Bankers warn watchdog poised to get tough on back-door listings
The China Securities Regulatory Commission (CSRC) shows no signs of loosening its restrictions over back-door listings by mainland companies in Hong Kong, despite a number of actual and speculated takeovers of Hong Kong-listed firms by mainland entities.
Merchant bankers have warned that other companies trying to seek back-door listings, such as the example set this week by the Yunnan provincial government and its proposed takeover of Hansom Holdings, could be punished by the regulators.
They also criticised the Securities and Futures Commission (SFC) for setting a bad precedent by taking no further action in the Hansom case, where the Yunnan government-led consortium failed to disclose its takeover intentions during previous deals since 1993.
A commission spokesman said its joint policy with the exchange regarding back-door listings, established in 1993, remained unchanged.
The spirit behind the policy was to ensure such takeovers were not being used to circumvent requirements of exchange listing rules.
Mainland companies which sought to obtain backdoor listings without CSRC approval or follow the lead of Hansom in presenting a fait accompli deal would risk penalties and a backlash.
Speculation is now focused on whether other red-chip companies are following Hansom's example by slowly raising their minority stakes in Hong Kong-listed companies.
Possible cases include Jiangsu provincial government's window company Zhong Shan Group, which is proposing to buy a stake in Burwill Holdings.
Fujian provincial government window company, Fujian Enterprises (Holdings), has boosted its stake in Fu Hui Jewellery Co (HK) to 13.55 per cent from 9.82 per cent, while another Fujian-backed company holds 11.46 per cent.
Late last year the Henan provincial government's window company, Henan Enterprises, also raised its stake in Indesen Industries by 3.3 per cent to 20 per cent, while Fujian-backed Sino Earn Holdings boosted its stake in Hong Kong-listed Triplenic Holdings to 19.7 per cent from 12 per cent.
Coincidentally, Peregrine Capital acted as adviser on the buy-out of Hansom and was expected to sponsor the potential listings of the Hong Kong window companies of Jiangsu and Fujian provincial governments.
CSRC officials would not comment on the issue, saying they were looking into the situation.
In its red-chip guidelines, the mainland's State Council states back-door listings by mainland firms are not allowed.
One merchant banker said few mainland firms would attempt back-door listings in the present climate.
Apart from the possible backlash from such actions, mainland entities seeking back-door listings might also risk being cheated or their promises not honoured, unlike the Hansom case, he said.
