investment banking
Underwriting commission and brokerage fee			29,051,940				—				—				29,051,940
Financial advisory fee			568,045,723				—				—				568,045,723
Asset management
Management fee and performance-based incentive fee			—				57,230,194				—				57,230,194
Brokerage and handling fee			—				25,356,917				—				25,356,917
Strategic investment
Net fair value changes on financial assets at fair value through profit or loss and stock loan			—				—				597,551,244				597,551,244
Net fair value changes on derivative financial asset			—				—				(54,008,047	)			(54,008,047	)
Gain related to disposed investments			—				—				125,112,176				125,112,176
Dividend income			—				—				48,711,208				48,711,208
Others			—				792,862				—				792,862
Total			597,097,663				83,379,973				717,366,581				1,397,844,217

 

Segments		Investment banking				Asset management				Total
		HK$				HK$				HK$
Timing of revenue recognition
Services transferred at a point in time			596,858,673				26,149,779				623,008,452
Services transferred over time			238,990				57,230,194				57,469,184
Total revenue from contracts with customers			597,097,663				83,379,973				680,477,636

The following table shows the amount of revenue recognized in the current period that were included in the contract liabilities at the beginning of the reporting period:

 

		As of December 31,
		2020				2021
		HK$				HK$
Revenue recognized that was included in contract liabilities at the beginning of the reporting period
Asset management			94,328,532				46,640,036

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

5.	REVENUE AND OTHER INCOME (CONTINUED)

 

(ii)

Performance obligations

The transaction prices allocated to the remaining performance obligations of asset management services (unsatisfied or partially unsatisfied) as of December 31, 2020 and 2021 are as follows:

 

		As of December 31,
		2020				2021
		HK$				HK$
Within one year			35,716,912				630,962
More than one year			11,554,086				—
			47,270,998				630,962

The performance obligations expected to be recognized in more than one year relate to upfront fee that are to be satisfied within two years. All the other remaining performance obligations are expected to be recognized within one year. As of December 31, 2021, the decrease of upfront fees in the categories of “within one year” and “more than one year” was due to early termination of certain contracts of asset management services in the current year and the Group recognized revenue of HK$15,563,437 for the non-refundable receipt in advance from the customer during the year ended December 31, 2021 in respect of such early terminated contracts.

Other income

 

		For the year ended December 31,
		2019				2020				2021
		HK$				HK$				HK$
Bank interest income			1,115,839				67,783				15,174
Interest income from the immediate holding company (Note 27( A )(iv)) (Note 27( B )(i))			17,562,104				101,159,079				116,028,045
Government grant			—				3,061,665				—
Others			3,412,325				7,578,941				9,494,952
			22,090,268				111,867,468				125,538,171

During the year ended December 31, 2020, the Group

recognized

government grants of HK$3,061,665 applicable to

Covid-19

related subsidies in connection with the Employment Support Scheme provided by the Hong Kong Government.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

6.	OTHER OPERATING EXPENSES

Other operating expenses included in the consolidated statements of profit or loss and other comprehensive income are as follows:

 

		For the year ended December 31,
		2019				2020				2021
		HK$				HK$				HK$
Other operating expenses
Marketing and brand promotional expenses			12,903,989				5,696,606				597,566
Premises costs and office utilities
—Premises costs			11,965,344				14,244,127				14,226,081
—Office utilities			9,152,802				6,601,790				7,821,627
			21,118,146				20,845,917				22,047,708
Traveling and business development expenses			19,362,587				5,636,354				3,747,166
Commissions and bank charges			2,307,050				1,957,433				1,308,425
Office and maintenance expenses			1,430,834				175,348				55,192
Administrative service fee			12,000,000				24,330,000				24,330,000
Legal and professional fees
—Auditor’s remuneration			11,402,267				12,068,575				7,343,259
—Other legal and professional fees			11,776,501				12,434,767				8,636,734
—Professional indemnity expense			—				11,811,165				8,683,032
			23,178,768				36,314,507				24,663,025
Staff welfare and staff recruitment expenses			2,471,705				1,223,673				2,322,035
Others
—Depreciation			113,919				30,374				44,226
—Foreign exchange differences, net			12,596,647				3,222,789				963,422
—Other expenses			7,213,210				4,290,210				3,715,247
			19,923,776				7,543,373				4,722,895
			114,696,855				103,723,211				83,794,012

 

7.	STAFF COSTS

 

		For the year ended December 31,
		2019				2020				2021
		HK$				HK$				HK$
Salaries and bonuses			93,703,848				93,660,617				94,776,416
Pension scheme contributions (defined contribution schemes)			903,649				749,664				809,482
			94,607,497				94,410,281				95,585,898

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

8.	FINANCE COSTS

An analysis of finance costs is as follows:

 

		For the year ended December 31,
		2019				2020				2021
		HK$				HK$				HK$
Interests on margin loans payable			27,705,955				12,475,296				—
Interests on convertible bond			—				7,717,348				8,085,419
Interests on bank borrowings			—				1,317,435				4,740,504
			27,705,955				21,510,079				12,825,923

 

9.	INCOME TAX EXPENSE/(CREDIT)

Hong Kong profits tax has been provided at the rate of 16.5% (2020: 16.5%; 2019: 16.5%) on the estimated assessable profits arising in Hong Kong:

 

						For the year ended December 31,
		Note				2019				2020				2021
						HK$				HK$				HK$
Hong Kong profits tax
Charge for the year							69,585,469				96,708,600				104,423,916
Overprovision in prior year							—				(143,606	)			—
Deferred tax			3, 22				79,556,400				(242,913,577	)			—
The People’s Republic of China withholding tax
Charge for the year							9,207,649				8,807,816				4,871,121
							158,349,518				(137,540,767	)			109,295,037

Under the

two-tiered

profits tax rates regime

 

of Hong Kong Profits Tax,

 the first HK$

2

 million of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$

2

 million will be taxed at 16.5%. The profits of group entities not qualifying for the

two-tiered

profits tax rates regime will continue to be taxed at a flat rate of 16.5%.

 

Accordingly, the Hong Kong Profits Tax of the qualifying group entity is calculated at

8.25

% on the first HK$

2

million of the estimated assessable profits and at 16.5% on the estimated assessable profits above HK$

2

million.

The directors of the Company considered the amount involved upon implementation of the

two-tiered

profits tax rates regime as insignificant to the consolidated financial statements. Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for the year ended December 31, 2019. For the year ended December 31, 2020 and 2021, the Hong Kong Profits Tax of the qualifying group entity is calculated at 8.25% on the first HK$

2

 million of the estimated assessable profits and at 16.5% on the estimated assessable profits above HK$

2

 million.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

9.	INCOME TAX EXPENSE/(CREDIT) (CONTINUED)

 

A reconciliation of tax expense/(credit) and profit before tax at the Hong Kong statutory tax rate in which the Group’s major operating subsidiaries are domiciled is as follows: 

 

		For the year ended December 31,
		2019				2020				2021
		HK$				HK$				HK$
Profit before tax			989,253,972				1,001,420,217				1,331,176,555
Tax at statutory tax rate of 16.5%			163,226,906				165,234,336				219,644,132
Tax effect of two-tiered profit tax rate			—				(165,000	)			(165,000	)
Tax effect of non-taxable income			(23,255,305	)			(79,190,106	)			(95,836,917	)
Tax effect of distribution to perpetual securities holders that are deductible for tax purpose			—				—				(20,747,569	)
Tax effect of non-deductible expenses			8,952,076				10,887,971				1,566,657
Tax effect of unrecognized temporary difference			223,434				(25,011	)			(4,075	)
Tax effect of deferred tax liability reversed			—				(242,913,577	)			—
Tax effect of tax loss not recognized			24,541				—				—
Overprovision in prior year			—				(143,606	)			—
Utilization of tax losses previously not recognized			(29,783	)			(33,590	)			(33,312	)
Withholding tax on the dividend income			9,207,649				8,807,816				4,871,121
Income tax expense/(credit)			158,349,518				(137,540,767	)			109,295,037

 

10.	EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The Company’s ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote and is not convertible into Class B ordinary share under any circumstances. Each Class B ordinary share is entitled to twenty votes and is convertible into one Class A ordinary share at any time by the holder thereof.

The basic earnings per share attributable to Class A ordinary equity holders and Class B ordinary equity holders are calculated by dividing the profit for the year attributable to Class A ordinary equity holders and Class B ordinary equity holders of the parent by the number of Class A ordinary shares and Class B ordinary shares, respectively, as if the Reorganization had taken place on January 1, 2019 as mentioned in Note 1.2.

For the year ended December 31, 2020, the diluted earnings per share attributable to Class A ordinary equity holders and Class B ordinary equity holders are based on the profit for the year attributable to Class A ordinary equity holders and Class B ordinary equity holders of the parent, adjusted to reflect the interest on the convertible bond, net fair value change of derivative financial liability and the foreign exchange effect of the convertible bond and derivative financial liability of HK$7,717,348, HK$7,765,148 and

 

HK$

528,958

, respectively. The weighted average number of ordinary shares used in the calculation is the number of

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

10.	EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT (CONTINUED)

 

ordinary shares in issue during the year, as used in the basic earnings per share calculation plus the weighted average number of ordinary shares assumed to have been issued on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares. For the year ended December 31, 2021, the computation of diluted earnings per share has not taken into account the effect of convertible bond which is anti-dilutive.

