Vampire - Nothing Left to Prove
16 May 2004
Last week was a conclusive time in the battle for pre-emptive rights in Hong Kong. In each of eight Annual General Meetings which we cover in this article, seven of which are in the Hang Seng Index, a majority of investors voted against the general issue mandate which allows companies to dilute their shareholders by issuing shares for cash at a discount.
You can skip straight to the conclusion at the end of this article, where we declare conclusive victory and call for regulatory action, or read our detailed coverage of each vote.
On 10-May-04 at the AGM of CITIC Pacific Ltd (0267), Webb-site.com had to force a poll. This year, most members of the Hang Seng Index have stated in their notice of AGM that their Chairman would call a poll, but the company is one of the minority who are holding out against change, so we'll have to keep going to their meetings to get your votes counted and stop them trying to pass things on a show of hands. And the poll voting figures carry a clear message, as we show below.
The directors and their associates hold 1,183,264,185 shares (54.03%) and we assume they voted in favour of their own mandate. Deducting the insiders from the official poll results, the investing public voted as follows:
Voting turnout was 20.39% of the publicly held shares. So investors voted by more than 3 to 1 against the general mandate.
Hysan Development Co Ltd (Hysan, 0014) was removed from the Hang Seng Index back on 2-Dec-02, so they were never part of Project Poll, but credit goes to them for adopting best practice and calling a poll at their AGM on 11-May-04. The controlling shareholders and directors together own 445,885,338 shares (42.71%). We'll assume they voted in favour of giving themselves a mandate to issue new shares. Deducting the insiders from the official poll results, the investing public voted as follows:
Voting turnout was 23.16% of the publicly held shares. So investors voted by more than 3 to 2 against the mandate. We hope the board of Hysan will take this into account and propose a Vampire-compliant general mandate at the next meeting.
Li & Fung
On 11-May-04 at Li & Fung Ltd (0494), the controlling shareholders and directors held a total of 1,233,487,200 shares (42.37%). Excluding those assumed votes in favour from the official poll results, the investing public voted as follows:
Voting turnout was 50.92% of the publicly held shares.
On 12-May-04 at China Unicom Ltd (0762), the controlling shareholders and an incoming director held a total of 9,725,584,020 shares (77.42%). Excluding those assumed votes in favour from the official poll results, the investing public voted as follows:
Voting turnout was 31.84% of the publicly held shares.
Cathay Pacific Airways
On 12-May-04 at Cathay Pacific Airways Ltd (0293), the controlling shareholders Swire Pacific Ltd (0019, 0087) and CITIC Pacific Ltd (0267) and directors held a total of 2,399,451,708 shares (71.26%). Excluding those assumed votes in favour from the official poll results, the investing public voted as follows:
Voting turnout was 19.03% of the publicly held shares.
Moving up the chain from Cathay, on 13-May-04 at Swire Pacific Ltd (0019, 0087), which is the last remaining HK-listed company with a two-class A/B voting structure, controlling shareholders and directors held a total of 2,102,132,972 votes (53.44% of the voting rights). Excluding those assumed votes in favour from the official poll results, the investing public voted as follows:
Voting turnout was 36.85% of the publicly held voting rights.
Kicking off the Li Ka-shing meetings, on 13-May-04 at Hongkong Electric Holdings Ltd (0006), the controlling shareholder, Cheung Kong Infrastructure Holdings Ltd (1038) and directors held a total of 829,753,362 shares (38.88%). Excluding those assumed votes in favour from the official poll results, the investing public voted as follows:
Voting turnout was 32.04% of the publicly held voting rights.
Cheung Kong Infrastructure
On 13-May-04 at Cheung Kong Infrastructure Holdings Ltd (1038), the controlling shareholder, Hutchison Whampoa Ltd (HWL, 0013) and directors held a total of 1,912,209,945 shares (84.83%). Yes, the free float of this company is only 15.17% and it has always been a bit of a joke that it is included in the Hang Seng Index, which counts 100% of its value, especially when you consider that its parent HWL is also in the index and so is its controlling shareholder, Cheung Kong (Holdings) Ltd (0001).
Anyway, excluding the insider votes from the vote in favour in the official poll results, the investing public voted as follows:
Voting turnout was 35.99% of the publicly held shares.
Conclusion: Vampire has nothing left to prove
The results of Project Vampire in 2004 are already compelling. No further analysis of future voting figures will be needed to prove the point.
Excluding Hang Seng Bank, which proposed a Vampire-compliant mandate, there are 10 members of the Hang Seng Index who have held polls at their AGMs so far, and 9 of these 10 have had a majority of investor votes cast against the general mandate. All of these 9 had to rely on controlling shareholders to push the vote through against the wishes of the investing public. Only one company, Bank of East Asia, got a slim majority of investors in favour, 51.80%, but in that particular case, there are probably wider family members of the founding Li family who do not show up on the disclosure screen (not being directors or 5% shareholders) and voted in favour.
Here's a summary of the votes in the 10 index members:
As you can see, on average, investors voted by more than 2 to 1 against the general issue mandate. Without our Project Poll forcing index members to count the votes at AGMs, we would not have these data, as in the past, such mandates were routinely voted on by a show of hands. That continues to be the case for most companies outside of Project Poll.
Project Vampire is now like Michael Schumacher - it has scored so many victories that it really has nothing left to prove. Investors will continue to vote against the cash issue general mandate until it is brought into line with international best practice. When a company needs cash, investors simply want the right to be offered new shares to maintain their shareholding rather than being forcibly diluted at a discount. They are voting against giving up that right.
Webb-site.com has produced the evidence of investor opinion from the voting figures, but only regulators can make it happen across the board. So once again, we call on the Stock Exchange and its Listing Committee to amend the Listing Rules to reflect investor wishes and restrict the general mandate to issue new shares for cash to levels found in international best practice, which in this respect is in the UK. In a press release on 30-Jan-04, the Exchange said in paragraph 37:
"Under the current Rules, listed issuers are allowed to issue securities representing up to 20% of their share capital under the general mandate. We have retained the existing provision for the time being. However, subject to further market consultation, we will consider lowering the maximum number of securities that are allowed to be issued under the general mandate to bring our requirements closer to those of the United Kingdom."
This should have happened already. During the last "market consultation" in 2002, HKEx received 337 responses from the public, submitted via an e-mail form on this web site. They counted these responses as a single response in declaring that "a majority of respondents" (83%) were in favour of the general mandate - including 110 listed companies who were counted separately, even though many of their submissions were probably identical and from interrelated companies. In fact, if the public submissions had been counted separately as well, then only 20% of submissions were in favour of the 20% mandate.
Well, you can "consult" the market as often as you like, but the clearest measure of investor opinion must surely be the way they vote, and they are voting by more than 2 to 1 against the 20% mandate. It is time for change.
© Webb-site.com, 2004
Organisations in this story
- CATHAY PACIFIC AIRWAYS LIMITED
- CHINA UNICOM (HONG KONG) LIMITED
- CITIC Limited
- CK Infrastructure Holdings Limited (BM)
- HYSAN DEVELOPMENT COMPANY LIMITED
- LI & FUNG LIMITED
- Power Assets Holdings Limited
- SWIRE PACIFIC LIMITED