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LE Paper 7 · Topic 7
Topic 7 asks you to explain what corporate finance advisers, asset managers and financial advisers do, why each matters, and how they depend on each other. Expect role-based questions ('which professional would…', 'which regulated activity is this?'), a few calculations (a valuation multiple, a performance fee, a Sharpe ratio) and statement lists on the SFC codes that govern each job. Tie every function to its regulated activity under Schedule 5 to the SFO: Type 6 for corporate finance, Type 9 for asset management, Type 4 for advice on securities.
14 min read6 sections
SFO (Cap. 571) Sch. 5, s.114, s.119 (elegislation.gov.hk); SFC Code of Conduct (December 2025 edition) General Principles, paras 5, 6.2, 10.2, 17, 21; Fund Manager Code of Conduct (October 2024); Corporate Finance Adviser Code of Conduct; Codes on Takeovers and Mergers and Share Buy-backs, Rules 2.1 and 26.1; Code on Unit Trusts and Mutual Funds, REIT Code and OFC Code (sfc.hk); SFC Principles of Responsible Ownership (2016); Main Board Listing Rules 3A.02, 3A.19 and HKEX guidance on compliance advisers (hkex.com.hk); Insurance Ordinance (Cap. 41) s.64G; MPF Schemes Ordinance (Cap. 485) s.34T. Checked October 2026. Independent prep, not endorsed by HKSI Institute or the SFC.
Corporate finance is how a company decides what to invest in, how to pay for it and what to return to its owners. Textbook corporate finance frames this as three decisions, all aimed at maximising the long-term value of the company for its shareholders.
| Decision | The question | Example |
|---|---|---|
| Investment (capital budgeting) | Which projects or acquisitions add value? | Build a new plant only if its net present value is positive |
| Financing (capital structure) | How should we fund them: debt, equity or both? | Issue bonds, place new shares or launch a rights issue |
| Dividend (distribution) | How much profit do we pay out or keep? | Pay a dividend, buy back shares or retain earnings |
It matters because it moves savings to the companies that can use them best. Firms raise capital to grow, merge to gain scale, and restructure when they are in difficulty. Investors get securities to hold, and the economy gets investment and jobs.
Value is the present value of all future cash flows, adjusted for risk. Profit in one year can be raised at the cost of later years, so it is not the goal. A tax saving that destroys value is a bad decision, and some debt can lower the cost of capital.
Trap: choosing 'maximise this year's profit' as the objective. The answer is long-term shareholder value.
Takeaway: Corporate finance = investment, financing and dividend decisions, aimed at long-term shareholder value.
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Corporate finance advisers work for issuers and listed companies, not for individual investors. Their main jobs are below. Advice on these matters is Type 6, advising on corporate finance, under SFO Sch. 5 Pt 2: advice on compliance with the Listing Rules and the Takeovers and Share Buy-backs Codes, on offers of securities to or from the public (including advice given generally to holders on accepting an offer), and to a listed corporation or public company on restructuring its securities, including issuing, cancelling or varying share rights.
| Work | What the adviser does | Rule or source |
|---|---|---|
| IPO sponsorship | Advises and guides the applicant, does due diligence, assures the Exchange and the market on compliance and disclosure | Listing Rule 3A.02; Code of Conduct para 17 |
| Post-listing compliance adviser | Advises the new issuer's directors from listing until results for the first full financial year after listing are published | Main Board Rule 3A.19 (GEM 6A.19) |
| Mergers and acquisitions | Values targets, structures the deal, advises on the Takeovers Code; acts as independent financial adviser to a target's independent committee | Takeovers Code Rules 2.1, 26.1 |
| Restructuring | Redesigns a company's debt and equity, for example a debt-for-equity swap | SFO Sch. 5 'advising on corporate finance' (c) |
| Capital raising | Advises on IPOs, placings, rights issues and bond issues; marketing the securities to investors is dealing (Type 1) | SFO Sch. 5 'dealing in securities'; Code of Conduct para 21.1.1 |
| Valuation | Values a business by DCF, trading or deal multiples, or net assets | Standard valuation practice |
Sponsors. A sponsor's primary role is to give the Stock Exchange and the market assurance that the applicant complies with the Listing Rules and other requirements, and that the listing document gives investors enough information to form a valid and justifiable opinion (Code of Conduct para 17.1(b)). Its key requirements (para 17.2) include advising and guiding the applicant, reasonable due diligence, taking reasonable steps to ensure true, accurate and complete disclosure, and dealing with the regulators truthfully, cooperatively and promptly. Due diligence must be finished before the application is filed, except matters that by their nature can only be dealt with later (para 17.4(a)). A sponsor never guarantees the share price or a profit forecast.
Bookbuilding. In a share offering, an overall coordinator manages the offering, collates investors' orders, advises the issuer on the offer price and recommends allocations (Code of Conduct para 21.2.3). Collecting orders and placing shares is capital market intermediary work and is dealing in securities (Type 1), not Type 6.
Takeovers. Anyone who acquires 30% or more of a company's voting rights must make a general offer unless the Executive grants a waiver (Rule 26.1(a)). Someone already holding 30% to 50% triggers an offer by adding more than 2% in 12 months (the 'creeper', Rule 26.1(c)). The offeree board must form an independent committee and retain a competent independent financial adviser, approved by that committee (Rule 2.1).
Exclusions from Type 6. No licence is needed for advice given solely within a wholly owned group, wholly incidental advice by a Type 1 licensee, solicitor, counsel, certified public accountant or registered trust company, or advice published in a newspaper or broadcast to the public (SFO Sch. 5 Pt 2). A firm whose business is corporate finance advice is not excluded.
Valuation. The income approach (DCF) discounts forecast free cash flows at a rate such as the weighted average cost of capital. The market approach applies multiples from comparable listed companies or precedent transactions. The asset approach values assets less liabilities. An EV multiple gives enterprise value: deduct net debt to reach equity value.
| Worked example: EV/EBITDA | Figure |
|---|---|
| Peer EV/EBITDA multiple | 8.0x |
| Target EBITDA | HK$150 million |
| Enterprise value (8.0 x 150) | HK$1,200 million |
| Less net debt | HK$300 million |
| Equity value | HK$900 million |
| Per share (100 million shares) | HK$9.00 |
Trap: treating all advice about listed shares as Type 6. Telling an investor which shares to buy is Type 4, and the Type 4 definition excludes advice that is corporate finance. Selling an issue to investors is Type 1.
Takeaway: Type 6 advises issuers: IPOs, Listing Rules, takeovers, restructuring. Sponsors assure disclosure; they never guarantee prices or profits.