Basic and diluted earnings per share for each of the periods presented are calculated as follows:

 

		For the year ended December 31,
		2019				2020				2021
Basic earnings per share:
Numerator:
Profit attributable to ordinary equity holders of the parent used in the basic earnings per share calculation (HK$)-basic Class A			69,906,757				249,206,548				299,742,816
Profit attributable to ordinary equity holders of the parent used in the basic earnings per share calculation (HK$)-basic Class B			868,366,128				810,766,722				796,709,268
Denominator:
Weighted average number of Class A ordinary shares outstanding—basic			16,112,737				57,474,495				62,327,851
Weighted average number of Class B ordinary shares outstanding—basic			200,148,822				186,987,093				165,665,944
Basic earnings per share (HK$) Class A			4.34				4.34				4.81
Basic earnings per share (HK$) Class B			4.34				4.34				4.81
Diluted earnings per share:
Numerator:
Profit attributable to ordinary equity holders of the parent used in the diluted earnings per share calculation (HK$)-diluted Class A			69,906,757				248,629,790				299,742,816
Profit attributable to ordinary equity holders of the parent used in the diluted earnings per share calculation (HK$)-diluted Class B			868,366,128				810,766,722				796,709,268
Denominator:
Weighted average number of Class A ordinary shares outstanding—diluted			16,117,254				58,966,142				62,327,851
Weighted average number of Class B ordinary shares outstanding—diluted			200,204,936				186,987,093				165,665,944
Diluted earnings per share (HK$) Class A			4.34				4.22				4.81
Diluted earnings per share (HK$) Class B			4.34				4.34				4.81

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

10.	EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT (CONTINUED)

 

		Number of shares
		For the year ended December 31,
		2019				2020				2021
Shares:
Weighted average number of Class A ordinary shares in issue during the year used in the basic earnings per share calculation			16,112,737				57,474,495				62,327,851
Effect of dilution – weighted average number of ordinary shares:
Warrants			864				—				—
Convertible bond			3,653				1,491,647				—
			16,117,254				58,966,142				62,327,851
Weighted average number of Class B ordinary shares in issue during the year used in the basic earnings per share calculation			200,148,822				186,987,093				165,665,944
Effect of dilution – weighted average number of ordinary shares:
Warrants			10,728				—				—
Convertible bond			45,386				—				—
			200,204,936				186,987,093				165,665,944

Other than disclosed above and disclosed elsewhere in these consolidated financial statements, there have been no other transactions involving Class A and Class B ordinary shares between the reporting date and the date of authorization of these financial statements and no other potential ordinary shares in issue.

 

11.	ACCOUNTS RECEIVABLE

						As of December 31,
		Notes				2020				2021
						HK$				HK$
Receivable from investment banking services			(i)				21,976,920				54,763,265
Receivable from brokers and clearing house			(ii)				19,864,662				21,406,257
Clients’ receivables			(ii)				35,508,668				10,345,158
							77,350,250				86,514,680

Notes:

 

(i)

The normal settlement terms of receivables from investment banking services are specific terms mutually agreed between the contracting parties. Receivable from investing banking services is non-interest bearing. As of January 1, 20 20 , the Group has receivable arising from contracts with customers in investment banking services of HK$66,740,188.

(ii)

A s of J anuary  1, 2020, the Gr ou p had receivable s arising from contracts with customers in asset management service of HK$ 3,197,245. As of December 31, 2021, included in the clients’ receivables are non-interest bearing receivables arising from asset management service of HK$2,765,965 (2020: HK$34,208,077). There are normal settlement terms of those receivables which are specific terms mutually

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

11.	ACCOUNTS RECEIVABLE (CONTINUED)

agreed between the contracting parties. The normal settlement terms of the remaining clients’ receivables and receivable from brokers and clearing house arising from asset management services are 2 days after trade date or at specific terms agreed with brokers and clearing house. Overdue clients’ receivable is interest-bearing.

The

Group seeks to maintain strict control over its outstanding receivables and has a credit control team to minimi

z

e credit risk. Overdue balances are reviewed regularly by senior management. The Group does

no

t hold any collateral over its accounts receivable.

An aging analysis of the accounts receivable as of the end of the reporting periods, based on the invoice date, net of loss allowance is as follows:

 

		As of December 31,
		2020				2021
		HK$				HK$
Not yet due			67,241,210				74,048,058
Past due
Within 1 month			7,797,011				53,633
1 to 3 months			221,183				5,165,947
Over 3 months			2,090,846				7,247,042
			77,350,250				86,514,680

As of December 31, 2020 and 2021, accounts receivable was due from a number of reputable corporate clients, brokers and individual clients.

An impairment analysis of clients’ receivables, receivable from brokers and clearing house, and receivable from investment banking services is performed at each reporting date using probability of default approach to measure expected credit losses. The probability of default and loss given default are estimated based on the Group’s assessment on credit ratings of the accounts receivable and historical loss experience. The notion or categorization of credit risk rating is for internal risk management purposes and is not equivalent to the similar terms applied by other credit rating agencies. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. The calculation of ECL considers forward looking information through the use of publicly available economic data and forecasts and management judgement to reflect the qualitative factors and through the use of multiple probability weighted scenarios.

An

impairment for loss allowance of HK$17,109,001

was made on receivables with gross amount of HK$

17,109,001

arising from investment banking service, and was further written off during the year ended December 31, 2020, as the directors of the Company considered there was no realistic prospect of recovery.

As of December 31, 2020, the probability of default ranged from 0.11% to 30.91% and the loss given default was estimated to be 45%. As of December 31, 2021, the probability of default ranged from 0.12% to 4.98% and the loss given default was estimated to be 45%.

 

		Internal credit risk rating
		AAA				AA				A				BBB				BB				CCC				Total
As of December 31, 2020
Expected credit loss rate			—				—				0.07	%			0.05	%			—				0.56	%			—
Gross carrying amount (HK$‘000)			—				—				21,977				52,723				—				2,650				77,350

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

11.	ACCOUNTS RECEIVABLE (CONTINUED)

 

		Internal credit risk rating
		AAA				AA				A				BBB				BB				CCC				Total
As of December 31, 2021
Expected credit loss rate			—				—				0.10	%			0.17	%			—				0.10	%			—
Gross carrying amount (HK$‘000)			—				—				54,763				24,218				—				7,534				86,515

The expected credit losses as of December 31, 2020 and 2021 were immaterial and no loss allowance for accounts receivable was provided.

 

12.	PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

 

		As of December 31,
		2020				2021
		HK$				HK$
Prepayments			23,221,564				20,720,272
Deposits			559,933				516,399
Other receivables			1,090,894				679,711
			24,872,391				21,916,382

Deposits and other receivables mainly represent deposits with the Hong Kong Stock Exchange. Where applicable, an impairment analysis is performed at each reporting date by considering the probability of default of comparable companies with published credit ratings.

As of December 31, 2020 and 2021, the probability of default applied ranged from 0.09% to 0.44% and the loss given default was estimated to be 45%. The recoverability was assessed with reference to the credit status of the debtors, and the expected credit loss as of December 31, 2020 and 2021 is considered to be minimal.

None of the above assets is either past due or credit-impaired. The financial assets included in the above balances relate to receivables for which there was no recent history of default.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT

S

 (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

13.	FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS AND STOCK LOAN

 

 

		As of December 31,
		2020				2021
		HK$				HK$
Financial assets at fair value through profit or loss, other than stock loan			1,377,856,715				2,574,695,685
Stock loan			878,483,400				211,331,400
Total financial assets at fair value through profit or loss			2,256,340,115				2,786,027,085
Listed equity shares, at quoted price
—Investment A			1,001,399,213				1,055,407,260
Total listed equity shares, at quoted price			1,001,399,213				1,055,407,260
Unlisted equity shares
—Investment B			85,706,112				86,195,893
—Investment C			24,111,436				21,954,381
—Investment D			190,038,137				—
— Investment E (Note 27( A )(ii))			892,565,280				1,120,244,487
—Investment F			—				9,979,264
— Investment G (Note 27( A )(ii))			—				480,700,000
—Investment H			—				11,545,800
Total unlisted equity shares			1,192,420,965				1,730,619,825
Unlisted equity linked notes
—Investment I			62,519,937				—
Total unlisted equity linked notes			62,519,937				—
			2,256,340,115				2,786,027,085

The above unlisted investments at December 31, 2020 and 2021 were equity shares investments issued by enterprises. Financial assets at fair value through profit or loss are categorized into levels 1 to 3. Refer to Note 29 for more information.

On September 17, 2017, the Group entered into certain stock lending agreements with a then shareholder of our immediate holding company, pursuant to which the Group lent certain listed equity shares of Investment A to the then shareholder, who further pledged the shares to a third party as collateral as of December 31, 2020 and these shares have been settled during the year ended December 31, 2021.

On May 1, 2020, the Group entered into a stock lending agreement with the then fellow subsidiary pursuant to which the Group lent certain listed equity shares of Investment A to the then fellow subsidiary and these shares have been returned during the year ended December 31, 2021.

On December 28, 2021, the Group entered into a stock lending agreement with a related company, pursuant to which the Group lent certain listed equity shares of Investment A to the related company, with an interest of 2% per annum based on market value of the listed equity

shares of the previous month end.

As of December 31, 2020 and 2021, the fair values of the listed equity shares underlying the stock loan were HK$878,483,400 and HK$211,331,400 respectively. In addition, the net fair value changes on the stock loan were HK$324,855,300 and HK$47,378,880 for the years ended December 31, 2020 and 2021, respectively.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

13.	FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS AND STOCK LOAN (CONTINUED)

 

During the year ended December 31, 2020, the Group obtained certain ownership interest in Investment E (AMTD Digital Inc., a fellow subsidiary) in exchange for extinguishment

 of HK$556,161,528 of

current accounts due from the immediate holding company. The Group does not have right to participate in its policy-making processes, to appoint director nor management or to interchange managerial personnel; accordingly, the Group concluded that it does not have significant influence to direct the relevant activities of the investee and classified the investment as a financial asset at fair value through profit or loss.

During the year ended December 31, 2021, the Group obtained certain ownership interest in Investment G (AMTD Assets Alpha Group, a fellow subsidiary) in exchange for extinguishment of HK$163,180,000 of current accounts due from the immediate holding company. The Group does not have right to participate in its policy-making processes, to appoint director nor management or to interchange managerial personnel; accordingly, the Group concluded that it does not have significant influence to direct the relevant activities of the investee and classified the investment as a financial asset at fair value through profit or loss.

During the year ended December 31, 2020, on the Group’s periodic review, the Group

re-evaluated

the classification of these investments and reclassified these investments as

non-current.

