The ex-legislator is once again facing criminal charges, this time with his son and others. We examine the past connections between the defendants and the connection between an alleged co-conspirator and one of the subscribers of convertible notes, who has not been charged.

Joining the dots on the ICAC case against Chim Pui Chung and others
21 November 2021

On Friday (19-Nov-2021), the ICAC announced that former legislator Chim Pui Chung (PC Chim), his son Ricky Chim Kim Lun (Ricky Chim), Ma Zhonghong (Mr Ma) and one Wong Poe Lai (Ms Wong) had been charged with various offences in relation to placings in 2013-2015 of new shares and convertible notes (CN) of Asia Resources Holdings Ltd (AR, 0899).

Two of the charges, against PC Chim, Ricky Chim and Mr Ma, relate to a period between 1-Jul-2013 and 15-Nov-2015 and involve a huge CN, convertible into 566.67% of the existing issued share capital of AR. It is alleged that they conspired "together and with other persons" to defraud AR, its board of directors and shareholders by failing to disclose an agreement in which Ma would pay a total of about HK$210m to PC Chim in order to control 70-75% of AR following the placings.

The third charge alleges that between 24-Oct-2013 and 24-Jan-2014, Mr Ma and Ms Wong dealt with CN in the amount of HK$42m, knowing or having reasonable grounds to believe that they were linked to the proceeds of an indictable offence.

So, looking at the filings, we find that a HK$535.5m CN issue via placing agent Kingston Securities Ltd (Kingston) was announced on 15-Aug-2013, convertible into 566.67% of the existing issued shares at $0.35 per share. A circular was issued on 16-Sep-2013 and the placing was approved at the SGM on 13-Oct-2013 with a voting turnout of only 24.05% of the issued shares.

On 24-Oct-2013, Tranche 1 of the CN amounting to HK$185.5m was completed, and as there were only 3 subscribers, they had to be named: Chau Ngai Ming (Mr Chau, $91m), Char On Man ($52.5m) and Ng Leung Ho ($42m). Disclosure of interest filings show that the next day, 25-Oct-2013, Mr Chau disposed of HK$42m of CN, reducing his underlying interest by 120m shares, and on the same day, Ms Wong acquired an underlying interest in the same number of shares. The filing numbers are consecutive, and as there were no other disclosures in AR that day, the transfer was presumably from him to her. Mr Chau is not the subject of any charges, despite having apparently dealt in the same notes to which the third charge relates.

Past involvements

We note that Mr Ma and Mr Chau are associated as follows: both were once directors of an H-share issuer, Shenyang Public Utility Holdings Co Ltd (SPU, 0747), both elected on 21-Jun-2013, and from the biographies in the election circular (28-May-2013), Mr Ma was Chairman of Shenzhen Jinma Holdings Co Ltd and Mr Chau was Assistant President. Mr Ma also owned 90% of Shenzhen Jinma Asset Management Co Ltd (SJAM) and his nephew owned the other 10%.

Mr Ma and Ricky Chim are also associated as follows: in Sep-2012, SJAM conditionally agreed to acquire all the domestic shares of SPU, representing 58.8% of the issued shares, as announced on 28-Sep-2012. That completed on 14-Dec-2012, thereby triggering a general offer for the H-shares. As SJAM was a PRC company and prohibited from buying overseas shares, it formed a consortium with a BVI company wholly-owned by Ricky Chim, and that company made the general offer via Kingston. The purported acquisition price of CNY105m for the domestic shares was just CNY0.175 per share, which translated to HK$0.214 per H-share in the general offer, a 58.04% discount to the closing price of HK$0.51 before the announcement of the offer, so there were only minor acceptances. The purported acquisition price was also a 57.7% discount to the net tangible asset value of CNY0.414 per share at 30-Jun-2012, based on the interim report.

The vendor had acquired the 600m-share block in a creditor auction on 13-Feb-2009 for CNY102.52m or about CNY0.17 per domestic share. Trading in the H-shares of SPU was suspended from 15-Dec-2004 to 1-Apr-2010, when conditions for resumption were satisfied after almost being delisted. On the face of it, after the acquisition of control, financial restructuring and resumption of trading, the vendor exited with a gain of only CNY2.48m, before costs.

In 2018, SJAM sold out of SPU in two tranches: on 17-Apr-2018, 28.58% for CNY189m (CNY0.45 per domestic share); and on 25-Jun-2018, 12.25% for CNY45m (CNY0.25 per domestic share). As neither tranche exceded 30%, no general offer was required. The combined exit price of CNY234m represented a gain of CNY129m for SJAM.

PC Chim served twice as the legislator for Financial Services, from 1991-1998 and 2004-2012. The name of that seat is misleading because it is elected by brokerage firms, the majority of which hold a small combined share of stock market volume. Other members of the broader financial services sector, including asset managers, have no say. In between LegCo tenures, PC Chim served jail time for a conviction for conspiracy to forge share transfers, for which he was originally sentenced to 3 years, reduced to 1 year on appeal. In 1999, he was fined the maximum HK$100k for treating electors in the Financial Services Subsector of the Election Committee to a dinner on 27-Mar-1998 in which lists of recommended candidates were distributed. He unsuccessfully appealed. The dinner was held under the name of the now-defunct Financial Services Association Ltd, of which Ricky Chim was a director, but PC Chim was the sole signatory on the company's bank account. The appeal judgment noted that the company had nothing to do with organising the dinner.

©, 2021

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