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.

Tack Hsin's secret subscriber
7 October 2009

Sleepy old restaurant company Tack Hsin Holdings Ltd (Tack Hsin, 0611, or anagrammatically, Tin Shack?) has suddenly awakened with a pair of transactions that have obviously put it "in play". On 17-Sep-09, Tack Hsin, which has a cash pile and no debt, announced:

The warrant issue uses the existing general mandate, but the convertible bond issue requires shareholders' approval. Assuming full exercise of the warrants and conversion of the shares, the Chairman, Co-founder and controlling shareholder, Mr Chan Shu Kit, would be reduced from 31.70% to 18.07% of Tack Hsin. He will presumably vote in favour of the deal. The placing agent for the warrants is Fortune (HK) Securities Ltd, owned by China Fortune Group Ltd (0290). This broker featured in a series of articles on Webb-site.com in June and July this year.

So who is the beneficiary of this big discount on the bonds, who might end up with the largest stake (29.99%) in the company? Well, the sole subscriber is a company called "Project Giant Investments Limited" (PGI). Tack Hsin doesn't even bother to say where PGI is incorporated, but no surprises  - a web search shows it is a BVI shell, incorporated on 20-Jul-09. And who owns it? You will find absolutely no disclosure on that. All we are told in the announcement is that it has an "ultimate beneficial owner" (in the singular) who is independent of everyone.

Since the date of the conditional subscription agreement, 15-Sep-09, the owner of PGI has had a discloseable "derivative interest" in the 200m shares (55.51% of Tack Hsin) under the Securities and Futures Ordinance. So far, PGI and its owner have not filed any disclosure of interest. But as we pointed out yesterday, if they are ever successfully prosecuted for that, you won't know about it, because the SFC no longer announces the identities of such offenders.

Policy issue

The Tack Hsin case, and many others like it, are really a matter for reform of the Hong Kong Listing Rules. We've made this point repeatedly for 11 years now. The Listing Rules do not require listed companies to identify the owners of corporate counterparties with which they deal, whether it is a subscription of convertible notes, an acquisition of assets, or a disposal. A listed company simply claims that the counterparty is independent, and nobody puts their name at risk of prosecution by publicly claiming to own the counterparty.

The listed company and its insiders must surely know who the issuer is dealing with, but they don't disclose it. That's for them to know and the market to speculate upon. It's a gaping hole in the disclosure regime, and helps to build Hong Kong's reputation as a sunny place for shady people, where funds can be washed through listed companies with minimal disclosure.

If the identity of a counterparty's owner was published, someone might be able to recognise the owner, figure out whether they are good for the cash they promise, where it is coming from, who the owner's associates are and piece together what their plan is for the listed company in question. The Listing Rules should require listed companies, when announcing deals, to disclose the identity of all the human owners of 10% or more of any corporate counterparty, or of its corporate shareholders, and so on up the tree, unless the counterparty is itself listed.

© Webb-site.com, 2009

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