Articles: Listing rules
HKEx drops second-class shares proposal
HKEx has finally thrown in the towel on its attempts to list second-class shares. Corporate governance was already bad enough without making it even easier to abuse minority shareholders. Charles Li’s campaign to do this exposed the blatant conflict of interests in the Exchange being a for-profit regulator. This conflict should now be addressed by transplanting the listing function to the SFC, the statutory regulator. The Listing Committee, dominated by issuer interests, needs radical reform too.
Bubbles and troubles in Hong Kong
Pour yourself a coffee and digest this long article as we investigate several ongoing abusive "open offers" and placings as well as show you who's been making out in multi-billion-dollar bubbles. We call on regulators and rule-makers to take action. (24-Sep-2015)
HK regulator opposes proposal to allow dual-class shares
SFC statement on SEHK's draft proposal on weighted voting rights
Hurray! This should kill it, as all changes to Listing Rules must be approved by the SFC. The SFC board "unanimously concluded that it does not support the draft proposal for primary listings with WVR structures". Now Government should recognise the huge conflict of interest in HKEx being a for-profit rule-maker and regulator. The Listing Division should be transferred to the SFC and merged with its Corporate Finance Division which oversees the Takeovers Code, as a Government-appointed Expert Group recommended in 2003.
Li Ka Shing supports 1-share-1-vote
South China Morning Post, 23-Jun-2015
Now perhaps he can get that message through to his representatives on the Listing Committee.
The Stock Exchange and SFC continue to allow companies to make false and misleading statements about "bonus" issues of shares - we take a look at the latest example. (11-Jun-2015)
Principles of Responsible Regulation
Webb-site calls on the SFC, Government and HKEx to get serious about facilitating investor stewardship. Principles of Responsible Ownership are only useful if regulators address the deficiencies in Hong Kong's governance framework for listed companies. We call on readers to make a submission and support our proposed Principles of Responsible Regulation. (26-May-2015)
SFC CEO's opening remarks at media lunch
Comments on what HKEx euphemistically calls "Weighted Voting Rights" or what we call "second-class shares".
Mission Capital defines "new principal line of trading business". Listing Rule 14.04(1)(g)
Company announcement, 17-Feb-2015
MC is trying to exploit a loophole in the Listing Rules to treat property transactions as part of its trading business, and therefore of a "revenue nature" and exempt from disclosure and approvals under LR 14.04(1)(g). Four minutes after this, it "voluntarily" announced the acquisition of a BVI company which owns a property, calling it a "trading asset".
Blackrock's submission to HKEx on "Weighted Voting Rights"
"In BlackRock’s view, under no circumstances should the Exchange allow companies to use weighted voting right (WVR) structures."
Submission to HKEx on Weighted Voting Rights
Webb-site calls on HKEx to keep 1-share-1-vote and not to introduce second-class shares or allow companies to install trapdoors in their articles of association. We also launch a petition - please sign it if you agree! (21-Nov-2014)
HKEx signs MoU with CCB (0939)
Company media release, 15-Sep-2014
This MoU, for "strategic cooperation" again puts HKEx into a conflict of interest with its role as listing regulator of CCB, as it has done with China Minsheng Banking (1988). The SFC should take over as listing regulator of both banks.
Survey on Alibaba & non-standard shareholding structures
Asian Corporate Governance Association, 15-Apr-2014
Managers of over US$14tn respond that if HK allows non-standard shareholding structures then it can expect a discount of 13% to be applied to the market.
What the UK should learn from Jardines
Jardine group is downgrading its UK Listing, lowering minority rights and governance standards. The controller can vote, sealing the deal for 4 companies, but minorities of Hongkong Land could save themselves from this fate. Once downgraded, full listing cancellation requires no vote. We make recommendations to London's FCA based on HK's successful 2002 reforms to avoid a Hobson's Choice of a low buyout offer or holding delisted shares. (27-Mar-2014)
We had a dream too!
