Denway rush leads to new-issue probe

THE Government is to launch a one-month review of the monetary and banking implications of hotly sought-after public offers following the hefty oversubscription for shares in Denway Investment.

The market consensus is that the $402 million offer has been at least 600 times oversubscribed, pulling in a minimum $241.56 billion.

The Office of the Exchange Fund, which yesterday left Wednesday's $650 million injection in the interbank market, will formalise a working group in tandem with the Office of the Commissioner of Banking to pinpoint the potential pitfalls of big loans for shares.

On the securities side, the Securities and Futures Commission will be meeting the Monetary Affairs Branch - and possibly the listing division of the stock exchange - to conduct its own review of the problems and solutions.

Joseph Yam Chi-kwong, chief executive designate of the central bank-style Hongkong Monetary Authority, which steps into the breach in April, said the number of big issues coming on stream triggered the move to formalise on-going examinations.

He said: ''We are talking about $240 billion moving around within a very short period. That is four, almost five times the amount of bank notes in circulation. It must be 150 to 160 per cent of Hongkong dollar M1 on the money supply.

''These are very big numbers. If we were not looking into it, I think it would be imprudent.'' Denway's expected subscription levels easily overtake last week's record, set by hot-pot restaurant chain Tack Hsin Holdings, whose issue was oversubscribed 552.4 times.

In terms of money drawn in, it surpasses China Travel Services, whose offer was 411 times oversubscribed, representing around $150 billion of investor money.

Denway's expected temporary windfall easily exceeds the Hongkong Government's total public spending in a year.

Mr Yam pointed out that Denway's magnetic attraction to Hongkong punters had a minimal effect on interbank interest rates, which stood at 3.5 per cent yesterday afternoon, when compared with the then-biggest flotation of Oriental Press Group in August 1987.

That $250 million issue was 309 times over-subscribed and sent overnight rates soaring up to 10 per cent, according to Mr Yam.

Also putting a hefty strain on the system was the $51 billion tied up by Cathay Pacific Airways in its $1.54 billion issue in May 1986.

At the time of the Oriental float, then Secretary for Monetary Affairs David Nendick cast around for a more efficient method of listing and raised the notion of a tender system - a call echoed this week by the managing director of Peregrine Investments, Mr Francis Leung Pak-to.

Mr Yam said yesterday: ''We have been looking into this for so long, but we are taking another hard look. We are getting people looking at this sort of thing together, having brain-storming sessions to identify whether there is anything we ought to be doing.

''There are many questions you can ask: during the number of days when the money is in the hands of one or two people, what if suddenly the issuer of the new shares goes bust? ''What if a big stockbroker, who bought up shares on behalf of customers, goes under suddenly during this period, before the money is returned and after applications received?'' Even though the answer might be that nothing would happen, it was important that the questions were addressed, he said.

While the Exchange Fund will examine the macro and micro issues of risk management and other monetary and banking implications, the issue of a more effective method of distributing shares will fall to the SFC and the stock exchange's listing division.

Mr Wesley McDade, SFC senior manager (public affairs), said there were two ways of addressing a key concern sparked by big new issues - the strain on the monetary system, forcing the Exchange Fund to step in and pushing up overnight inter-bank rates.

On the banking side, liberal lending policies could be tightened up to guard against any perceived risk.

''Or you could address this by changing the method through which allocations are made in public offerings, and that would definitely involve the SFC and the exchange, but we don't know for sure that is what will happen.

''However, maybe there are worries in some quarters, especially with the listing coming later this year of the first mainland enterprise. If they do start to address this, they will look at various methods and one might be allocations and the need to distribute through other methods,'' he said.

Earlier worries have hinged on multiple applications, and this matter has been raised in the current review carried out by the stock exchange.

Denway offered 330 million shares at $1.22 each.