Richard Li Tzar Kai is the younger son of Li Ka-shing, a rags-to-riches tycoon known as “Superman” in Hong Kong, his adoptive home. Li Ka-shing in 2012 anointed his elder son, Victor Li, to follow him at the helm of flagship property developer Cheung Kong (Holdings) Ltd, and Hutchison Whampoa Ltd, a conglomerate whose activities span ports, telecoms retailing, energy and infrastructure. But he also vowed to support the business ventures of Richard Li, who is the chairman of phone, pay-television and Internet company PCCW Ltd, formerly Hongkong Telecom.
SFC repairs its image by taking up cudgels for PCCW investors
Enoch Yiu, Naomi Rovnick and Frederick Yeung
The Securities and Futures Commission bared its regulatory fangs in the High Court yesterday, going some way to countering criticism it has become a paper tiger.
With a number of high-profile missteps on its watch recently, the SFC desperately needs a victory to regain its reputation in the eyes of the investment community.
But while investors, legislators and academics applauded the SFC's intervention in the PCCW case, whether it can persuade the High Court to overturn the deal remains to be seen.
The SFC's recent track record in enforcing market transparency has been less than impressive. First came the Lehman Brothers Holdings minibond fiasco, then earlier this month the backdown on a proposal to extend the blackout period on director share trading.
The SFC's application to delay the High Court hearing into the PCCW deal was granted by Madam Justice Susan Kwan Shuk-hing, who yesterday ruled the regulator would have three weeks to present any evidence of alleged impropriety. Usually High Court approval is a formality, but in certain circumstances the judge has the power to reject the deal. The bidder then cannot return with another offer for a year.
'It is good sign that the SFC finally showed its colours and took action in the PCCW privatisation deal, which has led to so many complaints about alleged vote-rigging,' said Kenny Lee Yiu-sun, the chairman of the Hong Kong Stockbrokers Association.
The SFC action to delay the court hearing provides a flicker of hope to the thousands of minority shareholders who feel short-changed by Richard Li Tzar-kai's HK$4.50 per share offer to take PCCW private, valuing the firm at HK$15.93 billion.
Stephen Cheung Yan-leung, a finance professor at the City University of Hong Kong, said the SFC had the duty to fight for a fair deal for small investors, as the government bars retail investors from using class actions to seek claims.
'The SFC has a duty to take action to maintain a fair market. The delay of the hearing shows the SFC has done its duty but ... the SFC investigation may not definitely find evidence [of] price-rigging,' Mr Cheung said.
Legislator Chim Pui-chung said investors should not cheer too soon.
'Even though the SFC is allowed three weeks to investigate, it may not necessarily find enough evidence to convince the judge to reject the deal,' Mr Chim said.
Even with the uncertainty, PCCW shareholders at the court hearing yesterday were happy with the regulator's action.
Many retail investors had their fingers burnt when they bought PCCW shares at the peak in 2000 during the dotcom bubble. The shares have since lost more than 90 per cent.
Mr Chan, a retail shareholder, said he was happy the court approved the SFC intervention and expected a fair hearing into the vote-buying allegations. But he thought three weeks might not be enough for the SFC to dig up evidence.
One middle-aged woman, who declined to be named, said she had lost money on her PCCW investment, and so did 'almost everyone I know'.
A taxi driver, who also did not want to be identified, said he had lost HK$20,000. 'My son lost the same amount. We won't be buying shares again,' he said.
CLSA analyst Timothy Chan said that if the judge rejected the deal, Mr Li and China Unicom Group, PCCW's major shareholders, might be forced to put their bid on ice for 12 months.
'If the judge does find evidence of any wrongdoing, this probably will not be a case of holding another hearing. The court will want to stop the whole bid,' Mr Chan said.
He believes a court ban on the bid could clobber PCCW's shareholders further in the short term.
'Without the bid support, the shares could drop to about HK$3,' Mr Chan said.
At this price, PCCW shares would still have a healthy 6 to 7 per cent forecast dividend yield.
Following concerns the SFC investigation could derail the deal, the shares drifted to just HK$3.99 before they were suspended from trading yesterday.