 

14.	DERIVATIVE FINANCIAL ASSET

On April 1, 2019, two subsidiaries of the Group entered into “Upside Participation and Profit Distribution Agreements” (the “Agreements”) with a counterparty in relation to the movement of the share price of the entirety of the listed shares of Investment A (Note 13) that the Group owns (“Underlying Assets”). The Agreements have an original term of 12 months and can be extended for any further period or terminated at any time upon mutual agreement of the contracting parties. Pursuant to the Agreements:

 

(a)

The counterparty is entitled to 25% (the “Sharing Percentage”) of the gain of the Underlying Assets if the quoted market price or disposal price of the Underlying Assets is higher than HK$8.1 per share (the “Underlying Price”);

 

(b)

The counterparty shall pay a sum equivalent to the loss if the quoted market price or disposal price of the Underlying Assets is lower than Underlying Price (“Participation Cost”); and

 

(c)

Dividend or cash distributions generated from the Underlying Assets during the term of the Agreements shall be received by the Group for its sole benefit and shall not be included in the computation of the Profit or the Participation Cost.

Further addendums to the Agreements were entered into on June 30, July 1, September 30 and December 31, 2019, March 31, June 26, June 30, September 30 and December 31, 2020 (the “Addendums”), where:

 

•

On June 30, 2019, the term of the Agreements was modified from 12 months to 3 months and could be roll-forward for an additional three-month period upon mutual agreement between the contracting parties provided that the Underlying Assets are not fully disposed by the Group on the termination date.

 

•

On July 1, 2019, the Agreements were extended for a 3-month period to September 30, 2019 and the Underlying Price was modified from HK$8.1 to HK$9.0 and the Sharing Percentage was modified from 25% to 40%.

 

•

On September 30 and December 31, 2019 and March 31, 2020, the Agreements were extended for another three-month period and thus lastly to June 30, 2020.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT

S

 (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

14.	DERIVATIVE FINANCIAL ASSET (CONTINUED)

 

•

On June 26, 2020, the underlying listed shares have been partially sold, in which 176,766,469 underlying shares were sold to the counterparty at the disposal price of HK$5.5 per share, and HK$618,682,641 was paid by the counterparty to settle 176,766,469 notional of the derivatives reflecting the difference between disposal price and Underlying Price. Accordingly, corresponding revisions were made to the Agreements to reflect the reduction in the number of underlying listed shares.

 

•

On June 30 and September 30, the Agreements were further extended for an additional three months period and thus till December 31, 2020.

 

•

On October 27, 2020, the Agreements was novated by the original counterparty to an external third party.

 

•

On December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and March 31, 2022, the Agreements were extended for an additional three month period in each case and thus cumulatively till June 30, 2022.

In December 2019, the controlling person of the original counterparty, with which the Group has entered into the Agreements, was appointed as a Director to the Board of Directors of the Company. Accordingly, the counterparty became a related party of the Company until October 27, 2020 when the Agreements were novated to an external party.

The Agreements together with the Addendums satisfied the definition of derivative financial asset in accordance with IFRS 9 and were stated at fair value with any subsequent changes recognized in profit or loss.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

14.	DERIVATIVE FINANCIAL ASSET (CONTINUED)

 

The table below shows the movement of:

 

(i)

the profit or loss not recognized when the derivative financial asset was initially recognized (Day 1 profit or loss);

 

(ii)

net carrying amount presented in the consolidated statements of financial position; and

 

(iii)

net changes in fair value on derivative financial asset presented in the consolidated statements of profit or loss and other comprehensive income

		Fair value using valuation technique				Day 1 (profit)/loss				Net carrying amount				Net changes in fair value recogni z ed in profit or loss
		HK$				HK$				HK$				HK$
At January 1, 2020			1,147,372,779				17,847,221				1,165,220,000				—
Recogni z ed in profit and loss prior to contract renegotiation on March 31, 2020
- Changes in fair value			307,143,221				—				307,143,221				307,143,221
- Recognition of day 1 profit or loss			—				(17,847,221	)			(17,847,221	)			(17,847,221	)
At March 31, 2020			1,454,516,000				—				1,454,516,000				289,296,000
Contract renegotiation on March 31, 2020			(17,215,921	)			17,215,921				—				—
At March 31, 2020			1,437,300,079				17,215,921				1,454,516,000				289,296,000
Recogni z e d in profit and loss prior to contract renegotiation on June 30, 2020
- Changes in fair value			(13,291,518	)			—				(13,291,518	)			(13,291,518	)
- Partial settlement on June 26, 2020			(618,682,641	)			—				(618,682,641	)			—
- Gain related to disposed investment			106,059,881				—				106,059,881				—
- Recognition of day 1 profit or loss			—				(17,215,921	)			(17,215,921	)			(17,215,921	)
At June 30, 2020			911,385,801				—				911,385,801				258,788,561
Contract renegotiation on June 30, 2020			(3,679,712	)			3,679,712				—				—
At June 30, 2020			907,706,089				3,679,712				911,385,801				258,788,561
Recogni z ed in profit and loss prior to contract renegotiation on September 30, 2020
- Changes in fair value			93,693,124				—				93,693,124				93,693,124
- Recognition of day 1 profit or loss			—				(3,679,712	)			(3,679,712	)			(3,679,712	)
At September 30, 2020			1,001,399,213				—				1,001,399,213				348,801,973
Contract renegotiation on September 30, 2020			(3,040,097	)			3,040,097				—				—
At September 30, 2020			998,359,116				3,040,097				1,001,399,213				348,801,973

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

14.	DERIVATIVE FINANCIAL ASSET (CONTINUED)

 

		Fair value using valuation technique				Day 1 (profit)/loss				Net carrying amount				Net changes in fair value recognized in profit or loss
		HK$				HK$				HK$				HK$
Recognized in profit and loss prior to contract renegotiation on December 31, 2020
- Changes in fair value			25,543,450				—				25,543,450				25,543,450
- Recognition of day 1 profit or loss			—				(3,040,097	)			(3,040,097	)			(3,040,097	)
At December 31, 2020			1,023,902,566				—				1,023,902,566				371,305,326
Contract renegotiation on December 31, 2020			12,266,453				(12,266,453	)			—				—
At December 31, 2020			1,036,169,019				(12,266,453	)			1,023,902,566				371,305,326

 

		Fair value using valuation technique				Day 1 (profit)/loss				Net carrying amount				Net changes in fair value recogni z ed in profit or loss
		HK$				HK$				HK$				HK$
At December 31, 2020			1,036,169,019				(12,266,453	)			1,023,902,566				—
Recogni z ed in profit and loss prior to contract renegotiation on March 31, 2021
- Changes in fair value			(12,266,453	)			—				(12,266,453	)			(12,266,453	)
- Recognition of day 1 profit or loss			—				12,266,453				12,266,453				12,266,453
At March 31, 2021			1,023,902,566				—				1,023,902,566				—
Contract renegotiation on March 31, 2021			(1,678,713	)			1,678,713				—				—
At March 31, 2021			1,022,223,853				1,678,713				1,023,902,566				—
Recogni z ed in profit and loss prior to contract renegotiation on June 30, 2021
- Changes in fair value			(34,326,652	)			—				(34,326,652	)			(34,326,652	)
- Recognition of day 1 profit or loss			—				(1,678,713	)			(1,678,713	)			(1,678,713	)
At June 30, 2021			987,897,201				—				987,897,201				(36,005,365	)
Contract renegotiation on June 30, 2021			2,956,755				(2,956,755	)			—				—
At June 30, 2021			990,853,956				(2,956,755	)			987,897,201				(36,005,365	)
Recogni z ed in profit and loss prior to contract renegotiation on September 30, 2021
- Changes in fair value			89,306,993				—				89,306,993				89,306,993
- Recognition of day 1 profit or loss			—				2,956,755				2,956,755				2,956,755
At September 30, 2021			1,080,160,949				—				1,080,160,949				56,258,383
Contract renegotiation on September 30, 2021			1,046,618				(1,046,618	)			—				—
At September 30, 2021			1,081,207,567				(1,046,618	)			1,080,160,949				56,258,383

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

14.	DERIVATIVE FINANCIAL ASSET (CONTINUED)

		Fair value using valuation technique				Day 1 (profit)/loss				Net carrying amount				Net changes in fair value recognized in profit or loss
		HK$				HK$				HK$				HK$
Recognized in profit and loss prior to contract renegotiation on December 31, 2021
- Changes in fair value			(111,313,048	)			—				(111,313,048	)			(111,313,048	)
- Recognition of day 1 profit or loss			—				1,046,618				1,046,618				1,046,618
At December 31, 2021			969,894,519				—				969,894,519				(54,008,047	)
Contract renegotiation on December 31, 2021			(1,507,769	)			1,507,769				—				—
At December 31, 2021			968,386,750				1,507,769				969,894,519				(54,008,047	)

As of December 31, 2021, the counterparty of the derivative contracts pledged certain listed securities as collateral in favour of the Company which had a market value of HK$3,089,570,978 (2020: HK$2,860,797,360).

 

15.	OTHER ASSETS

The Group maintains segregated bank accounts with corporate banks to hold clients’ monies on trust under custody arising from its asset management and other business. The Group has classified the clients’ monies as other assets under the assets section of the consolidated statements of financial position and recognized the corresponding amounts as clients’ monies held on trust in accounts payable (Note 19) to respective clients on the basis that it is legally liable for any possible loss or misappropriation of the clients’ monies. The cash held on behalf of customers is restricted and governed by the Securities and Futures (Client Money) Rules under the Hong Kong Securities and Futures Ordinance (“HKSFO”).

 

		As of December 31,
		2020				2021
		HK$				HK$
Segregated clients’ bank accounts balances:
- Asset management business			194,907,501				135,843,360
- Others			2,401,674				222,378
			197,309,175				136,065,738

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

16.	CASH AND BANK BALANCES

 

 

		As of December 31,
		2020				2021
		HK$				HK$
Cash and cash equivalents:
- Cash on hand			31,031				595,992
- General bank accounts			453,935,733				525,610,116
Total cash and cash equivalents			453,966,764				526,206,108

 

Cash at banks earns interest at floating rates based on daily bank deposit rates for all the periods. The bank balances are deposited with creditworthy banks with no recent history of default.