Following the hallucinations in HKEx non-elected director and CEO Charles Li Xiao Jia's blog yesterday, Webb-site had a dream last night! (26-Sep-2013)
Alibaba's spotlight on HK regulation
10 years after the Expert Group report, Alibaba's requests spotlight the unresolved conflict of interests of HKEx between profit and regulation, creating an opportunity for Government to put this back on the agenda. They should now follow through, strip HKEx of its regulatory role, create a Listings and Takeovers Authority under the SFC, and remove the special provisions of HKEx's own constitution which make it a Government-controlled company. (18-Sep-2013)
SEHK excludes gains on valuation of biological assets from trading record and profit requirements
In other words, "money doesn't grow on trees". Next up: for inventory purposes, poultry-breeders will not be allowed to count their chickens until they are hatched.
HKSAR v Theodore Cheng Chee Tock & Philip Yu
HK District Court, 30-Oct-2012
"The flouting of listing rules...might well be exacerbated by a lack of tight regulation and a comprehensive mechanism to punish those who manipulate the system. It is also clear to see that quite many people in the senior management level of companies failed or were reluctant ot distinguish their own fund and the funds of a public listed company." - District Judge Stanley Chan.
Here's a horror story of excessive pay at Xpress Group (0185), a company you've probably never heard of, but pay attention, because it could just as easily happen to yours, as the Listing Rules do not prevent it. In the last 15 years, the controlling family have received HK$493m in pay as directors, while the loss attributable to shareholders was $248m. (8-Oct-2012)
SEHK clings to "suitability" test
"Where a company's business model is believed [by the Exchange] to be unsustainable, the Exchange will consider it unsuitable for listing". Our view: surely the desirability of an investment is for the market to decide. Given full disclosure, nobody has to buy the shares if they don't want to. SEHK can't quite drag itself away from the merit-based approach to listing approvals, despite its claim to be a disclosure-based market. Should the hundreds of listed loss-making companies be delisted just because they don't look sustainable?
HKEx consultation paper on board diversity
As noted on page 16, the paper draws from the Webb-site.com database. We are glad they found it useful. Visit the site for the latest tables on board composition of HK-listed companies.
HKEx defends 'secret' decision on China High Precision (0591)
HK Standard, 7-Aug-2012
This establishes a precedent - HKEx normally hides behind the "we never comment on individual cases" mantra. Mark Dickens, head of listing, is also quoted as saying that HKEx has spoken to the Shanghai and Shenzhen exchanges on the issue. That's interesting because the company is not listed there - so why are their views relevant to HK?
Stop the BoCom placing: get a rights issue
We call on SEHK and SSE to stop the big 3 holders from voting to approve each other's subscriptions, which would create a dangerous precedent. Thankfully BoCom has no general mandate, so they also need a special resolution to approve the placing on which they must all abstain. We urge independent shareholders to block it and call for a rights issue instead, and we suggest a way around the primitive NAV rule. (16-Mar-2012)
Glencore fails to set Hong Kong investors abuzz. Click here for Webb-site CCASS Analysis
Wall Street Journal, 8-Feb-2012
Submission from Abraham Shek Lai Him (aka Abraham Razack) on why there should be no limit on INED positions
Mr Shek/Razack could have mentioned that he sits on the boards of 16 HK-listed companies and the manager of 1 HK-listed REIT, as well as being a Legislator.
Current issues in HK-listed corporate governance
A presentation by David Webb at a conference in HK. (27-May-2011)
Conclusions on ex-entitlement trading and shareholder approval. Our article of 27-Jan-2011
Hurray! SEHK has done the right thing and is banning ex-entitlement trading before shareholders have approved the entitlement. See our article of 27-Jan-2011 for more - the rights issue the paper refers to in paragraph 3 is probably Zhongtian. Now, we call on SEHK to address the other problems with rights issues and open offers explained in our article.
