Vampire bites Unicom
13 May 2003

Yesterday's AGM of China Unicom Ltd (CU, 0762) was the 7th meeting in Project Poll, and slowly but surely, institutional investors are awaking from years of non-voting to turn out and demonstrate their opposition to the general mandate. They are becoming aware that the representation of 5 shareholders by Webb-site.com at Hang Seng Index members' AGMs will ensure that their votes will be counted on a poll, 1-share-1-vote, and not a show of hands.

The fight for pre-emptive rights in Hong Kong has begun, and yesterday's vote was a resounding victory, as we show below. In the UK, this was settled in 1987 with the pre-emption guidelines which virtually all companies comply with. It is time for Hong Kong to amend its Listing Rules to reach this international best practice.

Our Project Vampire (Vote Against Mandate for Placings, Issues by Rights Excepted) urges shareholders to vote against the general share issue mandate unless it complies with the recommendations set out in our Project Vampire article. These recommendations are:

1. The mandate to issue shares for cash, other than by a rights issue, shall be in respect of not more than 5% of the issued shares a the time of the mandate
2. The discount for shares issued other than by a rights issue shall not exceed 5%.
3. The mandate to issue shares for other purposes, including acquisitions, shall be for not more than 20% of the issued shares

So far, only one locally listed company, Arts Optical, has risen to these standards, but others are sure to follow. Webb-site.com editor David Webb is a substantial shareholder of that company. HSBC also meets these standards, but only because it is UK incorporated and London-listed.

CU's immediate parent, China United Telecommunications Corporation, owns 9,725,000,020 shares, or 77.47% of CU. The directors of CU hold 60,000 shares between them. If you exclude these 9,725,060,020 insider votes from the "in favour" figures in the official poll results, then the voting of investors was as follows:

In other words, public investors voted 3:2 against the general mandate. The voting turnout was 33.3% of the free float, which is a big improvement compared with earlier meetings in Project Poll. Last week, for example, CITIC Pacific public shareholders voted against the general mandate by 55:45, but the estimated public turnout was only 10.6% of the free float.

Of course, the parent company's 77% vote means that the CU mandate was approved, but that is not the point. Investors are speaking up through their votes, and making it clear that they want listed companies to restrict the general mandate. The way to require that, in the face of controlling shareholders which exist in over 90% of HK-listed companies, is by amending the Listing Rules.

© Webb-site.com, 2003

Organisations in this story

• CHINA UNICOM (HONG KONG) LIMITED

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