China Mobile will have to pay hefty compensation to HKTV boss Ricky Wong Wai-kay to break his deal for the company's Hong Kong online television subsidiary, legal experts warned yesterday.
The state-owned communications giant has launched a probe into the HK$142 million deal, saying it might have violated mainland rules.
It is investigating why the mainland agency that administers Beijing's assets was not notified before the deal was signed.
Meanwhile, the controversy took a new twist yesterday when Wong confirmed he had applied for a judicial review of the Hong Kong government's decision not to award his firm a free-to-air television broadcasting licence.
Critics say that the government's refusal and now the furore over the deal with China Mobile - which would give Wong control of a fully functional mobile TV operation in Hong Kong - are signs of a conspiracy to shut him out of the city's broadcasting industry.
Wong's deal was completed on December 20 and HKTV said in a statement to the Hong Kong Stock Exchange yesterday that it does not anticipate any change to this position.
Wong said the investigation was "none of his business" and HKTV would launch on July 1. He said the probe applied only to state-owned companies while HKTV is a Hong Kong company. Legal experts also said the deal was not subject to ratification by the mainland authorities. And they said for China Mobile to break it would require a big compensation payout or could leave the company facing a lawsuit.
Wang Qinghua, senior partner of Shanghai-based Allbright Law Offices, said: "When a contract is signed and takes effect, it is binding on both parties.
"Internal disputes on any one side will not stop the deal from completing." And Francis Lun, managing director at Lyncean Securities, said there was no way to reverse the deal as it was already sealed. He said: "The [China Mobile] statement looks like a joke. I can't imagine that the parent company will be unaware of an important deal like this involving its subsidiary."
China Mobile announced on its website on Sunday that subsidiary China Mobile Communications Corporation (CMCC) would launch an internal investigation "regarding the share transaction between China Mobile Hong Kong Corporation and a certain television network company in Hong Kong".
The probe would find out whether the transaction complies with the regulations of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), as well as the internal management system of the company.
A source with knowledge of the deal's terms told the Post there was a strong chance HKTV would be offered a compensation package to call off the deal if SASAC found it problematic.
Priscilla Lau Pui-king, a Hong Kong deputy of the National People's Congress, said mainland regulations require state-owned enterprises - even if they are listed companies - to seek SASAC approval on "major matters", including divestments.
Based on the information available, that step had been missed. "It was indeed very strange. Why would it bypass [the commission]?" Lau asked.
A source familiar with the matter said China Mobile's announcement showed it was not aware of the Wong deal.
"China Mobile's launch of the internal probe on the transaction might be due to its fears that the commission might consider China Mobile Hong Kong a state-owned asset," the source said.
Additional reporting by Gary Cheung and Vivienne Chow