 

17.	PROPERTY, PLANT AND EQUIPMENT

 

 

		Furniture and fixtures				Computer equipment				Total
		HK$				HK$				HK$
Cost:
At January 1, 2020			11,090				4,073,634				4,084,724
Additions			—				110,734				110,734
At December 31, 2020 and January 1, 2021 and December 31, 2021			11,090				4,184,368				4,195,458
Accumulated depreciation:
At January 1, 2020			(8,496	)			(4,045,231	)			(4,053,727	)
Charge for the year			(2,218	)			(28,156	)			(30,374	)
At December 31, 2020 and January 1, 2021			(10,714	)			(4,073,387	)			(4,084,101	)
Charge for the year			(376	)			(43,850	)			(44,226	)
At December 31, 2021			(11,090	)			(4,117,237	)			(4,128,327	)
Carrying amount:
At January 1, 2020			2,594				28,403				30,997
At December 31, 2020			376				110,981				111,357
At December 31, 2021			—				67,131				67,131

 

18.	INTANGIBLE ASSETS

 

 

		HK$
Net carrying amount as of December 31, 2020 and December 31, 2021			15,171,170

The intangible assets represented securities trading licenses and trading right with indefinite useful lives because they are expected to contribute to the net cash flows of the Group indefinitely and therefore, are not amortized. The recoverable amount of the intangible assets is determined by reference to the market evidence of recent transaction prices for similar licensed corporations.

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

19.	ACCOUNTS PAYABLE

 

 

						As of December 31,
		Note				2020				2021
						HK$				HK$
Clients’ payables			(i)				138,747				146,917
Payables to clearing house and brokers			(i)				1,311,748				8,590,241
Clients’ monies held on trust (Note 15)							200,535,707				146,283,760
							201,986,202				155,020,918

Note:

 

(i)	As of December 31, 2020 and 2021, payables to clearing house and brokers and clients’ payable arising from assets management business are repayable 2 days after trade date or at pre-agreed specified terms.

An aging analysis of the accounts payable as of the end of the reporting period is as follows:

 

		As of December 31,
		2020				2021
		HK$				HK$
Within 1 month			1,450,495				155,020,918
Repayable on demand			200,535,707				—
			201,986,202				155,020,918

The balances of accounts payable are unsecured and

non-interest-bearing.

 

20.	BANK BORROWINGS

A currency analysis of bank borrowings at the end of the reporting periods is as follows:

 

		As of December 31,
		2020				2021
		HK$				HK$
Hong Kong dollars			116,000,000				116,000,000
United States dollars			116,280,000				272,870,500
			232,280,000				388,870,500

As of December 31, 2020 and 2021, the bank borrowings were unsecured, repayable in one year or on demand and bore average interest rate of 2.1% p.a..

As of December 31, 2020 and 2021, the Group’s aggregate banking facilities amounted to US$30,000,000 (equivalent to HK$232,560,000) and US$50,000,000 (equivalent to HK$389,815,000) of which HK$232,280,000 and HK$388,870,500 were utilized.

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

21.	OTHER PAYABLES AND ACCRUALS

 

						As of December 31,
		Note				2020				2021
						HK$				HK$
Accruals and other payables							81,054,895				91,594,587
Contract liabilities			(i)				47,270,998				630,962
							128,325,893				92,225,549

Note:

 

(i)	Contract liabilities include upfront fees received to deliver asset management services.

Movements in contract liabilities during the years ended December 31, 2020 and 2021 are as follows:

 

		HK$
At January 1, 2020			111,974,163
Upfront fee received during the year			38,201,342
Revenue recogni z ed during the year			(102,904,507	)
At December 31, 2020			47,270,998
Revenue recogni z ed during the year			(46,640,036	)
At December 31, 2021			630,962

 

22.	DEFERRED TAX LIABILITIES

The movements in deferred tax liabilities during the years are as follows:

 

		Unreali z ed gain on investments HK$
At January 1, 2020			242,913,577
Deferred tax charged to profit or loss during the year (Note 9)			(242,913,577	)
At December 31, 2020 and January 1, 2021 and December 31, 2021			—

During the year ended December 31, 2020, the Group had

re-evaluated

the temporary difference arising from unreali

z

ed gain on investment and considered it is probable that the investments are capital in nature and therefore not subjected to income tax under the relevant tax regulations based on the Group’s intention to hold the investments for long term capital appreciation. Accordingly, HK$242,913,577 of deferred tax liabilities were reversed and recogni

z

ed as deferred tax credit.

As of December 31, 2020 and 2021, the Group had estimated tax losses arising in Hong Kong of HK$550,615 and HK$348,724 subject to the agreement by the Hong Kong Inland Revenue Department, that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recogni

z

ed in respect of the unutili

z

ed tax losses arising in Hong Kong as it is not considered probable that taxable profits would be available against which the tax losses can be utili

z

ed.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

23.	CONVERTIBLE BOND AND DERIVATIVE FINANCIAL LIABILITY

On December 19, 2019, the Company issued 2% convertible bond with a principal amount of US$15,000,000. There was no movement in the number

of u

n

its

 

of these convertible bonds during the year. The bond is convertible at the option of the bondholders into class A ordinary shares at any time after six months following the date of issuance of the bond and prior to the close of business on the second business day immediately preceding the maturity date of June, 30, 2023. The conversion rate is 99.44 American Depositary Shares (“ADSs”) per US$

1,000

principal. The conversion rate is subject to adjustment upon the occurrence of certain events that have an impact on the number of outstanding shares of the company. The

 

bondholders can convert all or any portion of the bond that equals to or greater than US$10,000,000. However, the bondholders can only exercise such right to convert no more than twice. Any convertible notes not converted, as well as the accrued interest, will be repaid

on

June 30, 2023.

 

The convertible bond has been converted in January 2022.

On

initial recognition, the derivative component of the convertible bond is measured at fair value and presented as a derivative financial liability.

The movement of convertible bond during the years ended December 31, 2020 and 2021 are as follows:

 

		Liability component				Derivative financial liability
		HK$				HK$
At January 1, 2020			95,995,690				20,813,810
Interest for the year			7,717,348				—
Fair value gain recogni z ed in profit or loss			—				(7,765,148	)
Exchange alignment			(434,609	)			(94,349	)
At December 31, 2020			103,278,429				12,954,313
Interest for the year			8,085,419				—
Exchange alignment			606,536				798,360
At December 31, 2021			111,970,384				13,752,673

 

24.	SHARE CAPITAL, CAPITAL RESERVE AND TREASURY SHARE S

Each Class A ordinary share shall entitle the holder thereof to one vote on all matters subject to vote at general meetings of the Company, and each Class B ordinary share shall entitle the holder thereof to twenty votes on all matters subject to vote at general meetings of the Company. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Each Class A ordinary share is not convertible into Class B ordinary shares under any circumstances. Except for the voting rights and the conversion rights, the Class A ordinary shares and the Class B ordinary shares shall rank pari passu with one another and shall have the same rights, preferences, privileges and restrictions.

As of December 31, 2021, the Company had ordinary shares outstanding comprising of 62,327,851 Class A ordinary shares and 183,283,628 Class B ordinary shares

 

(including those repurchased),

respectively. During the year ended December 31, 2020, 21,243,000 Class B ordinary shares held by the controlling shareholder were converted into Class A ordinary shares. No Class B ordinary shares were converted into Class A ordinary shares for the year ended December 31, 2019

 and 2021

.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

24.	SHARE CAPITAL, CAPITAL RESERVE AND TREASURY SHARES (CONTINUED)

 

						Numbers of shares
		Notes				Class A ordinary shares				Class B ordinary shares				Class B treasury shares
At January 1, 2019							—				200,000,001				—
Exercise of warrants			(i	)			1,666,666				—				—
Pre-IPO financing			(ii	)			8,236,838				—				—
Initial public offering			(iii	)			23,873,655				—				—
New issuance of shares			(iv	)			7,307,692				4,526,627				—
At December 31, 2019							41,084,851				204,526,628				—
Conversion of class B ordinary shares to class A ordinary shares							21,243,000				(21,243,000	)			—
At December 31, 2020 and January 1, 2021							62,327,851				183,283,628				—
Repurchase of ordinary shares			(v	)			—				(69,144,673	)			69,144,673
As December 31, 2021							62,327,851				114,138,955				69,144,673

Notes:

 

(i)

On March 6, 2019, the Company issued warrants for an aggregate consideration of US$2 million (equivalent to HK$15,699,600). Each warrant entitles the holder thereof to subscribe for one ordinary share at a subscription price of US$7.2. On April 10, 2019, the warrant holder exercised the warrants in full and paid an additional amount of US$10 million for 1,666,666 Class A ordinary shares. As of December 31, 2019 and 2020, the Company had no warrants outstanding, respectively.

 

(ii)	Between April 26, 2019 and June 19, 2019, the Company issued 8,236,838 Class A ordinary shares to third parties investors for an aggregate consideration of US$53.5 million for the pre-IPO financing.

 

(iii)

On August 5, 2019, the Company completed its Initial Public Offering (“IPO”) on the New York Stock Exchange under the symbol of “HKIB”. The Company issued an aggregate 23,873,655 ADSs, representing 23,873,655 Class A Ordinary Shares for total net proceeds of HK$1,507.2 million after deducting listing expenses of HK$58.3 million.

 

(iv)

In December 2019, the Company issued an aggregate of 7,307,692 Class A ordinary shares and 4,526,627 Class B ordinary shares, both with par value US$0.0001 per share, for an aggregate amount of US$100 million (representing a per share price of US$8.45) to Value Partners Greater China High Yield Income Fund, Ariana Capital Investment Limited, and Infinity Power Investments Limited in the form of private placement. Infinity Power Investments Limited is a British Virgin Islands company wholly owned by Mr. Calvin Choi, founder of the Company.

