Hong Kong disclosure is falling behind, says Webb

The Hong Kong stock exchange recently eliminated a corporate disclosure requirement. HKEx board member David Webb wants it reinstated.
Hong Kong government and stock exchange officials are fond of chestûbeating claims that Hong KongÆs exchange is the best regulated in Asia.

However shareholder rights activist David Webb, who was last week re-elected to the board Hong Kong Exchanges and Clearing (HKEx), warns that disclosure was becoming less transparent in Hong Kong at a time when other Asian and Western exchanges are insisting that shareholders be given more information.

Only recently he pointed out on his website, Webb-site.com that the stock exchangeÆs listing committee, in a little-noticed amendment, had watered-down disclosure requirements by companies.

Under listing rules introduced in March 2004 companies were required to disclose large accounts receivables if they exceeded 8% of their market capitalisation or total assets.

However this disclosure requirement was abolished in February 2006 û along with a number of other amendments û in a document headed: Minor and housekeeping amendments to the Main Board and GEM Listing Rules. The measure was also approved by the stock exchangesÆ watchdog body, the Securities and Futures Commission. An SFC spokesman said that the body had considered the measure on its merits. But some market professionals say that it should have been subjected to public consultation rather than quietly passing as a ôhousekeeping measureö.

Banks had already slipped free of the tighter disclosure regulations in May 2004 when the exchange issued a ôno actionö letter which declared that it would not take action against banks which extended loans that exceeded 8% of their total assets or market capitalisation.

It is unclear whether the present disclosure requirements would prevent the recurrence of another Peregrine-type situation.

In 1997 Hong KongÆs largest local investment bank û Peregrine Investment Holdings û cause shockwaves when it collapsed after an Indonesian taxi company defaulted on a $350 million bridging loan extended by Peregrine.

Shareholders were not aware that a loan of this size had been made to the company.

Webb says the disclosure of receivables was abolished because listed companies ödonÆt like having to disclose their weaknesses, and listed companies and their advisers dominate the [listings] committee.ö

He said it was a useful measure and that, as a board member, he would press to get the measure reinstated.

The regulation, he said, discouraged companies from becoming over-reliant on any one customer while at the same time if they chose to do so alerted investors to the increased risk the company was taking on board which could affect the share price.

A number of companies have got into financial difficulties as a result of overextending credit to their customers. Retail franchisor, Wanasports, was recently delisted after it collapsed as a result of extending significant amounts of inventory to customers for which it was not paid.

Only last week Artel Solutions Holdings, a manufacturer of CPUs, announced a loss of HK$596 million. Included on the balance sheet were doubtful loans arising out of unpaid receivables of HK$400 million. The company said in the announcement it was seeking fresh equity while its continued existence depended on the support of its bankers and creditors. In addition, the auditors have been unable to sign off on the accounts.

In WebbÆs opinion Hong Kong is basking in an ill-deserved sense of complacency. Hong Kong has had it easy for the last year or so because mainland China messed up its markets so badly that it had to suspend IPOs.

But with IPOs likely to resume in China later this year, Hong Kong will face considerably more competition from the mainland. ôHong Kong is way behind China and other Asian exchanges in terms of reporting speed and frequency,ö he says.

While he says that û in terms of disclosure û Hong Kong in 1997 was comfortably ahead of other Asian exchanges, it has slipped behind in recent years.

Shortly before he was first elected to the HKEx board in 2003 he warned that Hong Kong ô was running the strong risk of ending up as the Florida of China rather than the Manhattan of Chinaö. Three years later he says, ôthat risk still exists.ö

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media