Our regulatory maze can be exploited to hide what companies don’t want you to see
The mystery of who controls Hang Fat Ginseng
Transparency and fairness which are much emphasised by our regulators, don’t add up to much at times, as illustrated by the case of Hang Fat Ginseng.
The debt-ridden ginseng trader was the top stocks by volume traded several times in the past few weeks. Yet no one knows who is controlling it.
To be precise, most don’t even know that they don’t know.
You will know you don’t know only if you have tried to work out the maze from three different filing systems.
The black box didn’t just start. It has been the case ever since January 28 when this one-time darling of market commentators dropped 81 per cent in a single day.
The company said that its controlling shareholder, chairman and chief executive officer Yeung Wing-yat was in financial trouble and that his debtors have been dumping stakes in Hang Fat.
Investors have no information on the number of shares pledged by Yeung to assess the selling pressure to come.
In successive announcements, the company said Yeung has secured additional loans from independent parties while signing a memorandum of understanding with potential buyers for his controlling stake in the company.
Three white knights were mentioned within 10 days. Again there was no information on their identity to assess how real they are.
This is unless you go into the disclosure of interest filings where shareholders report any single holding of more than 5 per cent.
Plough through the notoriously obscure codes, and you would be able to figure out that two of the potential buyers were the chairmen of two other listed companies.
It did not really matter because none of the deals materialised. A search through the filing with diligence, and you would see that one has already exited with a profit.
While all these tales of white knights supported the price of Hang Fat, Yeung and his families or perhaps their debtors have sold its stakes from 62 per cent to 14.87 per cent.
To figure that out, you would have to go to another set of reports – the disclosure of dealing under the Code on Takeovers and Mergers.
Then on February 29, Hang Fat announced that it would sell 31.2 billion shares at a deep discount to a mainland businessman named George Lu. That would translate into a 55 per cent stake in the company.
You thought you knew who is in control now. Not really. This is because the share sale has yet to be approved by a shareholder meeting.
While the market assumed the dust was about to settle, the names of two accountants popped up in the disclosure of interest filing on March 8. With a holding of 24.98 per cent, they became the largest shareholders in Hang Fat.
Plough deep into that filing, and you would see that they are acting as a trustee. Search the internet, and you discovered that they were the liquidation and restructuring people of PricewaterhouseCoppers.
On whose behalf are they working? There wasn’t a clue.
After nine days, you read from the disclosure under the takeover codes that the shares were pledged by Yeung to a company named Rich Inward in return for a loan and the accountants have been appointed receiver of the shares.
Search further on the internet you uncovered that Rich Inward was controlled by Yao Jianhui who owned China Goldjoy which was once named as one of the potential buyers.
By then, they have already sold down the stake to 17 per cent. Who is the ultimate benefactor? The record is silent on that.
The company may be able to justify these obscurity with the fact that none of the parties involved hold more than 30 per cent and forget its obligation to disclose price sensitive information.
It is, however, hard to explain its meagre disclosure on an injunction application against Yeung who remains the company’s top manager.
It announced that Great Wall Pan Asia Investment, a state-owned company, has sought injunction against Yeung from selling stakes in Hang Fat as well as moving asset out of Hong Kong.
The legal ground of the application was not mentioned. Records show Great Wall has brought HK$240 million worth of shares from Yeung last May during its heyday.
Did the injunction have anything to do with the share sale, say a hidden buy back promise?
So much about our disclosure-based regulatory regime.