THE clock is ticking for the nine mainland companies expecting to list on the Hongkong stock exchange, an Asia Law and Practice seminar was told yesterday. Under current proposals, professionals handling the listings were faced with major challenges, the seminar was told. Valuing assets in China is problematic as no free market applies to set prices. Mainland authorities have their own valuation standards, many of which bear no relation to economic reality outside China. There are problems with accounting standard adjustments now being put in place, linked to meeting Hongkong standards as recognised by the stock exchange. Meanwhile, time is running out for the listings, four of which have now been put on hold. Solicitor Carmelo Lee Ka-sze, a partner at Woo, Kwan Lee and Lo, said technically all the valuation estimates undertaken on the basis of the December 31 year end for each listing would become invalid on June 30. Under the Hongkong stock exchange's listing agreement a limit is placed on the valuation estimates, as the passage of time in itself invalidates most of the figures in a flotation prospectus. Mr Lee said it was likely, however, that the exchange would issue a waiver allowing a number of the listings to go ahead after this critical date. Those that did not make it would have to re-value their assets on the June 30 interim date. It is expected Shanghai Petrochemical might issue a prospectus on June 30. Guangzhou Shipyard and Tsingtao Brewery are expected to follow in July. The speakers at the Asia Law and Practice seminar also included Paul Brown, managing director at Sallmans, the valuers to the shipyard and brewery listings, and David Sun, a partner at Ernst and Young. The speakers at the seminar highlighted many problems that still persist in trying to ensure mainland listings meet local stock exchange rules. Land title and land use rights are problematic as each has to be proven in each listing. In some cases leasing deals, providing 50 years' use over a site, can resolve these difficulties. Tax treatment presents a problem as this varies between enterprises. At present 60 per cent levies are common. For future listings, the levy might be dropped to 33 per cent or in a special economic zone, like Pudong, the levy might be as low as 15 per cent. Staff welfare levies are another source of uncertainty as in many cases the mainland enterprises have social obligations to the families of staff which will constitute levies on the net profit in the profit and loss account. These might represent something like a 10 to 15 per cent reduction in earnings. Appropriations, amounting to some eight per cent in some cases for undisclosed purposes, are also common and affect the net profit line. Foreign exchange is another minefield, even before the current depreciation in the yuan. Whether a company's earnings are in foreign currency or yuan is obviously going to make a huge difference to the company's prospects under a free-floating yuan. Separate accounting of operations and a ban on transfers between accounts means it is impossible to realise a gain for distribution to shareholders. Many key calculations relating to dividend payment and earnings per share in coming to a Hongkong dollar share valuation are also deeply affected by the falling yuan. It is expected the depreciation of the yuan from the official rate, which itself has been raised, will greatly affect the 1993 earnings and net profit forecasts in the new listing prospectus documents. Transfer pricing between enterprises is the value on transactions done between enterprises on the mainland. A move to full-blown market valuations might make a whole series of customers and suppliers uneconomic. There are difficulties reconciling past mainland enterprise accounting standards and practice with the new joint stock company regulations and International Accounting Standards. Each of these standards remains far apart and accountants have been busy making adjustments to meet Hongkong exchange listing rules. Valuation methods and accounting standards have a direct effect on net profit as land value and purchase amounts or leasing premiums paid to the state will need to be amortised, which will affect the profit and loss account. In such cases investors might suffer dilution as the parent can opt to receive payment in shares, in accordance with the minimum standlards laid down with recent disclosures on company regulations in China.