Webb-site.com is pleased to announce that Bob Bunker has accepted a nomination to run in the contest for election as a director of HKEx. Two board seats are available. We recommend shareholders vote in favour of Mr Bunker and incumbent director Mr Bill Kwok Chi-piu, and against all other candidates. We also update you on the Ocean Grand case.

Bob Bunker runs for HKEx Board
31 March 2008

Webb-site.com is pleased to announce that Mr Robert Edward John Bunker (Bob Bunker), has today accepted a nomination for election as an independent non-executive director (INED) of Hong Kong Exchanges and Clearing Ltd (HKEx, 0388). He will be running in a contest with two incumbent candidates and any other candidates whom shareholders may nominate. The shareholder election, for two seats on the board, takes place at the Annual General Meeting on 24-Apr-08.

The new candidate

Bob Bunker, 62, is currently a director of the Hong Kong Securities Institute (HKSI), the main examinations body for securities industry professionals, and has served as a member of the Main Board and GEM Listing Committees of the Stock Exchange of Hong Kong Ltd (a subsidiary of HKEx) since 19-May-06. If elected to the Board of HKEx, he will step down from the Listing Committees to avoid any conflict of interests.

He is also an executive director of Bentley Reid & Co (Pacific) Ltd, a wholly-owned subsidiary of Bank of N.T. Butterfield & Son Ltd. He was a founding director of HKSI, former Chairman of the Hong Kong Institute of Investment Analysts, and former Vice Chairman of the Asian Securities Analysts Federation.

Webb-site.com editor and elected HKEx INED David Webb, said: "I am delighted that Bob has accepted this nomination. Having made Hong Kong his home since 1979, he has a long and deep experience of Hong Kong financial affairs and has served the investment community extensively. I am sure that he would be a great addition to the board of HKEx."

Incumbent candidates

There are two incumbent directors running for re-election to HKEx: Bill Kwok Chi-piu (Mr Kwok) and Vincent Marshall Lee Kwan-ho (Mr Lee). Both were first elected on 3-Apr-00, prior to the listing of HKEx. Webb-site.com is endorsing Mr Kwok and opposing Mr Lee's re-election for the reasons stated below.

Mr Kwok

Mr Kwok, 55, is Managing Director of Wocom Holdings Ltd, which owns stockbroker Wocom Securities Ltd and derivatives broker Wocom Ltd. His family's business is the century-old Wing On Department Stores owned by Wing On Company International Ltd (0289), of which he is a non-executive director. He also serves on the Hong Kong Takeovers and Mergers Panel (as does David Webb) and the Securities and Futures Appeals Tribunal, and is a director of the HKSI and a member of the one of the investigation panels of the HKICPA. David Webb said "although Bill and I have sometimes been on opposing sides of the debate, including on the further reduction of trading spreads, I respect the way he brings his perspective to the table and his extensive service to the financial community as a whole".

Mr Lee

Mr Lee, 52, is Managing Director of the Tung Tai Group founded by his father. It owns stockbroker Tung Tai Securities Co Ltd and derivatives broker Tung Tai Futures Ltd. Mr Lee is Chairman of the Institute of Securities Dealers Ltd, one of the two small-broker lobbies in Hong Kong, the other being the Hong Kong Stockbrokers Association Ltd.

Mr Lee was appointed as an INED of Linefan Technology Holdings Ltd (Linefan, 8166) on 15-Sep-01, before its 5-Feb-02 listing. On the same day, Michael Yip Kim-po (Mr Yip) was appointed non-executive director and Honorary Chairman of Linefan. Mr Yip is the controlling shareholder of the now-collapsed Ocean Grand Holdings Ltd (OGH, 1220) which was once a substantial shareholder of Linefan. OGH acquired its stake in Feb-00 for either RMB1.6m (if you believe the Linefan prospectus), or HK$148m (if you believe OGH). The discrepancy has not been explained and is something which authorities should investigate if they haven't already.

Both Mr Lee and Mr Yip resigned from Linefan on 16-Oct-02 - in fact, by amazing coincidence, 4 directors simultaneously decided that they needed to focus on their other businesses and quit. Mr Lee was appointed as an INED and audit committee member of OGH on 4-Dec-03, and was elevated to Chairman of the audit committee on 22-Apr-05. He resigned for "personal reasons" on 21-Jul-06. On 24-Jul-06, the company was put into provisional liquidation, after auditors found "potential accounting irregularities" and a RMB840m shortfall in cash balances.