Response to SEHK on Corporate Governance Consultation
Webb-site publishes a detailed response to the Exchange's consultation on the corporate governance rules and code, including recommendations for fundamental reform and the results of the opinion poll on INEDs. (25-Mar-2011)
The three wise monkeys of HK boards
SEHK has proposed minor reforms to the composition of boards which completely miss the core issue - INEDs are only as independent and competent as the controlling shareholder wants them to be, as long as he or it votes on the INED elections. We call for independent directors to be independently-elected. Tell us what you think!. Read our article and then take our poll on INEDs. (15-Feb-2011)
Ex-chaos trading: Zhongtian proves point
Zhongtian (2379) yesterday demonstrated why we should not trade ex-entitlements before they are approved by shareholders: a 10:1 rights issue at a 97% discount was vetoed. HKEx launched a consultation in December, and we need your support. We also repeat two outstanding problems which HKEx has failed to address, on expropriation of passive shareholders' value, and on the discounts on open offers. (27-Jan-2011)
Zhongtian (2379) shareholders veto 10:1 rights issue at 97% discount
Company announcement, 26-Jan-2011
And here's a classic example of why HKEx should change the rules so that shares don't trade ex-entitlements until the proposal has been approved in shareholders' meeting. Zhongtian's shares went ex-rights on 19-Jan-2011.
Rusal and the retail investor
(Updated 21-Dec-09). Reports say the SFC wants to prohibit the retail offering of Rusal and/or require the company to adopt a massive board lot for trading in its shares. Both measures would in fact increase the risk for retail investors, as we explain. The SFC should stick to the principles of a disclosure-based market and focus on legislative reform to increase the deterrent to prospectus fraud. (20-Dec-2009)
Tack Hsin's secret subscriber
We look at restaurant operator Tack Hsin's moves to put itself in play, and peer again into the gaping hole in Hong Kong's Listing Rules which permits the people involved in deals with listed companies to remain anonymous. Hong Kong is building its reputation as a sunny place for shady people. (7-Oct-2009)
A 100% margin loan
A HK-listed company makes a margin loan of up to 100% of the value of a portfolio held by an anonymous BVI company. Not on commercial terms, but fully compliant with HKEx's lax disclosure rules. (18-Sep-2009)
Tycoons gain in Listing Committee shake-up
Well what did you expect after the blackout saga? The changes are not subtle, and further diminish the outlook for corporate governance reforms in the Listing Rules. We take you through the changes and the likely shape of the committee until 2012 and its leadership until 2015. (8-Jun-2009)
Suitability in a disclosure-based market
SEHK has announced possible waivers of the profit criteria. We don't object, but the profit test should be scrapped. It has no place in a disclosure-based market, and is no substitute for better accounting disclosure requirements and effective legal remedies and deterrents, all of which HK still sorely lacks. We make proposals for those. (8-Jun-2009)
Stock Exchange launches lunchtime shocks
Under "minor listing rule amendments" announced tonight, HKEx will allow companies to release unscheduled price-sensitive information during lunchtime, leaving outstanding orders from the morning session at risk of being hit. (1-Feb-2008)
Company and certain directors v SEHK
HK Court of Final Appeal, 6-Apr-2006
Blackout on Receivables
If you saw the lights dim recently, it was because the Stock Exchange scrapped a requirement for listed companies to disclose large accounts receivable, which could have warned investors about impending disaster. Dressed up as a "minor and housekeeping" rule amendment without consultation, the change is illustrative of the urgent need to increase investor representation on the Listing Committee, to produce pro-investor policy reform. And that's where HK needs your help. (24-Mar-2006)
CSFB's Toxic Convertibles
Webb-site.com lifts the lid on the toxic convertibles scam in HK, in which small, mostly naive companies surrender control over future equity issuance to an investment bank, whose principal interest is to lock in a profit by converting bonds on a rolling basis at a deep discount to market and selling the resulting shares. CSFB has led the way down this value-destroying path, with Merrill Lynch recently joining the fray. We estimate that the banks make a gross profit on money raised of about 31%, and the average stock price has fallen 30% since a toxic convertible was launched. If you are a listed company, just say no. If you are an institutional investor, take your business elsewhere. (8-Jun-2005)
Company and certain directors v SEHK
HK Court of Appeal, 27-May-2005
Toxic IPOs in HK
