Advertisement
Advertisement

Investors to sue Shanghai airport over expansion

Some investors in Shanghai International Airport have threatened to sue the company, accusing its parent of breaking a non-competition agreement, but analysts say they are unlikely to be compensated.

Dozens of small investors led by Liu Wenzheng have lodged complaints with the board of Shanghai-listed Shanghai International Airport about the alleged infringement by its parent, Shanghai Airport Authority, according to their online petition.

In 2004, the listed arm that operates the Pudong International Airport signed an agreement under which the government-controlled parent company promised not to expand facilities at Hongqiao Airport, an older airfield in Shanghai, to consolidate Pudong's dominant role in the city.

But the airport authority was later required by the city government and the national aviation regulator to expand capacity at Hongqiao as Japanese and South Korean airlines prefer operating their flights from there.

'It was not a commercial decision because the airport authority had to comply with a government order,' said Essence Securities analyst Deng Hongmei. 'But retail investors have a reason to take action since the non-competition agreement was not honoured.'

The sharp fall in the price of Shanghai International Airport has prompted retail investors such as Mr Liu to sue the parent company for compensation.

Mr Liu bought heavily into the shares in July last year when they were trading at 40 yuan (HK$45.57) on news of the merger, believing a consolidation boded well for the listed firm's earnings outlook.

The stock closed at 15.48 yuan on Friday.

'We hope our action will raise the company's awareness of the law,' Mr Liu was quoted by National Business Daily as saying. 'It is also our contribution to the development of China's capital market.'

A Shanghai-based lawyer said the court might not accept the lawsuit in view of the government's role in the deal.

'There are still loopholes in the law,' he said. 'For retail investors, justice is still far-fetched dream for now, though the regulators have already done a lot to protect their interests.'

In 2006, the parent company also pledged to inject Hongqiao's assets into the listed vehicle but it has yet to implement the asset restructuring deal.

'We did make a promise but we never said when,' said an accountant with Shanghai Airport Authority, who declined to be named.

'Frankly, I don't think management is worried about the legal dispute because, after all, it is the government's decision to renovate Hongqiao airport.'

In April this year, more than 6,000 individual investors received compensation from Shenzhen-listed Yantai Dongfang Electronics & Information Industry after a drawn-out legal battle.

The company was found to have inflated earnings between 1997 and 2001 as the company's top bosses manipulated the share price.

Investors sued Dongfang Electronics in 2003 but the case has yet to be resolved.

Post