Les­son in scan­dals

Trans­parency is key as ir­reg­u­lar­i­ties in­volv­ing HK-listed main­land firms make them sit­ting tar­gets for short sell­ers. Luo Weit­eng re­ports.

China Daily (Canada) - - FRONT PAGE -

the nu­mer­ous cor­po­rate scan­dals that have harmed mi­nor­ity in­ter­ests.

But de­spite all that, Hong Kong marginally beat Sin­ga­pore to have the best CG in Asia this year, while the main­land, with rel­a­tively slip­ping CG stan­dards, saw slight drops in CG rules, ac­count­ing and au­dit­ing.

The re­port just goes to show that a good CG struc­ture alone is far from enough to make a dif­fer­ence, ob­served Ding.

“With the high­est re­quire­ment of CG in the re­gion, Hong Kong is still un­able to stop the wrong­do­ings,” said Ding.

He em­pha­sized that a change of mind­set and timely reg­u­la­tory ac­tions jointly car­ried out by reg­u­la­tors in the list­ing des­ti­na­tion and home coun­try are a must and should even get pri­or­ity over a wellde­vel­oped CG struc­ture.

“Af­ter all, prob­lems even­tu­ally lie in peo­ple rather than in the sys­tem it­self,” he added.

The shift in think­ing means city reg­u­la­tors should be re­al­is­tic that high qual­ity com­pa­nies do not present them­selves ev­ery day.

“Com­pa­nies nor­mally take years to grow from small to big, ready for the list­ing. You can­not ex­pect to main­tain high vol­ume of IPO year af­ter year,” said Ding, who is con­cerned about the ob­ses­sion with rank­ings in terms of IPO vol­ume at Hong Kong Ex­changes and Clear­ing Ltd (HKEx).

“So we re­ally have to live with a slow­down in IPO ac­tiv­i­ties and try to ac­cept cycli­cal new list­ings rather than con­tin­u­ous ones,” he ex­plained.

Ac­cord­ing to data from HKEx, as at the end of 2014, a to­tal of 1,752 com­pa­nies were listed on the Hong Kong Main Board — Asia’s sec­ond-largest — and the Growth En­ter­prise Mar­ket (GEM) board, an al­ter­na­tive stock mar­ket. Of th­ese, 876 — or 50 per­cent — are main­land com­pa­nies, with 60.1 per­cent of the to­tal mar­ket cap­i­tal­iza­tion.

As at the end of Oc­to­ber, HKEx in­clud­ing GEM notched up $3.3 tril­lion in mar­ket cap­i­tal­iza­tion, as the sixth-largest stock ex­change in the world be­hind Euronext and the sec­ond-largest in Asia be­hind the Tokyo Stock Ex­change.

Though some of the new list­ings can be quite rev­enue­gen­er­at­ing, it is qual­ity rather than quan­tity counts, Ding said, adding that Hong Kong has been tak­ing a huge risk in ac­cept­ing smaller and mar­ginal com­pa­nies into its stock mar­ket.

Seventy- nine main­land com­pa­nies listed in Hong Kong in 2014, which cul­mi­nated with an­other year-end list­ing rush, with mega-of­fer­ings from main­land-based Dalian Wanda Com­mer­cial Prop­er­ties, the big­gest list­ing in Asia this year when it raised $3.7 bil­lion in De­cem­ber, and a $3.2 bil­lion IPO by nu­clear firm CGN Power Co, along with a clutch of smaller main­land can­di­dates.

That burst pushed Hong Kong into sec­ond place in the stop scan­dals from hap­pen­ing, added Ye­ung.

Ex­pect­edly, the city’s list­ing mar­ket will em­brace more main­land-listed com­pa­nies in the near fu­ture.

“Trans­parency is the is­sue. In­vestors in gen­eral are al­ways on the look­out for com­pa­nies that are hon­est and can make money for them,” said Ye­ung.

“It is an on­go­ing process of teach­ing listed com­pa­nies to be­have prop­erly,” added Wong. Con­tact the writer at sophia@chi­nadai­lyhk.com

TOMOHIRO OHSUMI / BLOOMBERG

Hong Kong is still a fa­vored des­ti­na­tion for many main­land com­pa­nies for its suc­cess­ful track record of IPOs and its trans­parency.

Raphael Ding,

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