The stock exchange used its powers to block fund-raising exercises for only the second time when it banned a planned issue of 120 million new shares by Honko International Holdings, stock exchange sources said. The issue was to have completed a deal made in August between Honko and telecommunications equipment provider CCT Telecom. Terms of the deal were that CCT would take 25 per cent of Honko's enlarged capital in return for sale of its manufacturing unit, Electronic Sales, to Honko for $120 million. Under this agreement, Honko needed to issue 120 million new shares to CCT at $1 each, meaning that CCT would reap an $80 million profit from the deal. The exchange source said the deal was rejected because proper disclosure requirements had not been followed. On Sunday, CCT said the deal collapsed because Honko failed to gain stock exchange permission to issue the new shares. CCT added that its expected $80 million profit would not materialise. Neither company gave a reason for the failure. The exchange source said the issue was scuppered because Honko had denied the transaction the day before it was announced. The source said Honko's share price rose significantly in August and the company issued an announcement that no transactions were being discussed, but then disclosed the CCT deal the next day. The exchange believed it was extremely unlikely the deal had been brokered in one evening. It said it decided Honko had failed to release price sensitive information to the market. In May, the stock exchange joined the Securities and Futures Commission (SFC) to issue a strongly worded announcement about unusual price movements. The two regulators warned they would use powers to refuse approvals to conduct transactions or list new shares where 'the company has previously denied any knowledge of possible approaches which subsequently eventuate'. The source said the first time the exchange used its powers was when it rejected an issue of new shares by construction company CIL Holdings in August. The source said it was important to maintain a fair market and that those companies which failed to follow the disclosure requirements would face the risk of having their deals rejected.
