bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

urlAlias

moreOnThisArticles

sponsorType

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

SCMP Reporter

THE stock exchange's controversial proposal to dramatically raise the minimum market capitalisation and seek tighter criteria in general for the new listing of companies should be supported.

  We have to remember why the listing requirements were relaxed in the first place.

  They were eased under a series of post-October 1987 crash and post-Ian Hay Davison Report reviews or revisions of the rules.

  Having succumbed to a four-day coma in the crash and having lost all credibility with the international investment community, the Hong Kong stock market became a place where global investors feared to tread.

  A series of reviews modified everything, from the listing rules to allowing share buy-backs.

  Hong Kong institutional and international investors feared to tread in the territory even more following the Tiananmen Square massacre.

  The reduction of the minimum capitalisation to $50 million in the flotation and a three-year track record came about during 1990 when the exchange was desperately trying to kick-start a new listing programme.

  At the time the exchange was very keen to get just about anything to list in the territory.

  The effective coma in much new listing activity extended through the Gulf War.

   In the spring of 1991, however, new listings became common, much to the pleasure of the exchange, merchant banks, accountants, solicitors and public relations professionals about to make so much money out of the whole process.

  Effectively, the rules meant almost anything could be listed if enough energy and consultancy fees were spent putting together a capital structure with a track record and apparent earnings potential, no matter how questionable.

  For a while things looked great and everybody seemed to benefit from this process.

  A production conveyor belt was built by the merchant banks that took entrepreneurial businessmen in at one end, repackaged them and represented them in prospectus form to the investor, via the exchange listing committee approval process.

  After a while things did not look so good, though. In many cases there were some very good companies coming to the market, really adding to the quality of listings on the exchange.

  However, there was also a lot of crud coming through.

  Many investors discovered to their chagrin that what looked like a great company in the prospectus was nothing more than a shooting star, burning brightly for a year in terms of rising earnings, only to dim in the second year of the reporting season.

  Brokers who bothered to find out discovered the second-year record of many new listings was atrocious and new listings started to get a bad name.

  There were many that attracted the attention of the regulators, as in the case of Double Kingdom Holdings, where the whole listing process appears to have been manufactured with a high proportion of shares traded on Day One being to the beneficial interest of the directors involved.

  Stuffing new issues got some of the merchant banks into hot water as well and there was serious concern that the whole regulatory process and calibre of companies listed in Hong Kong were being called into disrepute by the problems being encountered by veritable minnow listings.

  The raising of the minimum float or capitalisation along with a raft of other rule-tightening will probably shut off quite a number of new small listings.

   But going by their track record, who wants them?   It is not the job of the regulator to decide on the quality or price of an issue.

   Rules can be established that might ensure good quality companies come on line. Bigger floats are more difficult to manufacture and far more difficult to manipulate.

  The merchant banks ought not to mind either as two or three really decent-sized transactions bring in more fee income than a whole raft of minnows.

  If practitioners seriously want to see smaller companies become more of a feature of the listing process, then a structure for these types of companies ought to be considered, such as a second board, as in other markets.

  Amid all the controversy relating to the listing of new companies it looks as though the exchange is deftly going to boot this issue in with the apparently more sanitised consultation going on covering the overall exchange mission statement in The Way Forward. - GARETH HEWETT 



Time to tighten rules for new Hong Kong listings