Lesson in scandals
Transparency is key as irregularities involving HK-listed mainland firms make them sitting targets for short sellers. Luo Weiteng reports.
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 firstname.lastname@example.org
Hong Kong is still a favored destination for many mainland companies for its successful track record of IPOs and its transparency.