Sunlink buys semiconductors, mainly from Taiwanese manufacturers, and sells to factories in Hong Kong and China which make consumer electronic products such as computers, cameras and mobile phones.

With its IPO proceeds, BEP wanted to tap 'the growth in demand for the group's products, especially from the North American market', while Sunlink planned to 'capture the vast business potential in the consumer electronics and telecommunications markets in the PRC by further promoting its electronic turnkey device solutions'.

There were two issues about their listings which might give investors pause for thought.

Firstly BEP and Sunlink each brought in about HK$22 million from their IPOs - an amount considerably less than what was siphoned out of the companies in the past couple of years through the major shareholders rewarding themselves handsome dividends.

BEP's business was founded by its chairman and managing director Chan Tat, now 70, in 1984. It was jointly owned by Mr Chan and Madam Hong, the mother of his children.

Just prior to the IPO, the ownership structure of BEP was changed - split equally between two trustee companies, one set up for Mr Chan's son Chan Man-kei and the charity Oxfam, the other for daughter Selina Chan Sin-mui and Friends of the Earth.

Chan Tat and Madam Hong paid themselves $51.5 million in dividends in the 18 months to September 30 last year, representing a generous 110 per cent of earnings in the period.

Meanwhile Sunlink's owners, including executive director Wong Shu-wing, had $18.4 million in dividends in the 21 months to September 30 or about 40 per cent of total earnings in the period. They then gave themselves a further $10 million in dividends in December, just three months before the listing. Mr Wong owned 51 per cent of Sunlink after the IPO.

David Webb, editor of webb-site.com, which lobbies for minority shareholders' rights, said the two companies could have funded their expansion plans out of their own profits rather than paying out large dividends and then going cap in hand to the market with IPOs.

'Look at their [large] dividend payments prior to the IPO . . . which indicates that there was no need to raise capital by issuing equity,' he said.

Parties close to the two companies assured investors there was nothing unusual in what had happened. Sunlink's financial controller Lee Chak-to and Howard Tang of CSC Asia, one of BEP's listing sponsors, said the listings were not so much aimed at funding expansion as raising corporate profiles and brand awareness.

Listed companies have to abide by stock exchange rules and make disclosures about their businesses, earnings and changes in shareholding structure. They are more transparent than private companies, boosting the confidence of customers, suppliers and bankers which can indirectly help the firms grow.

Phillip Securities research director Louis Wong Wai-kit said that, beside raising capital, IPOs could be vehicles to improve trust among suppliers and customers.

Cashing in on dividends pre-IPO is not such a surprising move either, he said.

'The shareholders want to be rewarded on past results before going public - they don't feel they need to share the rewards yet,' Mr Wong said.

'It's akin to turning a new leaf - reward old shareholders with old earnings.'

The second issue about some IPOs - which BEP and Sunlink underline - is occasions where major shareholders use listings as an opportunity to partially cash out of their companies.

For both BEP and Sunlink, 40 per cent of the scrip put on offer to institutional and retail investors were old shares from majority shareholders. That raises the question of why outside investors would want to buy into a company when insiders who know it best are selling out.

Tung Tai Securities associate director Kenny Tang Sing-hing said investors should be more cautious when old shares are being sold in a listing.

Phillip Securities' Mr Wong admitted that the market tended to mark down newly listed companies where the major shareholders had paid themselves hefty pre-listing dividends and sold old shares.

With their shareholdings diluted by the IPO, shareholders and directors might not be as motivated to work for the company, Mr Wong said.

Sunlink's financial controller Lee Chak-to explained that the directors were actually helping minority shareholders by selling their old shares. It meant that the dilution effect from the IPO on earnings per share would be minimised.

BEP could not give a profit forecast for the year to the end of this month 'with accuracy, reliability and certainty', but said that, if it had been a listed company for the year, it would 'expect to have paid a dividend of six cents per share', or a dividend yield of about 8.6 per cent on the offer price of 70 cents.

Sunlink expected earnings of about $30 million in the year to December 31 last year, some 27 per cent higher than in 2001.

Since the listings BEP's share price has hovered near its issue price of 70 cents, closing yesterday at 75 cents.

Sunlink has, however, plummeted. It closed at 22 cents yesterday down 56 per cent from its issue price of 50 cents.

Graphic: bep19gbz