'This was a clean shell company, it had very little debt and very little legal liabilities. You have to make sure that there's nothing hidden there that can bite you later,' said Sam Wong, a senior vice-president at HKC.

JIC's 70 employees will continue to work at their small software business even though they will be dwarfed by new energy assets.

'The business will become known as a wind power company instead of a Japanese dictionary software company,' Mr Wong said.

Despite the regulator's attempts to limit such back-door listings and channel more business through the front door of the exchange, they are still very much a part of the Hong Kong corporate scene. Although buying a shell company listing on the main board could cost up to HK$100 million, they are sometimes seen as a cheaper and simpler way to sell assets through the public market.

The fact that back-door listings still happen also highlights the failure of the city's Growth Enterprise Market (GEM) in attracting smaller companies. Many entrepreneurs would rather do a back-door listing or find other ways to recycle a stock code on the main board rather than undertake an initial public offering on the GEM.

In recent months the Hong Kong market has seen a maker of liquid crystal displays switch tracks to become a Macau junket operator and a conference planner reinvent itself as a mainland coal miner, to name two examples. And if you go back a few years, you will find an electric fan company that turned into a property play and a Congolese timber trader that also cashed in on the Macau junket trade.

The number of back-door listings fell off in 2004 when Hong Kong Exchanges and Clearing introduced rules to curb the activity, which draws business away from the initial public offering market, undermining exchange revenues. Richard Li Tzar-kai's PCCW was one of the last companies allowed through the back door under the old rules when it injected US$1.5 billion in property assets into Dong Fang Gas Holdings to create Pacific Century Premium Developments.

But the tighter rules have not stopped back-door listings entirely. Tough listing rules in Hong Kong can make it hard to bring certain mainland assets to market through an initial public offering while the small-cap GEM does not have a high enough profile to appeal to everyone.

The trend towards listing mainland assets in Hong Kong and the aggressive nature of the region's businessmen have also helped maintain a steady trickle of back-door listings. Their numbers are hard to track, but market watchers say activity slowed down this year due to the market dip, just as it has for the initial public offering market.

The current rules dictate that the buyer must wait 24 months before injecting assets into the shell company or the firm will be treated as a new listing.

'These injected assets are normally [mainland] assets. This is a more common procedure in Hong Kong than some other places, and the China factor is a big reason why,' said Benny Pang, a partner at law firm Paul, Hastings, Janofsky & Walker.

The GEM has lower listing requirements than the main board, even though it introduced tougher rules yesterday. Still, lawyers and bankers said they advised clients to wait a few extra years and aim for the main board rather than debut on the GEM, which had long been in decline.

'If listing on the GEM was as prestigious as the Nasdaq, we probably would have done that,' Mr Wong said.

The new rules may help the GEM's reputation, but they will not make it easier to list mainland energy assets, which are driving many of the deals.

Listing statistics confirm that the GEM has lost its sparkle. In 2004, the year the exchange tightened rules on back-door listings, the secondary board counted 21 listings for HK$2.69 billion raised. While the year is barely half over, the GEM is badly behind that pace, with only two listings raising a total of HK$216.84 million.

'I don't think listing on the GEM is very attractive to most companies. The GEM has been in decline for the past 10 years, and it seems most GEM-listed companies can't maintain their profile,' said Ronald Wan, a managing director at Bocom International.

Instead, companies continue to use the back door to get onto the main board, through back-door listings and other financial manoeuvres. 'It shows that listed companies and executives in Hong Kong and China are flexible and if they find a grey area they will exploit it to the limit,' said Mr Wan.

While the number of back-door listings fell sharply after the 2004 rule change, activity still ebbs and flows with economic fortunes. The Securities and Futures Commission and Hong Kong Exchanges and Clearing declined to comment for this report.

'A listing on any exchange such as the HKEx has an intrinsic value and people will pay money for the listed shell of a company,' said David Maund, a managing director and corporate turnaround specialist with Alvarez & Marsal, who said a listing could fetch HK$50 million to HK$100 million.

'In the past two to three years, partially because of the strong economic climate and success of the Hong Kong exchange, there are plenty of companies that are still interested in buying these shell companies,' he said.

Companies the world over change their stripes to boost profits and keep investors happy. Nokia, for example, began as a paper company that expanded into rubber and cable before becoming a mobile-telephone giant. However, few places see as many makeovers, or ones as rapid and drastic, as does Hong Kong.

'Hong Kong entrepreneurs like risk-taking. They have an adventurous spirit in running business and they are more flexible to take challenges. Most of us are inspired by the success story of Li Ka-shing. He started with a plastic flower manufacturing business and is now chairman of one of the world's biggest enterprises,' said Billy Yung Kwok-kee, the chairman of Shell Electric Mfg, a fanmaker and property developer.

Sino Resources Group shows how versatile a Hong Kong listing can be even without a back-door listing. Formerly a conference organiser named Kenfair International, the company created a new business arm and renamed itself as part of an 'expansion' plan, said Alex Wan, the chief financial officer of the mining operations.

Additional reporting by Peggy Sito

Second class

Hong Kong Exchanges and Clearing introduced new rules yesterday to make the Growth Enterprise Market (GEM) more attractive as a secondary board. They changes include

? Applicants must have positive cash flow of not less than HK$20 million in aggregate for two years

? Companies must have operated for at least two years under the same management

? GEM-listed issuers meet continuing obligations that will be brought closer to those for main-board issuers

? Transferring from GEM to the main board will be made easier and, in the process, give applicants a 50 per cent discount on main-board listing fees

Source: HKEX