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Float of private China firm to buoy investors

IF the first few Hongkong listings of the ''China Nine'' have made the business seem something of a bore, the float of Stone Electronic Technology will be a force to re-kindle investors' interest in mainland companies.

The Beijing-based computer group is set to become the first collectively owned enterprise in China to offer shares on the Hongkong stock exchange.

It will raise about $189 million for its high-technology product expansion by offering 25 per cent of its capital this week.

Unlike state-owned enterprises, the entire interests of collectively owned entities are in private hands, meaning that they have greater flexibility with management and investment strategies.

Several merchant banks in Hongkong are understood to have started to look out for companies similar to Stone Electronic for a direct listing in the territory.

Collectively owned businesses were products of China's market reform in the early 1980s.


A collectively owned enterprise was defined in 1982 as a business with limited liability.

The assets of such enterprises belong to the employees, who set up representatives' meetings to act as decision-making bodies for the companies.

Such companies have their own group structure, raise capital and have their own independent set of accounts.

They are responsible for their own profit and loss account and for distributing dividends to the shareholders as appropriate.


So collectively owned enterprises enjoy freedom of which the state-owned enterprises are still largely deprived.

The unique legal and shareholding structures these enterprises possess allow them to be much more profit-oriented in making investment decisions.


Stone Electronic has only a short corporate history, but its total turnover last year rose to three billion yuan (about HK$4.05 billion at the official rate) and profit to 100 million yuan, according to company figures.

Previous turnover figures were 2.2 billion yuan in 1991 and 1.3 billion yuan in 1990.

During the years, Stone Electronic has grown from a small enterprise into a producer of integrated word processors, printers, office automation equipment and other hi-tech electronic products.


With the back-up of the fast-growing mainland economy, the company will offer Hongkong investors exposure to China's rising demand for computer products.

If the Stone Electronic listing is successful, it is expected to be followed by similar ventures in Hongkong.

Aside from the potential in profit growth for such enterprises, the regulatory environment seems to be clear for them to list in Hongkong.


China's Securities Regulatory Commission head Liu Hongru said collectively owned enterprises did not need prior approval from the Chinese authorities for their Hongkong listing plans.

As these enterprises did not belong to the state, they only had to inform the commission of their decisions to seek listings on overseas exchanges, Mr Liu said.

And the Hongkong regulators are expected to agree to any listings as long as they comply with the local listing rules.

Like other mainland conglomerates listing in Hongkong in the past year, Stone Electronic is using a locally incorporated shell to float its Hongkong and mainland assets in the territory.

Stone Electronic has grown into an international company with its regional headquarters in Hongkong.

It plans to hold about a 60 per cent stake in the Hongkong-incorporated company and is expected to provide a model for the listings of other collectively owned enterprises in Hongkong.

So far, four state-owned enterprises have gone to Hongkong investors for capital, but it seems that the new issues have been unable to drum up the support that had been expected.

Unfavourable market conditions - caused partly by the Sino-British row over Governor Chris Patten's democracy proposals for the territory, and the austerity programme launched by Vice-Premier Zhu Rongji in China - may be partly to blame for the lukewarm response for the issues.

But it is anticipated that future listings of collectively owned enterprises will steal much of the limelight from those mainland listings yet to come to Hongkong.