Corporate finance firm says proposals allow for dependence or conflict of interest
Stock exchange proposals to ensure listing sponsors are independent from their initial public offering clients are too lax, according to Ernst & Young Corporate Finance.
The independence criteria are contained in proposals by the stock exchange to improve the quality of information given to investors following scandals such as Euro-Asia Agricultural, which is alleged to have inflated its revenue figures in the four years before listing.
The fine print of the proposals was released by the stock exchange earlier last month. Ernst & Young Corporate Finance recently issued a response which was sent to the exchange.
'The stock exchange's proposals do not set a test for the independence of sponsors,' the response said. 'In each of the ... categories of permitted interests of the sponsor group in the listing applicant, there is either real dependence or a real conflict of interest ...
'We believe that it is in the best interests of the investing public for the rules to be tightened.'
Ernst & Young Corporate Finance objected to rules which will allow the sponsor to hold up to 5 per cent of a client being listed. Sponsors will also be able to hold stock in an IPO client worth up to 15 per cent of the sponsor group's net assets. The stock exchange's definition of sponsor includes parent and connected firms.