In this epic article, we take you through the IPOs of at least 14 listed companies, 3 of which have already led to criminal charges. We explain the inter-relationships between the companies, sponsors, lead managers, auditors and the INEDs. Before you buy another IPO, stop and read this article. (21-Mar-2005)
Listing Committee Reviewed
The latest proposed rehash of the Listing Committee offers little for investors. Although they own the entire free float and over half the market cap, investors would be in an 8:20 minority on the issuer-dominated committee which makes the Listing Rules of the front-line regulator. The consultation itself represents a leap backwards in transparency, and we take the unprecedented step of urging investors to boycott the process. (20-Feb-2005)
Company and certain directors v SEHK
HK Court of First Instance, 3-May-2004
The Trust Loophole
In a revamp of our loophole series, we are going to document them one at a time, in the hope that regulators may do something about them . We start with the Trust Loophole in the Listing Rules, through which HKEx itself has passed. Three years after we first reported this software bug, it has still not been fixed. (13-Aug-2003)
Investors don't count at HKEx
HKEx has released the conclusions of its year-old consultation on the Listing Rules, and in an outrageous disregard of investor interests, it has counted 337 responses submitted via Webb-site.com as a single submission, while counting everyone else in the total of 167, including 110 listed companies, separately. Opponents of Article 23 must be wondering if their petitions will be treated in the same way. (19-Jan-2003)
The report by the Government-appointed Panel of Inquiry into the recent "Penny Stocks Incident" was released on Tuesday. Webb-site.com looks beyond the blame game and into the recommendations for structural reform of the regulatory system. (15-Sep-2002)
The HK Financial Secretary appointed a 2-man Panel of Inquiry into the recent "Penny Stocks Incident". In the interests of transparency, Webb-site.com is publishing the letter we received from PIPSI and our submission in response. (18-Aug-2002)
The Delisting Fiasco
Despite clear warnings of the consequences, HKEx on Thursday announced proposals to delist companies that fail to meet certain criteria of market cap, shareholders equity, profitability, clean audit reports or nominal share prices. The rational consequence was a crash in micro-cap stocks on Friday, followed by a hurried Sunday afternoon withdrawal of the proposals, for now at least. We give you the background. (29-Jul-2002)
Listing Rules Review Part 5: Rules Roundup
We're almost out of time on the Listing Rules consultation, which closes next Monday, so this final part of our review covers some of the remaining issues from the 176 page document. We look at notifiable transactions, directors' pay and share dealings, connected transactions, battles for control of the board, and the availability of basic corporate documents. (17-Apr-2002)
Hobson's Choice on Privatisations
Webb-site.com highlights a growing trend for controlling shareholders to threaten minority shareholders with the following choice: take our undervalued offer, or risk having your shares delisted anyway, and losing the regulatory protection and liquidity of the stock market. We call for a change in the Listing Rules that make this possible, and we also deal with the obsolete requirement for a 25% free float rather than just a minimum dollar value. (14-Jan-2001)
The Independent Panda
Following our scoop that Vincent Lo's Shui On Group had an undisclosed interest in Panda-Recruit, the company put out an announcement which defined "independent" in a piece of legal dissection not seen since Bill Clinton's definition of "is". This affair highlights a much wider loophole in the Stock Exchange's definition of connected parties, as we explain. (11-Aug-2000)
Two months ago the SEHK and SFC introduced standardised waivers of the GEM listing rules. Despite its denials of preferential treatment, the Exchange has still not levelled the playing field by tightening the waivers on share options and lock-ups granted to Tom.com and Hongkong.com. Indeed, the wording on Tom.com's option limit has been relaxed further. Now the Exchange proposes a similar amendment to the option limits on the main board. Dilution city here we come. (14-May-2000)
Consultation on a proposed new listing status
This document was catalysed by a request from the Jardine Matheson Group to have a trading-only listing in HK after it shifted its Primary Listing to the UK, even though most of the trading volume was expected to remain in HK. Ultimately SEHK did not proceed with the proposal, and the 5 Jardine companies moved their primary listing to the UK. HK became a secondary listing but the group in 1994 delisted from HK.
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