AT a time when privatisations are thrashed out behind closed doors, the question of whether institutional investors are included among minority shareholders has become increasingly vital. When small investors combine forces, their collective voices carry more weight. Last week, Mark Mobius of Templeton Investment Management, in his capacity as a minority shareholder, overwhelmed the management of the East Asiatic Company (Hong Kong). He poked holes in East Asiatic's privatisation plan, and it was later scrapped. Dennis Cassidy, managing director of corporate finance at Standard Chartered Asia, believes there will be more privatisations. The question of whether they are carried out at the expense of small investors has caught the attention of politicians. The Democratic Party, probably alerted by irate small investors, asked Financial Services Secretary Rafael Hui Si-yan to address the issue in a Legislative Council session last Wednesday. Merrill Lynch industrial analyst P J King also expected more privatisation proposals to arise, especially among third-and fourth-line companies trailing the Hang Seng Index. He said companies going private usually bought back their shares on the cheap. 'If (regulators) don't stop this abuse of minority interests, then they are in danger of standing by when the house burns down,' Mr King said. But privatisation is not necessarily an evil, and some analysts said it was a viable move for companies in the throes of a lacklustre market. Mr Cassidy said that, in a healthy market, privatisations naturally followed when majority shareholders believed their shares were trading lower than their 'true value'. 'The important thing is to reach a fair price for both minority and majority shareholders,' he said. Mr Cassidy said privatisations were justified when the public listing ceased to benefit the company and its investors - 'Then (privatisation) is an exit for everyone.' As highlighted by the actions of Mr Mobius, it is pertinent to see how other institutional investors have lobbied for better earnings and management accountability. Many thought that Regent Fund Management, when it bought a stake in Pioneer Industries International (Holdings) last month, would line up behind the company's outspoken overseas investors. Regent has been known for buying stakes in undervalued closed-end funds with a view to liquidating their assets. Rebel shareholders, led by Vincent Intrieri of New York's Liverpool Limited Partnership, are demanding that Pioneer sell its Thai Bank investments and distribute the proceeds to shareholders. Mr Mobius said: 'Shareholder activism is on the rise in Hong Kong, and all of the world.' Seen as a champion of the causes of minority shareholders, Mr Mobius said: 'They (minority shareholders) must get together for their (collective) interest.' In East Asiatic's case, the company offered to buy their shares back at $1.20 per share, whereupon Templeton insisted on at least $1.90. East Asiatic said the price it sought represented a 185 per cent premium to the counter's net asset value (NAV) of 66.6 cents per share. The stock's listing price of $1.65 when NAV was at 34.9 cents represented a much higher premium of 373 per cent. The price sought by Templeton took into account the fact that the counter's premium to NAV was slashed almost in half. East Asiatic's management, even after its proposal was defeated, maintained that its offer price, a 46.3 per cent premium to the stock's last close of 82 cents, was reasonably attractive. '(Institutional investors') ability to play a role is frustrated by the liquidity of these shares,' Mr King said. He said institutional investors could be very good advisers to companies, but that the patriarchal nature of Hong Kong businesses ensured that liquidity was not easy. Mr King said the relative absence of institutional investors voicing the views of minority interests 'is bad for small caps and bad for Hong Kong'. 'As you have such low liquidity, you get speculation and huge oscillations in the market. Somebody's got to stop that, otherwise price-earnings ratios will be driven down further and the market will become increasingly erratic.' The new chair of the stock exchange listing committee, Gordon Kwong, said the liquidity issue would be looked at. There are a number of stocks with poor fundamentals for which having a listing does not make much difference. Mr Hui said that, to November 30, 13 companies had voluntarily de-listed in the last three years, not including General Electronics. Supposedly, Mr Hui will follow up on this issue, and be heartened by the revolution that is going on outside the board room.