 

(v)	On September 30, 2021, the Company repurchased 69,144,673 Class B ordinary shares from the immediate holding company, amounting to HK$5,000,000,000.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT

S

 (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

25.	PERPETUAL SECURITIES

On May 14, 2020, the Company issued US$200,000,000 (equivalent to HK$1,550,020,000) and SGD50,000,000 (equivalent to HK$272,890,845) of perpetual securities at initial distribution rate of 7.25% p.a. (the “Perpetual Securities I”) and 4.5% p.a. (the “Perpetual Securities II”) which are listed on Hong Kong Stock Exchange and Singapore Stock Exchange respectively (collectively the “Perpetual Securities”). Of which, US$38,920,000 (equivalent to HK$301,633,892) of Perpetual Securities I and SGD14,740,000 (equivalent to HK$80,448,221) of Perpetual Securities II were issued in settlement for the redemption of Perpetual Securities issued by the immediate holding company in 2017. The consideration amounting to HK$382,082,113 was settled through the current account with the immediate holding company during the year ended December 31, 2020.

The direct transaction costs attributable to the Perpetual Securities I and Perpetual Securities II in aggregate amounted to HK$4,460,393.

Distributions of the Perpetual Securities I and Perpetual Securities II may be paid semi-annually in arrears on May 14 and November 14 in each year and may be deferred at the discretion of the Company unless a compulsory distribution payment event (including distributions to ordinary shareholders of the Company) has occurred. Following a deferral, arrears of distributions are cumulative.

The Perpetual Securities I are unsecured, have no fixed maturity date and are callable at the Company’s option in whole on May 14, 2023 (“First Reset Date”) or any Distribution Payment Date falling after the First Reset Date at their principal amounts together with any accrued, unpaid or deferred distributions. The applicable distribution rate will reset, on First Reset Date and every three years after the First Reset Date, to the sum of the initial spread of 7.011% p.a., the Treasury Rate and a

step-up

margin of 5.00% p.a..

The Perpetual Securities II are unsecured, have no fixed maturity date and are callable at the Company’s option in whole on May 14, 2025, which is five years after the issue date or any Distribution Payment Date thereafter at their principal amounts together with any accrued, unpaid or deferred distributions.

On October 27, 2021, the Group has early redeemed principal amount of SGD11,188,000 (equivalent to HK$65,104,192) of Perpetual Securities II at the redemption price equal to 75%. A gain of HK$15,949,627 was recorded directly in the retained earnings.

The Perpetual Securities are included in equity in the Group’s consolidated financial statements as the Group does not have a contractual obligation to deliver cash or other financial assets arising from the issue of the Perpetual Securities. For the year ended December 31, 2020 and 2021, the profit attributable to holders of Perpetual Securities based on the applicable distribution rate, was HK$78,987,714 and HK$125,742,843, respectively, where any distribution could be deferred at the discretion of the Company unless a compulsory distribution payment event (including distributions to ordinary shareholders of the Company) has occurred. The Company distributed HK$62,753,625 and HK$124,279,754 to the holders of perpetual securities during the year ended December 31, 2020 and 2021, respectively.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

26.	NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(a)

Major non-cash transactions

Save as disclosed elsewhere in these consolidated financial statements, the following

non-cash

transactions were recorded.

On April 10, 2019, the warrant holder exercised the warrants in full and paid an additional amount of US$10 million for 1,666,666 Class A ordinary shares which was an equity transaction, therefore,

the warrant was derecognized as a financial liability and the Company recognized in equity the sum of the additional amount received from the warrant holder and the carrying amount of the warrant.

 

During the year ended December 

31, 2020, the Group subscribed two equity linked notes for a consideration of HK$

148,671,602

issued by

the

tw

o former

 subsidiaries. The underlying securities for an equity linked note were disposed by one of the

former

fellow subsidiaries, triggering a settlement of equity linked note for a consideration of HK$

195,789,033

. The Group

recognized

a gain of HK$

82,948,667

 

from this transaction which was settled in 2020 through the current accounts with AMTD Group under the central treasury agreement.

During the year ended December 31, 2021, the underlying securities for the other equity linked note were disposed by one of the

former

fellow subsidiaries, triggering a settlement of equity linked note for a consideration of HK$181,633,667.

The Group recognized a gain related to the disposed investment

 of

HK$119,113,730 

from this transaction which was settled through the current accounts with AMTD Group.

During the year ended December 31, 2021, the Group disposed financial assets at fair value through profit or loss of HK$196,036,584

to a former fellow

subsidiary. The Group recognized a gain related to the disposed investment of HK$

5,998,446

.

The consideration of HK$

196,036,584

was settled through the current account with AMTD Group.

During the year ended December 31, 2021, the Group purchased financial asset

s

at fair value through profit or loss of HK$163,180,000

 

from AMTD Group. The consideration was settled through the current accounts with AMTD Group.

During the year ended December 31, 2021, the Group repurchased 69,144,673 Class

 B ordinary shares from AMTD Group amounting to

HK$5,000,000,000.

The consideration was settled through current account with AMTD Group.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

26.	NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(b)

Changes in liabilities arising from financing activities

 

		Margin loans payable				Derivative financial liability				Convertible bond				Bank borrowings				Total
		HK$				HK$				HK$				HK$				HK$
At January 1, 2019			321,999,549				—				—				—				321,999,549
Cash flow from financing activities			(31,983,066	)			20,813,810				95,995,690				—				84,826,434
Interest expenses			27,705,955				—				—				—				27,705,955
At December, 31 2019			317,722,438				20,813,810				95,995,690				—				434,531,938
Cash flow from financing activities			(330,197,734	)			—				—				230,962,565				(99,235,169	)
Interest expenses			12,475,296				—				7,717,348				1,317,435				21,510,079
Fair value gain recognized in profit or loss			—				(7,765,148	)			—				—				(7,765,148	)
Exchange alignment			—				(94,349	)			(434,609	)			—				(528,958	)
At December 31, 2020			—				12,954,313				103,278,429				232,280,000				348,512,742
Cash flow from financing activities			—				—				—				151,263,786				151,263,786
Interest expenses			—				—				8,085,419				4,740,504				12,825,923
Exchange alignment			—				798,360				606,536				586,210				1,991,106
At December 31, 2021			—				13,752,673				111,970,384				388,870,500				514,593,557

 

(c)

Changes in balances with related parties

 

		For the year ended December 31, 2019
		Related company HK$				Fellow subsidiaries HK$				Immediate holding company HK$
Investing activities			—				—				(2,957,926,150	)
Net cash outflow			—				—				(2,957,926,150	)

 

		For the year ended December 31, 2020
		Related company HK$				Fellow subsidiaries HK$				Immediate holding company HK$
Investing activities			—				—				(3,581,230,632	)
Net cash outflow			—				—				(3,581,230,632	)

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

26.	NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 

		For the year ended December 31, 2021
		Related company HK$				Fellow subsidiaries HK$				Immediate holding company HK$
Investing activities			—				—				(348,701,497	)
Net cash outflow			—				—				(348,701,497	)

 

27.	RELATED PARTY TRANSACTIONS

 

( A )

In addition to the transactions disclosed elsewhere in these consolidated financial statements, the Group had the following transactions with related parties during the years:

 

				For the year ended December 31,
		Notes		2019				2020				2021
				HK$				HK$				HK$
Underwriting services rendered to immediate holding company		(i)			26,420,072				—				—
Financial advisory services rendered to fellow subsidiaries		(i)			15,691,000				30,231,825				—
Financial advisory services rendered to related companies controlled by a director of the Company		(i)			—				95,513,306				—
Financial advisory services rendered to former fellow subsidiaries		(i)			—				—				104,300,690
Asset management service fee income from a related party controlled by a director of the Company		(i)			478,611				2,672,527				—
Investment banking service income from a related party controlled by a director of the Company		(i)			2,999,584				—				—
Management fee paid to immediate holding company		(i)			150,000				150,000				150,000
Investment advisory fee paid to a fellow subsidiary		(i)			180,000				180,000				180,000
Insurance commission paid to a fellow subsidiary		(i)			84,133				105,251				58,228
Asset management services rendered to fellow subsidiaries		(i)			457,431				1,362				1,147,769
Acquisition of investments from immediate holding company		(ii)(a)			—				556,161,528				163,180,000
Acquisition of investments from fellow subsidiaries		(ii)(b)			—				148,671,602				11,545,800
Disposal of an investment to a former fellow subsidiary		(ii)(c)			—				—				196,036,584

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

27.	RELATED PARTY TRANSACTIONS (CONTINUED)

 

(A)

In addition to the transactions disclosed elsewhere in these consolidated financial statements, the Group had the following transactions with related parties during the years: (continued)

						For the year ended December 31,
		Notes				2019				2020				2021
						HK$				HK$				HK$
Administrative service fee paid to immediate holding company			(iii)				12,000,000				24,000,000				24,000,000
Interest income from immediate holding company			(iv)				17,562,104				101,159,079				116,028,045
Stock loan interest income from a former fellow subsidiary			(i)				—				—				34,740
Recharge from/(to) immediate holding company
—Staff costs							17,936,752				20,156,843				22,081,545
—Premises cost							5,300,986				14,010,263				13,964,993
—Office renovation							869,214				—				—
—Other operating expenses, net							9,798,649				—				—
			(iii)				33,905,601				34,167,106				36,046,538
Treasury shares repurchased from immediate holding company							—				—				5,000,000,000
Perpetual securities redeemed from a fellow subsidiary							—				—				4,648,331
Perpetual securities redeemed from a former fellow subsidiary							—				—				35,719,218
Net changes in fair value on derivative financial asset entered into with a related party			(v)				1,165,220,000				321,797,949				—
Consideration received for disposal of investments to a related party			(v)				—				972,215,580				—
Consideration received for settlement of derivatives contracts with a related party			(v)				—				618,682,641				—

Notes:

 

(i)

The terms of these services were comparable to the fee and conditions offered to the major customers of the Group.