We covered the many problems of OGH and its collapse in more detail in our article Ocean Grand's Shipwreck of 31-Jul-06, so read that if you want more details. In our view, a diligent, competent independent director should have uncovered at least some of the problems (which occurred over a number of years) and all the INEDs of OGH, including Mr Lee, failed in that respect. This is why, as a member of the HKEx Nomination Committee, your editor David Webb voted against Mr Lee's nomination for re-election. His nomination was approved by majority.

Mr Lee has served on the audit committee of HKEx since 2003.

Ocean Grand update

Since our last article on Ocean Grand, events have moved on. The Chairman of OGH, Michael Yip Kim Po (Mr Yip), became a fugitive in the mainland but returned to HK on 18-Sep-07 and was immediately arrested and charged by the Commercial Crime Bureau of the police who issued a statement.

There are two sets of charges against Mr Yip and others. The first set relates to the suspicions we raised in our article regarding the incredible (i.e. not credible) profit margins of the chemicals processing business of Ocean Grand Chemicals Ltd (OGC) a subsidiary of OGH, which in turn were carried out through its subsidiary Kenlap P.G.C. Manufacturer Co Ltd (Kenlap). In this segment, OGC had for years been reporting operating profit margins of between 85.8% and 98.8% of turnover, but of that turnover, only about 15% was paid up-front and the rest of the sale was booked as a lengthy receivable.

So it comes as no surprise to us that the charges include allegations that between Jun-04 and Jun-06 Mr Yip used false invoices of sales by Kenlap to obtain financing from Bangkok Bank, and that the group turnover was falsely inflated in the reports of OGH for the years ended 31-Dec-04 and 31-Dec-05 and correspondingly in OGC reports too. If the turnover was inflated, and the profit margin was over 90% of that turnover, then it follows that the profit would have been inflated too.

The second set of charges relate to a particular HK$153m acquisition of equipment by OGH announced on 1-Nov-05 and covered in a circular on 21-Nov-05. Mr Yip is charged with making false statements that the vendor of the equipment was independent and that the price had been agreed by arms-length negotiation. He is also charged with conspiracy to steal the purchase price of about HK$153m.

You can read the two sets of charges, as presented in the magistracy, here and here. All the defendants are of course innocent unless proven guilty, and the charges may be amended, supplemented or withdrawn before the pending trial.

Meanwhile OGH, now being run by the provisional liquidators, has filed a writ in the High Court naming 15 defendants including all the directors of OGH, including Mr Lee, seeking damages of HK$111.1m plus interest and costs as a result of claimed breaches of duties in connection with the equipment purchase. Further details are on page 11 of the HKEx AGM circular dated 26-Mar-08.

Voting system

HKEx has set an advisory deadline for nominations at 5pm on Tuesday 8-Apr-08. After that, a supplementary circular and proxy form will be published containing details of all candidates. If any more candidates are nominated after that, then under the Listing Rules, HKEx will have to adjourn the annual general meeting to allow shareholders 14 days to vote.

IMPORTANT: each candidate is the subject of a separate "for or against" resolution. Candidates are elected on the basis of the highest net positive votes (votes in favour minus votes against), so it is important to vote in favour of the 2 candidates you want and vote against each of the other candidates. If you simply vote in favour of 2 candidates, but abstain on the others, then you will reduce the chance of your chosen candidates being elected, as supporters of other candidates will vote against yours. If fewer than 2 candidates have net positive votes, then the board can appoint directors to fill the vacancy until the next shareholders' meeting.


Webb-site.com urges investors to wait until the revised proxy form has been published before voting for or against each candidate. Webb-site.com recommends shareholders to vote in favour of Mr Bunker and Mr Kwok, and against all the other candidates.

Notes for editors:

1. HKEx has 13 directors, only 6 of which can be elected by shareholders, with 2 seats falling vacant each year for a 3-year term. Six other directors are appointed outright by the HK Government, which also owns 5.88% of HKEx. The other director is the Chief Executive of HKEx, who is unelected and whose appointment must be approved by the SFC, the directors of which are also appointed outright by the Government.

2. Webb-site.com editor David Webb is an existing elected INED of HKEx, elected on 15-Apr-03 and re-elected in a contested election in 2006. His current term expires at the AGM in 2009.

3. Of the six Government-appointed directors, the two-year terms of three of them expire at this year's AGM: Mr Ronald Joseph Arculli (69), Mrs Laura Cha Shih May-lun (58), and Mr Moses Cheng Mo-chi (58). All were first appointed on 26-Apr-06. The Government usually keeps shareholders in the dark until after the AGM as to whom it will appoint or reappoint.

© Webb-site.com, 2008

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