Saturday 27th October 2012

Dear Reader,

Before the new articles, a brief comment on yesterday evening's HK Government announcement of an additional 15% Buyer's Stamp Duty (BSD) on any purchase of residential property where the buyer is not a human HK Permanent Resident. This basically means that if you move to HK, you will have to rent your home for the first 7 years, until you qualify for permanent residency.

They have also just killed the buy-to-let investment market - unless you are a PR and willing to hold property in your own name rather than a corporate vehicle. In our view this is another nail in HK's free-market coffin, and is also probably unconstitutional, as is the time-based Special Stamp Duty. The Government says that too many people are re-selling their properties, so they are extending SSD from 2 years to 3 years and doubling the rate at the long end. How, exactly, is re-selling your home harmful to society? They also say that resales within a year have "virtually disappeared", but they are raising the rates on that anyway. A tax without a proper purpose is not a tax, it is a penalty, for exercising a right in the Basic Law.

The BSD is just plain xenophobic, pouring fuel on the fire of anti-mainland sentiment. Still, it should shift demand to the office property sector. The BSD will also stifle the market for redevelopment of residential buildings, because corporate developers who want to assemble a site from a fragmented ownership would have to pay BSD. So that will negatively impact supply of new apartments.

NEW ARTICLES
Parker Randall's HK track record
We reveal the censored names in yesterday's HKICPA announcement, and look at the awful losses experienced by investors in the HK-listed audit clients of Parker Randall CF (H.K.) CPA Ltd. (27-Oct-2012)

Cashing up at Next Media
If Next Media (0282) completes the sale of its Taiwan units, it will have a profitable HK business and net cash of about HK$4.4bn with no use for it. Rather than drag shareholders into a new business as City Telecom (1137) has done, we expect Next to do the right thing and distribute the proceeds in a special dividend. The potential payout is $1.79 per share, and majority shareholder Jimmy Lai will get 74% of that to use as he pleases. (26-Oct-2012)

RECENTLY ON WEBB-SITE
Air China's balance sheet worries
We look at the highly-geared balance sheet of Air China, the bizarre and unfinished mini-subscription by its parent launched 6 months ago, and the likely need for a much larger equity financing if it is going to run on free-market principles, which in turn has implications for Cathay Pacific's 20% stake. (24-Oct-2012)

IN OTHER NEWS
Former CITIC Pacific senior executive convicted of insider dealing
SFC, 26-Oct-2012
Meanwhile, we wait for the Government's Department of Justice to go after the big fish.

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