 

(ii)

(a) In 2020, the transaction represented the acquisition of 14.4% interest in a fellow subsidiary, AMTD Digital Inc., from AMTD Group based on fair value at the date of acquisition. In 2021, the transaction represented the acquisition of 19.9% interest in another fellow subsidiary, AMTD Assets Alpha Group, from AMTD Group based on the investee’s net asset value on the date of acquisition. The unrealized fair value gain on these two investments for the year ended December 31, 2021 amounted to HK$545.2 million (2020: HK$336.4 million). Also refer to note 32 for the subsequent event relating to the acquisition of further interest in AMTD Digital Inc.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

27.	RELATED PARTY TRANSACTIONS (CONTINUED)

 

(A)

In addition to the transactions disclosed elsewhere in these consolidated financial statements, the Group had the following transactions with related parties during the years: (continued)

 

(ii)

(b) In 2020, the transactions represented the acquisition of equity linked notes from a former fellow subsidiaries based on the fair value as of the date of acquisition. In 2021, the transaction represented the acquisition of an unlisted equity investment from a fellow subsidiary. The related realized and unrealized fair value gain recognized for the year ended December 31, 2020 was HK$82,948,508 and HK$26,688,861, respectively. The related realized and unrealized fair value gain recognized for the year ended December 31, 2021 was HK$119,113,730 and HK$Nil, respectively.

(c) The transaction represented the disposal of unlisted equity investment to a related company based on the fair value as of the date of disposal. The gain on disposal amounted to HK$5,998,446.

 

(iii)

During the year ended December 31, 2019, staff costs, office renovation and other operating expenses (e.g. advertisement and promotional expense) were recharged by the immediate holding company based on the proportion of the Company’s revenue to the consolidated revenue of the immediate holding company, net of expenses incurred by the Group. Premises cost was recharged based on actual usage. Starting from the third quarter of fiscal year 2019, the immediate holding company charged a fixed service fee of HK$6,000,000 per quarter in place of recharging arrangement for certain operating expenses.

 

(iv)

The transaction represented the interest income charged at 2% per annum (Note 5) on the outstanding amount due from the immediate holding company which was payable on demand.

 

(v)

In December 2019, the controlling person of the counterparty, with which the Group has entered into the Agreements (Note 14), was appointed as a Director to the Board of Directors of the Company. Accordingly, the counterparty became a related party of the Company. On October 27, 2020, the Agreements were novated to an external party.

 

(B)

In addition to balances disclosed elsewhere in these consolidated financial statements, the Group had the following outstanding balances with related parties:

 

(i)

Treasury functions of the Group are conducted centrally under AMTD Group and inter-company fund transfers were carried out among the entities within AMTD Group. The treasury function manages available funds at AMTD Group level and allocates the funds to various entities within AMTD Group for their operations. On August 5, 2019, the Group entered into an intercompany financing agreement with its immediate holding company. Under such agreement, any intercompany receivables and payables balances with the immediate holding company and the fellow subsidiaries shall be settled on a net basis with the immediate holding company. As of December 31, 2020 and 2021, the net balance between the Group and the immediate holding company was an amount due from immediate holding company of HK$6,477,266,499 and HK$2,144,975,230 respectively, which bears interest at 2% per annum and are unsecured and repayable on demand. The Group did not have any outstanding balances with its fellow subsidiaries. For the years ended December 31, 2019, 2020 and 2021, there was no provision for credit loss on amounts due from immediate holding company.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

27.	RELATED PARTY TRANSACTIONS (CONTINUED)

 

(C)

Compensation of key management personnel of the Group:

		For the year ended December 31,
		2019				2020				2021
		HK$				HK$				HK$
Short-term employee benefits			43,062,534				32,692,568				22,426,846
Other long-term benefit			92,700				54,745				55,200
			43,155,234				32,747,313				22,482,046

 

28.	FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as of the end of the reporting period are as follows:

As of December 31, 2020

Financial assets

 

		Financial assets at fair value through profit or loss
		Mandatorily required to be measured at fair value				Financial assets at amorti z ed cost				Total
		HK$				HK$				HK$
Accounts receivable			—				77,350,250				77,350,250
Financial assets included in prepayments, deposits and other receivables			—				1,650,827				1,650,827
Due from immediate holding company			—				6,477,266,499				6,477,266,499
Financial assets at fair value through profit or loss			1,377,856,715				—				1,377,856,715
Stock loan			878,483,400				—				878,483,400
Derivative financial asset			1,023,902,566				—				1,023,902,566
Other assets			—				197,309,175				197,309,175
Cash and bank balances			—				453,966,764				453,966,764
			3,280,242,681				7,207,543,515				10,487,786,196

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

28.	FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED)

 

Financial liabilities

 

		Financial liabilities at fair value through profit or loss				Financial liabilities at amortized cost				Total
		HK$				HK$				HK$
Accounts payable			—				201,986,202				201,986,202
Financial liabilities included in other payables and accruals			—				54,162,984				54,162,984
Bank borrowings			—				232,280,000				232,280,000
Derivative financial liability			12,954,313				—				12,954,313
Convertible bond			—				103,278,429				103,278,429
			12,954,313				591,707,615				604,661,928

As of December 31, 2021

Financial assets

 

		Financial assets at fair value through profit or loss
		Mandatorily required to be measured at fair value				Financial assets at amorti z ed cost				Total
		HK$				HK$				HK$
Accounts receivable			—				86,514,680				86,514,680
Financial assets included in prepayments, deposits and other receivables			—				1,196,110				1,196,110
Due from immediate holding company			—				2,144,975,230				2,144,975,230
Financial assets at fair value through profit or loss			2,574,695,685				—				2,574,695,685
Stock loan			211,331,400				—				211,331,400
Derivative financial asset			969,894,519				—				969,894,519
Other assets			—				136,065,738				136,065,738
Cash and bank balances			—				526,206,108				526,206,108
			3,755,921,604				2,894,957,866				6,650,879,470

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

28.	FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED)

 

Financial liabilities

 

		Financial liabilities at fair value through profit or loss				Financial liabilities at amortized cost				Total
		HK$				HK$				HK$
Accounts payable			—				155,020,918				155,020,918
Financial liabilities included in other payables and accruals			—				72,107,680				72,107,680
Bank borrowings			—				388,870,500				388,870,500
Derivative financial liability			13,752,673				—				13,752,673
Convertible bond			—				111,970,384				111,970,384
			13,752,673				727,969,482				741,722,155

 

29.	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Group’s financial instruments measured at fair value are as follows:

 

		Carrying amounts								Fair values
		As of December 31,								As of December 31,
		2020				2021				2020				2021
		HK$				HK$				HK$				HK$
Financial assets
Financial assets at fair value through profit or loss			1,377,856,715				2,574,695,685				1,377,856,715				2,574,695,685
Derivative financial asset			1,023,902,566				969,894,519				1,036,169,019				968,386,750
Stock loan			878,483,400				211,331,400				878,483,400				211,331,400
			3,280,242,681				3,755,921,604				3,292,509,134				3,754,413,835
Financial liabilities
Derivative financial liability			12,954,313				13,752,673				12,954,313				13,752,673

Management has assessed that the fair values of cash and cash balances, accounts receivable, financial assets included in prepayments, deposits and other receivables, amount due from immediate holding company, other assets, accounts payable, financial liabilities included in other payables and accruals and convertible bond, approximate to their carrying amounts largely due to the short-term maturities of these instruments or repayable on demand, or that they are interest-bearing at market rates.

The Group’s finance department headed by the finance director is responsible for determining the policies and procedures for the fair value measurement of financial instruments. The finance director reports directly to the chief financial officer. At each reporting date, finance department analyzes the movements in the values of financial instruments and determines the major inputs applied in the valuation. The valuation is reviewed and approved by the chief financial officer.

The valuation procedures applied include consideration of recent transactions in the same security or financial instrument, recent financing of the investee companies, economic and market conditions, current

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

29.	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)

 

and projected financial performance of the investee companies, and the investee companies’ management team as well as potential future strategies to realize the investments.

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

As of December 31, 2020 and 2021, the fair values of listed equity investments, including the stock loan, and an unlisted equity linked note were based on quoted market prices.

The valuation methodologies for material unlisted equity securities are set out in Note 3 to the consolidated financial statements.

The fair value of the derivative financial asset in relation the Agreements was estimated using the MCS and was determined based on significant observable and unobservable inputs including the current stock price, dividend yield, risk-free rate, volatility of the underlying equity securities and the credit rating of the counterparty on the valuation date. MCS is a financial model that is commonly used to simulate variables that are highly unpredictable. The valuations performed using the MCS require management to estimate the volatility of the underlying equity securities and the credit rating of the counterparty and hence the valuations are subject to estimation uncertainty. The Group classifies the fair value of derivative financial asset as Level 3. The management believed that the estimated fair values resulting from the valuation technique were reasonable. The accounting policy of the day 1 profit or loss arising from the difference between the transaction price and the fair value upon initial recognition is disclosed in Note 2.4 to the consolidated financial statements.

