MTRC - a One-Hit Wonder on TV

Hong Kong privatization benefits from regulatory double standards.

The Mass Transit Railway Corp.'s television advertisements have fuelled speculation among some corporate financiers that it sets a precedent for future Hong Kong initial public offerings to advertise as well – but don't bet on the Securities and Futures Commission granting approvals. The Financial Services Bureau has determined that the government can promote the MTRC deal because it is not a listed company.

The possibility of advertising first arose last year with the launch of the Tracker Fund. The government actively promoted the deal not just by offering it at a discount, but with a heavy media campaign that included television commercials. Mark Shipman, a lawyer at Clifford Chance, which worked on the Tracker Fund deal, says his firm has since approached SFC about getting a waiver to rules barring advertising for IPOs for other deals. Clifford Chance was rebuffed each time. SFC ruled that the Tracker Fund counted as a mutual fund, not a security, and could therefore advertise. "The SFC's reaction was negative so we didn't push it," he says.

The TV campaign for MTR raised hopes again that underwriters could promote their IPOs in the future. But an SFC spokeswoman says the government is not a listed company, and therefore can run ads for the deal. A double standard? Absolutely. But Hong Kong's government is hardly unique. One regional head of equity capital markets explains governments around the world practice this distinct brand of hypocrisy, including Britain and Australia.

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