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SCMP Reporter

IF MERCHANT bankers are sensible, new listing Denway Investment's record oversubscription is one that won't be beaten.

  The new listings market is becoming ridiculous. Investors, financial advisers and public relations firms are claiming kudos with each new record oversubscription.

  It is time for common sense to reassert itself. Clearly an oversubscription at a stratospheric 659 times is not an indication of the strength of the market. Rather it seems an example of inefficient pricing.

  The problem for merchant bankers is that other sectors of the financial community are being called on to clear up their mess.

  Denway's issue absorbed $240 billion of capital, the price of a few Chek Lap Koks and equivalent to 40 per cent of Hongkong's 1991 gross domestic product.

  The squeeze on money forced interbank rates up 250 basis points to five per cent and forced the Exchange Fund to inject $650 million into the system.

  A market collapse in the middle of such a listing could cause havoc to banks which have advanced loans to speculators.

  Alternative ways of getting out issues have been suggested, such as offer for sale tenders, but the advantage of the present method is its simplicity.

  Rather than be forced to reform the system, financial advisers have room to be more aggressive in pricing.

  Clearly China plays are being undervalued at the time of offering.

  Finding the right price is not easy. In some cases, an increase of only a few cents might be the difference between a listing being a success or lacklustre.

  However, the suspicion lingers that the system does not always encourage the best pricing. Investors, underwriters and company management who have access to pink forms all benefit from underpriced listings.

     NOW the blood has cooled after the high emotions of the Cathay Pacific strike, legislators will set about tackling Hongkong's outdated labour laws.

  The wildcat dispute heavily damaged the airline's image, took a $200 million hit on the company's profits and soured staff relations.

  It should never have happened. Indeed, in most developed countries including the formerly strike-ridden UK and Australia, new labour legislation means it would not have happened.

  Hongkong's labour laws were drafted after the riots of the 1960s and are clumsy in the extreme.

  While they give workers the opportunity to go on strike at the drop of a hat, they also give companies the right to sack strikers deeming them to be in breach of contract. In effect, they rely on a kind of nuclear deterrent, with consequences so extreme that action is rare.

  They also give the Labour Department little room for conciliation.

  Most comments on the issue have focused on giving workers the right to strike. This is only half the argument.

  What legislators should construct is a more sophisticated framework which respects the right to strike, the right to work and the right of the employer.

  This means the need for secret ballots, a cooling off period before action takes effect giving the company room to prepare and allowing time for conciliation, and a ban on secondary picketing.

  Labour disputes have been rare in Hongkong. Thankfully, because such disputes brutalise workers and management and cause long-term damage to a company that is difficult to repair.

    As Cathay's managing director, Mr Rod Eddington, states in today's Sunday Money , no one wins in a strike. The damage would be mitigated by better legislation.



Bankers need to get sums right