The fair value of the conversion option embedded in the convertible bond is calculated based on the difference of the fair value of convertible bond as a whole using binomial method, and the fair value of the loan using the discounted cash flow method. The valuation of the fair value of convertible bond as a whole requires the Group to determine credit spread, liquidity spread and volatility.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

29.	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)

 

Below is summary of significant unobservable inputs t

o

 valuation of financial instruments together with a quantitative sensitivity analysis as of December 31, 2020:

 

		Valuation technique		Significant unobservable input		Range or estimate		Sensitivity of value to the input
Unlisted equity investment Investment B		Multiple/ EVA		Equity volatility		63.61%		5% increase/decrease in volatility results in decrease/increase in fair value by 3.5%/3.3%
Unlisted equity investment Investment C		Multiple/ EVA		Equity volatility		39.64%		5% increase/decrease in volatility results in decrease/increase in fair value by 0.9%/0.9%
				Average P/E multiple of peers		10.4		5% increase/decrease in P/E multiple results in increase/decrease in fair value by 4.7%/4.7%
Derivative financial asset		MCS		Volatility of Underlying Assets		46.03%		5% increase/decrease in volatility results in increase/decrease in fair value by 0.23%/0.11%
				Credit rating		BB		One rank level increase in credit rating of counterparty from BB to BBB results in increase in fair value by 0.02%
								One rank level decrease in credit rating of counterparty from BB to B results in decrease in fair value by 0.16%
Derivative financial liability		Binomial option pricing model		Volatility		56.58%		5% increase/decrease in volatility results in increase/decrease in fair value by 1.63%/1.66%
				Discount rate		9.77%		5% increase/decrease in credit spread results in increase/decrease in fair value by 8.22%/9.41%

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

29.	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)

 

Below is summary of significant unobservable inputs to valuation of financial instruments together with a quantitative sensitivity analysis as of December 31, 2021:

 

		Valuation technique		Significant unobservable input		Range or estimate		Sensitivity of value to the input
Unlisted   equity   investment Investment B		Multiple/EVA		Equity volatility		75.29%		5% increase/decrease in volatility results in decrease/increase in fair value by 0%/ 0%
				Median Forward P/E multiple of peers		2.10		5% increase/decrease in P/E multiple results in increase/decrease in fair value by 0%/ 1.9%
Unlisted equity investment Investment C		Multiple/EVA		Equity volatility		48.52%		5% increase/decrease in volatility results in decrease/increase in fair value by 1.3%/1.3%
				Median Forward P/E multiple of peers		18.97		5% increase/decrease in P/E multiple results in increase/decrease in fair value by 4.2%/4.3%
Unlisted equity investment Investment E		Multiple/EVA		Average P/E multiple of peers		61.29		5% increase/decrease in P/E multiple results in increase/decrease in fair value by 5.0%/5.0%
				Discount of lack of marketability		45%		5% increase/decrease in discount of lack of marketability results in decrease/increase in fair value by 4.1%/4.1%
Unlisted equity investment Investment G		Net Asset Value Method		Net Asset Value		Note (a)		5% increase/decrease in net asset value results in increase/decrease in fair value by 5.0%/5.0%
Derivative financial asset		MCS		Volatility of Underlying Assets		35.95%		5% increase/decrease in volatility results in increase/decrease in fair value by 0.06%
Derivative financial liability		Binomial option pricing model		Volatility		46.21%		5% increase/decrease in volatility results in increase/decrease in fair value by 0.07%/0.13%
				Discount rate		12.52%		5% increase/decrease in discount rate results in decrease/increase in fair value by 0.70%/0.71%

Note:

 

a.

The fair value is derived from the net asset value of Investment G that is mostly attributable from its underlying property investments with their fair value being measured by income approach. The directors of the Company considered that remaining assets or liabilities in Investment G are not significant to the amount of overall investment and approximated to their fair value.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

29.	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)

 

Fair Value Hierarchy

The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:

Assets measured at fair value

:

 

		Fair value measurement using
		Quoted prices in active markets (Level 1)				Recent transaction price (Level 2)				Significant unobservable inputs (Level 3)				Total
		HK$				HK$				HK$				HK$
As of December 31, 2020
Financial assets at fair value through profit or loss			185,435,750				892,565,280				299,855,685				1,377,856,715
Stock loan			878,483,400				—				—				878,483,400
			1,063,919,150				892,565,280				299,855,685				2,256,340,115
Derivative financial asset			—				—				1,023,902,566				1,023,902,566
			1,063,919,150				892,565,280				1,323,758,251				3,280,242,681
As of December 31, 2021
Financial assets at fair value through profit or loss			844,075,860				21,525,064				1,709,094,761				2,574,695,685
Stock loan			211,331,400				—				—				211,331,400
			1,055,407,260				21,525,064				1,709,094,761				2,786,027,085
Derivative financial asset			—				—				969,894,519				969,894,519
			1,055,407,260				21,525,064				2,678,989,280				3,755,921,604

Liability measured at fair value

:

 

Fair value measurement using

Quoted prices in active markets (Level 1)

Recent transaction price (Level 2)

Significant unobservable inputs (Level 3)

Total

HK$

HK$

HK$

HK$

As of December 31, 2020

Derivative financial liabilities

—

—

12,954,313

12,954,313

As of December 31, 2021

Derivative financial liabilities

—

—

13,752,673

13,752,673

Other than the transfer from level 2 to 3 as mentioned in Note 3 during the year ended December 31, 2021, there was no other transfer between levels during the years ended December 31, 2019 and 2020. Transfers between levels of the fair value hierarchy are deemed to occur at the end of each reporting period.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

29.	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)

 

The movements in fair value measurements within Level 3 during the years are as follow:

 

		For the year ended December 31,
		2019				2020				2021
		HK$				HK$				HK$
Unlisted equity shares at fair value through profit or loss:
At January 1,			281,241,909				322,697,916				299,855,685
Addition			—				—				163,180,000
Transfer			—				—				1,120,244,487
Disposal			—				—				(196,036,584	)
Net fair value changes recognized in profit or loss			41,456,007				(22,842,231	)			321,851,173
At December 31,			322,697,916				299,855,685				1,709,094,761

The total profits for the year included an unrealized gain of HK$315,852,726 relating to level 3 financial assets at FVTPL that are measured at fair value held as at December 31, 2021 (Unrealized gain of HK$41,456,007 and unrealized loss of HK$22,842,231 as at December 31, 2019 and 2020, respectively). Fair value gains or losses on financial assets at FVTPL are included in the “Net fair value changes on financial assets at fair value through profit or loss (except derivative financial assets) and stock loan” line item.

 

		For the year ended December 31, 2019
		HK$
Warrants at fair value through profit or loss:
At January 1,			—
Issued			15,699,600
Exercised			(15,699,600	)
At December 31,			—

 

		For the year ended December 31,
		2020				2021
		HK$				HK$
Derivative financial asset (Note 14):
At January 1,			1,165,220,000				1,023,902,566
Recognition of day 1 profit or loss deferred on inception of contract, renegotiation and extension			(41,782,951	)			14,591,113
Net fair value gains recogni z ed in profit or loss			413,088,277				(68,599,160	)
Gain related to disposed investment			106,059,881				—
Partial settlement			(618,682,641	)			—
At December 31,			1,023,902,566				969,894,519

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

29.	FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)

 

 

		For the year ended December 31,
		2020				2021
		HK$				HK$
Derivative financial liability (Note 23):
At January 1,			20,813,810				12,954,313
Net fair value changes recognized in profit or loss			(7,765,148	)			798,360
Exchange alignment			(94,349	)			—
At December 31,			12,954,313				13,752,673

 

30.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group has various financial assets and liabilities such as financial assets at fair value through profit or loss, stock loan, accounts receivable, financial assets included in prepayments, deposits and other receivables, amount due from immediate holding company, other assets, accounts payable, financial liabilities included in other payables and accruals which primarily arise directly from its operations.

The main risks arising from the Group’s financial instruments are price risk, foreign currency risk, interest rate risk, credit risk and liquidity risk. Management manages and monitors these risks to ensure appropriate measures are implemented on a timely and effective manner.

Price risk

Equity price risk is the risk that the fair values of equity investments decrease as a result of changes in the levels of equity indices and the value of individual securities.

The Group is exposed to equity securities price risk because certain investments held by the Group are classified in the consolidated statements of financial position as financial assets at fair value through profit or loss. Profit for the year would increase/decrease as a result of gains/losses on equity securities classified as financial assets at fair value through profit or loss.

At December 31, 2020 and 2021, if there had been a 5% increase/decrease in the equity price of listed equity shares, included in financial assets at fair value through profit or loss and stock loan, with all other variables held constant, the Group’s profit before tax would have been approximately HK$50,070,000 and HK$52,770,000 higher/lower.

At December 31, 2020 and 2021, if there had been a 5% increase/decrease in the equity price of unlisted equity shares and unlisted equity linked notes, included in financial assets at fair value through profit or loss, with all other variables held constant, the Group’s profit before tax would have been approximately HK$62,747,000 and HK$86,531,000 higher/lower.

The Group had concentration risk in its strategic investments segment as 100% of stock loan at December 31, 2020 and 2021 were investments in listed equity shares in Investment A and 65% and 43% of financial assets at fair values through profit or loss at December 31, 2020 and 2021 were investments in unlisted equity shares in Investment E.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

30.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Price risk (continued)

On April 1, 2019, the Group entered Agreements with the counterparty in relation to the movement of the share price of the entirety of the Underlying Assets to reduce the Group’s exposure the changes in fair value of financial assets. The Agreements were modified and renewed several times as disclosed in Note 14. The derivative financial asset is initially recogni

z

ed at fair value and are subsequently remeasured at fair value. Any gains or losses arising from changes in fair value of derivative financial asset are taken directly to profit or loss. During the year ended December 31, 2020 and 2021, changes in the fair value of the derivative financial asset of HK$371,305,326 and HK$54,008,047, were charged to profit or loss.

Foreign currency risk

Certain transactions of the Group are denominated in foreign currencies which are different from the functional currency of the Group, i.e. HK$, and therefore the Group is exposed to foreign currency risk. The Group currently does not have a foreign currency hedging policy. However, management monitors foreign exchange exposure and will consider hedging significant foreign exchange exposure should the need arise. As HK$ is currently pegged to United States dollars (‘‘US$’’), management considers that there is no significant foreign currency risk arising from the Group’s monetary assets and the liability denominated in US$.

The Group’s key currency risk exposure primarily arises from accounts receivable and bank balances denominated in Renminbi (“RMB”), New Taiwan Dollar (“NTD”) and Singapore Dollar (“SGD”). As of December 2020 and 2021

,

 the Group had no significant exposure to foreign currency risk. Consequently, no sensitivity analysis has been performed and disclosed.

Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed-rate amount due from immediate holding company and convertible bond. The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank balances and variable-rate bank borrowings. The Group cash flow interest rate risk is mainly concentrated on the fluctuation of interest rates on bank balances, HIBOR arising from the Group’s HK$ denominated borrowings and LIBOR arising from the Group’s US$ denominated borrowings. The Group aims at keeping borrowings at variable rates. The Group manages its interest rate exposures by assessing the potential impact arising from any interest rate movements based on interest rate level and outlook. The management will review the proportion of borrowings in fixed and floating rates and ensure they are within reasonable range.

