SFC, HKEX crack down on rights issues seen as unfair to minority shareholders
Regulators step up enforcement efforts in light of new cross-border trading scheme between Shenzhen and Hong Kong
Hong Kong’s securities regulators have tightened their scrutiny of rights issues by listed companies, rejecting two recent applications they deemed unfair to minority shareholders.
Brokers welcomed the move as they believe it will enhance protection for investors, which is seen as vital in attracting mainlanders to trade in the Hong Kong market via the new stock connect link with Shenzhen.
The Securities and Futures Commission and Hong Kong Exchanges and Clearing on Friday evening jointly announced that they have recently rejected two rights issues applications from listed companies, on the grounds that the terms of the deals would seriously dilute the interests of minority shareholders who do not subscribe to the new shares.
We will continue to closely monitor these transactions to protect the interests of shareholders and uphold the quality of our markets
The announcement was made just a day after the SFC executive director of enforcement, Thomas Atkinson, said in a newsletter that he would focus on cracking down on corporate fraud and misfeasance, as well as money laundering.
And it comes five days after the launch of the Shenzhen-Hong Kong Stock Connect which allows international investors to buy and sell 881 Shenzhen-listed stocks, and mainlanders to trade in 417 Hong Kong stocks.
Christopher Cheung Wah-fung, lawmaker for the financial services sector, said the regulators’ decision to step up its enforcement of rules around rights offerings was much-needed.
“There are some companies seen as ‘cheat stocks’, frequently conducting rights issues, share consolidation and restructuring. Some of these transactions benefit the major shareholders and their related parties but are unfair to smaller investors. These malpractices should be stopped,” Cheung said.