Non-compliance by firms draws little attention
When a company discloses during its initial public offering that it has not complied with mainland social security rules, that information might be expected to raise concern. Yet in the case of several recent Hong Kong listings, such revelations appear to have gone all but unnoticed.
Within the past six months, six companies - nearly one-seventh of Hong Kong listings in that period with mainland operations - have acknowledged in the 'risk factors' section of their prospectuses that they have not completely adhered to national social welfare requirements. By contrast, only one new listing in Hong Kong made such a disclosure in the previous year.
But these disclosures - which come as the challenges of funding the mainland's massive social insurance system have taken centre stage - appear to have drawn little attention from investors amid strong IPO demand. In all six cases, retail investors applied for at least 47 times the shares initially allotted to them.
For the new listings, their underwriters and their lawyers, the reason these disclosures have been largely overlooked is simple: the amount of money at stake is relatively small and the companies often have set aside money in case they are required to pay.
The non-compliance, they also contend, is due to conflicting and uncertain rules surrounding the social insurance system, and they note that the disclosure of their obligations should be seen as a step towards better corporate governance - not a sign of mismanagement.