No sensitivity analysis has been presented for variable rate bank balances and variable rate bank borrowings as the bank deposit and bank borrowings as the cash flow interest exposure is insignificant.

Interest rate benchmark reform

As listed in Note 20, several of the Group’s HIBOR bank borrowings may be subject to the interest rate benchmark reform. The Group is closely monitoring the market and managing the transition to new benchmark interest rates, including announcements made by the relevant IBOR regulators.

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

30.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Interest rate benchmark reform (continued)

 

 

HIBOR​​​​​​​

While the Hong Kong Dollar Overnight Index Average (“HONIA”) has been identified as an alternative to HIBOR, there is no plan to discontinue HIBOR. The multi-rate approach has been adopted in Hong Kong, whereby HIBOR and HONIA will co-exist.

As part of the Group’s risk management for transition, new contracts entered into by the Group are linked to the relevant alternative benchmark rates or interest rates which are not subject to reform to the extent feasible. Otherwise, the Group ensured the relevant contracts include detailed fallback clauses clearly referencing the alternative benchmark rate and the specific triggering event on which the clause is activated.

Subsequent to the year ended December 31, 2021, the HIBOR bank borrowing has been repaid.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure of its counterparties is continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management periodically.

The Group has credit risk exposure in relation the Agreements entered into with a counterparty amounting to HK$1,023,902,566 and HK$969,894,519 as of December 31, 2020 and 2021, respectively (Note 14). On December 20, 2019, the Group entered into a pledge agreement with the same counterparty pursuant to which the counterparty pledged certain listed securities to the Group as collateral. As of December 31, 2020 and 2021, the market value of listed securities pledged to the Group amounted to approximately HK$2,860,797,360 and HK$3,089,570,978, respectively (Note 14).

The carrying amount of financial assets recorded in the consolidated financial statements, grossed up for any allowances for losses, represents the Group’s maximum exposure to credit risk.

Other than accounts receivable mentioned in Note 11, the credit risk on liquid funds is limited because the counterparties are mainly banks with sound credit. The directors of the Company consider the credit risk on amounts due from immediate holding company is not significant after considering immediate holding company’s financial background and creditability.

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

30.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Interest rate benchmark reform (continued)

Credit risk (continued)

 

Maximum exposure and staging as of December 31, 2020 and 2021

As of December

 31, 2020

 

		12-month ECLs				Lifetime ECLs												HK$
		Stage 1 HK$				Stage 2 HK$				Stage 3 HK$				Simplified approach HK$
Accounts receivable*			21,165,253				—				—				56,184,997				77,350,250
Financial assets included in prepayments, deposits and other receivables
—Normal**			1,650,827				—				—				—				1,650,827
—Doubtful**			—				—				—				—				—
Due from immediate holding company
—Normal**			6,477,266,499				—				—				—				6,477,266,499
—Doubtful**			—				—				—				—				—
Other assets
—Not yet past due			197,309,175				—				—				—				197,309,175
Cash and bank balances
—Not yet past due			453,966,764				—				—				—				453,966,764
			7,151,358,518				—				—				56,184,997				7,207,543,515

 

*	For accounts receivable to which the Group applies the simplified approach for impairment, information based on the provision matrix and internal credit rating mentioned in Note 11 to the consolidated financial statements.

**

The credit quality of the financial assets included in prepayments, deposits and other receivables, and due from immediate holding company is considered to be “normal” when they are not past due and there is no information indicating that the financial assets had a significant increase in credit risk since initial recognition; “doubtful” when there has been significant increase in credit risk since initial recognition through information developed internally or externally; “loss” when there is evidence indicating the asset is credit-impaired: and “ write-off ” when there is evidence indicating that the debtor is in severe financial difficulty and Group has no realistic prospect of recovery.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

30.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Credit risk (continued)

 

Maximum exposure and staging as of December 31, 2020 and 2021 (continued)

As of December 31, 2021

 

		12-month ECLs				Lifetime ECLs												HK$
		Stage 1 HK$				Stage 2 HK$				Stage 3 HK$				Simplified approach HK$
Accounts receivable*			21,545,865				—				—				64,968,815				86,514,680
Financial assets included in prepayments, deposits and other receivables
—Normal**			1,196,110				—				—				—				1,196,110
—Doubtful**			—				—				—				—				—
Due from immediate holding company
—Normal**			2,144,975,230				—				—				—				2,144,975,230
—Doubtful**			—				—				—				—				—
Other assets
— Not yet past due			136,065,738				—				—				—				136,065,738
Cash and bank balances
— Not yet past due			526,206,108				—				—				—				526,206,108
			2,829,989,051				—				—				64,968,815				2,894,957,866

 

*	For accounts receivable to which the Group applies the simplified approach for impairment, information based on the provision matrix and internal credit rating mentioned in Note 11 to the consolidated financial statements.

**

The credit quality of the financial assets included in prepayments, deposits and other receivables and due from immediate holding company is considered to be “normal” when they are not past due and there is no information indicating that the financial assets had a significant increase in credit risk since initial recognition; “doubtful” when there has been significant increase in credit risk since initial recognition through information developed internally or externally; “loss” when there is evidence indicating the asset is credit-impaired: and “ write-off ” when there is evidence indicating that the debtor is in severe financial difficulty and Group has no realistic prospect of recovery.

Liquidity risk

The Group aims to maintain cash and credit lines to meet its liquidity requirements. The Group finances its working capital requirements through a combination of funds generated from operations, loans and equity financing.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

30.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Liquidity risk (continued)

The following tables detail the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay.

 

		As of December 31, 2020
		Weighted average interest rate				On demand or less than 3 months				3 months to 1 year				1 to 5 years				Total
		%				HK$				HK$				HK$				HK$
Accounts payable			N/A				201,986,202				—				—				201,986,202
Bank borrowings			2.1	%			233,493,790				—				—				233,493,790
Financial liabilities included in other payables and accruals			N/A				54,136,011				—				—				54,136,011
Convertible bond			7.8	%			—				—				124,606,940				124,606,940
							489,616,003				—				124,606,940				614,222,943

 

		As of December 31, 2021
		Weighted average interest rate				On demand or less than 3 months				3 months to 1 year				1 to 5 years				Total
		%				HK$				HK$				HK$				HK$
Accounts payable			N/A				155,020,918				—				—				155,020,918
Bank borrowings			2.1	%			390,926,836				2,631,251				—				393,558,087
Financial liabilities included in other payables and accruals			N/A				72,029,390				—				—				72,029,390
Convertible bond			7.8	%			—				—				125,319,026				125,319,026
							617,977,144				2,631,251				125,319,026				745,927,421

Capital risk management

The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximizing the return to stakeholders through the optimisation of the debt and equity balance.

The capital structure of the Group consists of debt which includes bank borrowing and convertible bond, equity attributable to equity holders of the Group, comprising issued share capital, retained profits, capital reserves and perpetual securities, as disclosed in consolidated statements of changes in equity.

As AMTD GM and AMTD AAAPL are licensed corporations under the Hong Kong Securities and Futures Ordinances, the Group is subject to statutory capital requirement and is required to maintain adequate financial resources to support its business. The Securities and Futures (Financial Resources) Rules require a licensed corporation to maintain liquid capital which is not less than its required liquid capital.

In addition, AMTD GM is registered licensed insurance broker company under the Insurance Authority, which is required to maintain a minimum capital and net assets value of not less than HK$500,000.

 

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AMTD IDEA GROUP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

 

30.	FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Capital risk management (continued)

 

There were no changes on the Group’s approach to capital risk management during the years ended December 31, 2020 and 2021. The Group’s regulated entities have complied with the capital requirements imposed by regulatory bodies at all time during both the current and prior financial years.

 

31.	STOCK INCENTIVE PLAN

AMTD SpiderMan Share Incentive Plan

In June 2019, the Group’s board of directors approved the AMTD SpiderMan Share Incentive Plan, or the 2019 Plan, to attract and retain the best available personnel, provide additional incentives to employees, directors, and consultants, and promote the success of the business. The maximum aggregate number of ordinary shares that may be issued under the 2019 Plan is initially 20,000,000 and on January 1 of each year after the effective date of the 2019 Plan, will automatically increase to the number of shares that is equal to ten percent (10%) of the total issued and outstanding share capital of the Group as of December 31 of the preceding year. In addition, on January 1 of each year after the effective date of the 2019 Plan, the aggregate number of shares that may be issued under the 2019 Plan will automatically increase by the number of shares representing 1.0% of the total issued and outstanding share capital of the Group as of December 31 of the preceding year, or such less number as the board of directors may determine. As of the date of this annual report, no awards have been granted under the 2019 Plan.

 

32.	SUBSEQUENT EVENTS

In December 2021, the Group announced the proposed issuance and placement of

11,682,242

Class A and Class B ordinary shares through a private placement of US$50 million to a number of reputable professional investors, subject to fulfilling certain closing conditions. The placement was completed before the approval date of the consolidated financial statements.

In January 2022, the Group entered into definitive agreements to acquire 100% of the equity interest in L’Officiel Inc. SAS, a global fashion media holding group. As at the approval date of the consolidated financial statements, the transaction has not yet been completed and the Group has still been negotiating with the counterparties to finalize the closing conditions.

In February 2022, the Group acquired from AMTD Group

 31,732,000

 

Class A ordinary shares and

24,202,000

Class B ordinary shares, amounting to

82.7%

of the outstanding issued shares in AMTD Digital Inc. (“AMTD Digital”), a fellow subsidiary and comprehensive one-stop digital solutions platform in Asia, for a consideration of 

US$992.8 

million. The consideration was settled by the issuance of

67,200,330

newly issued Class A ordinary shares and

51,253,702

newly issued Class B ordinary shares of the Company, priced at

US$8.38

 

per share. Prior to the transaction, the Group held

14.4%

of the issued and outstanding shares in AMTD Digital. AMTD Digital became a consolidated subsidiary after the transaction and the Group will adopt the principle of pooling of interest method. 

 

33.	APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements were approved and authori

z

ed for issue by the Board of Directors on

April 18, 2022

.

 

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