Watchdogs put muzzle on back-door listings
IT might be somewhat premature to make the observation, and it might be a mere coincidence, but it appears that the joint regulatory statement issued earlier in the month on back-door listings has, for the time being, stemmed the flow of this type of transaction.
The Securities and Futures Commission (SFC) and Hongkong Stock Exchange actually said nothing new at all in their statement.
Their joint statement on May 12 basically offered a gentle, polite and firm reminder to the mainland back-door listers, along with their financial advisers, of their exact obligations under the listing rules.
In February three back-door listings were formally announced. This rose to five in April. In the first two weeks of May there were another five.
But since May 12 there have been none.
The whole back-door listing debate is something of a weather-vane.
It is an indicator to the outside world of whether the forces of accommodation and compromise are in, or whether the regulatory structure is holding firm to its principles of fair regulation executed daily without fear or favour.
For now the execution of future transactions involving control of shell companies on the stock exchange will have to be undertaken with more heed being paid to what the regulators might demand of the parties involved.
This is especially so where a capital-raising exercise or an injection of assets is proposed.
In these circumstances the stock exchange has said that it might regard such transactions as new listings, depending on their size and relative significance to the shell company that is affected.
Such a turn of events would actually deny the mainland party much of the convenience that back-door listings were supposed to hold.
It was thought that the new listing rules could be circumvented by undertaking such a transaction.
However, they might find they will have to go through the same disclosure hoops as their compatriots who plan a series of listings starting next month.
Why pay the premium to buy a shell when you might as well spend the money on legal and accounting fees for getting a full new listing? It must again be stressed that the current round of the back-door listing debate might be over. But the phenomenon will not go away.
In time, schemes will doubtless be discovered to make the back-door listings practical propositions for mainland investors again.
Cynics argue that they will not, in any case, have to wait too long before they can sufficiently infiltrate the corridors of power in securities regulation in Hongkong to make the rules for themselves.
Once the current crop of employees at the SFC decides to hit the road in 1994 and 1995 - they will no doubt not renew their contracts - will the SFC be the tower of regulatory strength that it is now? Should the SFC become less earnest in undertaking its obligations, will the stock exchange executive be able to withstand the tremendous pressure that will be brought to bear on it to enable mainland interests to get things their own way? Only time will tell.