OOIL: How NOT to Disclose
7 August 2006
On the early morning of 25-Jul-06, HK time, container shipping firm Orient Overseas (International) Ltd (OOIL, 316) slid onto its web site a statement titled Potential Disposal of [OOIL's] Terminal Division, stating that it had engaged UBS Investment Bank to advise it in relation to the potential disposal of its port assets, which processed 2.38m Twenty-foot Equivalent Units of boxes in 2005, "to realise the true potential value of these assets".
The first we heard of this important news was a 1-line Dow Jones newswire flash at 09:36 that morning, followed by a slightly longer piece at 09:48 referring to a "statement posted on [OOIL's] Web site". How did Dow Jones or anyone else happen to look at OOIL's web site at that time? Almost certainly, someone had drawn their attention to it.
We naturally checked the HKEx company announcements site for an announcement published in the normal way. No such announcement was present. As the news percolated out into the market, the share price gradually took off. The stock had closed the previous day at $27.70, and opened the morning at $28.00, rising almost continuously throughout the morning session. Surely, we thought, they are going to be suspended any minute now, pending a proper announcement. Listing Rule 13.09(1) requires such disclosure, and Note 4 warns that the absence of an announcement "may result in the Exchange imposing a temporary suspension of dealings".
But no suspension occurred, and the stock went on to close the day at $30.30, up 9.4% for the day, thereby demonstrating, as if it wasn't obvious, that this information was highly price-sensitive. Volume was a heavy 5.24m shares, the highest since 13-Mar-06, the day after the results announcement. Undoubtedly, there were investors who sold shares not knowing about the web site statement, particularly earlier in the day before the price rose.
Finally, at 21:37 HK time that day, OOIL filed a formal announcement with HKEx in the proper way, "at the request of the Stock Exchange".
Did they get away with it? The announcement did not carry the usual text imposed by the exchange in such cases that "the Stock Exchange is looking into the matter and reserves its right to take appropriate action against the Company and its directors".
OOIL is controlled by the family of former Hong Kong SAR Chief Executive Tung Chee Hwa, who ran it (almost into the ground) before being appointed to run HK in a similar fashion. His brother Tung Chee Chen now heads the company. The INEDs are from among the elite of HK, and a board of directors of this experience should have known that a proper announcement was needed. We are assuming, of course, that the board was consulted on such an important matter before hanging the "for sale" sign on such a large chunk of assets. If that assumption is wrong, then the company has a bigger corporate governance problem.
If investors are to have confidence in regulation in HK, then SEHK must demonstrate a level playing field and hold OOIL to account for improper and unfair disclosure. If you run a listed company and have something price-sensitive to say, then you say it through the centralised company announcement system run by the Stock Exchange, not by posting it on your web site.
© Webb-site.com, 2006
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