Hong Kong-listed firms 'not ready' for disclosure law

Expert warns firms are unprepared for rules that levy fines for failing to release information

PUBLISHED : Monday, 07 January, 2013, 12:00am
UPDATED : Monday, 07 January, 2013, 4:31am

Many Hong Kong-listed companies are not ready for a new disclosure law that came into effect this month, says a corporate governance expert.

The law, effective from January 1, says companies and directors will face fines of up to HK$8 million if key corporate information such as major acquisition or disposal plans, mergers, acquisitions or substantial changes in profit or loss are not disclosed in a timely fashion.

The legislation followed more than 10 years of debate and was designed to put market transparency in Hong Kong on par with international standards.

Prior to the law's introduction, companies that failed to disclose such information would only be reprimanded for breaching listing norms. The fine was brought in to add teeth to the existing regulation.

Patrick Rozario, director and head of risk advisory services at accounting firm BDO, said his study showed that many firms were not ready for the new law and that less than half of the companies had suitable internal procedures to properly handle corporate disclosures.

"In the US and Britain, most companies have in place procedures and systems to make sure their corporate information is disclosed in a timely and fair manner, but it's not prevalent in Hong Kong," Rozario said.

According to BDO's seventh annual study on corporate governance, which covered 241 listed companies, 13 per cent of mainland-listed companies, 36 per cent of mid-cap companies and 51 per cent of Hang Seng Index constituent companies had no such procedures in place by the middle of last year.

These procedures, Rozario said, should include the nature and frequency of the updates that management needed to give the board of directors, who would then decide if this information needed to be disclosed.

"The mainland-listed companies are particularly weak in this area," he said.

"Some firms start major factories or production lines in China and organise big press events on these occasions but the mainland executives do not inform the directors or the company secretaries about these projects."

Companies should also have procedures to ensure fair distribution of news. To achieve such a goal, Rozario said, companies should have authorised spokespersons and must not be selective in giving analyst briefings or media interviews.

"If companies give some news to selected analysts or media, that would be unfair to investors," he said.

Chamber of Hong Kong Listed Companies chairman Lo Ka-shui has said that listed companies could face a real challenge deciding what should be disclosed, given that they have no experience with the new law.

Rozario said listed companies should have procedures in place to make sure they complied with the legislation.

"A number of listed companies want us to help them set up such procedures and provide training to the directors and key staff about the new disclosure law. This will be a big regulatory topic in Hong Kong this year."