Hong Kong regulator SFC orders second board listing to suspend trading after shares soar 542pc

Move seen as latest attempt by securities regulator to tighten up oversight of the Growth Enterprise Market second board

PUBLISHED : Wednesday, 22 February, 2017, 4:27pm
UPDATED : Wednesday, 22 February, 2017, 11:15pm

An unknown construction company whose shares soared more than 542 per cent on their debut on Wednesday was suspended from trading in the afternoon on orders from Hong Kong’s securities watchdog, which has vowed to crack down on high volatility on the city’s second board.

In a rare move, the Securities and Futures Commission directed the Hong Kong stock exchange to suspend trading in shares of newly listed Growth Enterprise Market stock GME Group Holdings, effective 1pm Wednesday, according an exchange filing from the company.

The SFC and the Hong Kong Exchanges and Clearing last month jointly issued guidelines on the Growth Enterprise Market, urging issuers and investment banks to ensure their placements were“fair and orderly” to avoid high volatility in trading.

“Where it appears that these conditions may not exist after trading commences, the SFC can direct the exchange to suspend all dealing in the company’s securities to protect investors and market integrity, having taken into account all of the available information,” an SFC spokesman told the South China Morning Post on Wednesday.

Where it appears that these conditions may not exist after trading commences, the SFC can direct the exchange to suspend all dealing in the company’s securities
SFC spokesman

This is the latest move by the local regulator to tighten up on the Growth Enterprise Market which since last year has seen many new listings experience high volatility in trading.

Since the new SFC guidelines were issued in January, three companies have postponed their listing on the second board after they received more questions from the regulator regarding their plans.

GME had only just started trading on the Growth Enterprise Market on Wednesday morning when its shares shot up by more than 542 per cent from its offering price of 54 HK cents, to close at HK$3.47 at the lunch break with a turnover of HK$69.5 million.

The company, chaired by Boris Chuang Chun-ngok, conducts underground construction services and its customers are mostly private contractors on public sector infrastructure projects. Chuang and his connected parties own 60 per cent of the company, which raised HK$45.9 million from the second board listing.

GME did not conduct an initial public offering, rather it listed by way of a share placement, a practice allowed on the Growth Enterprise Market as long as there are a minimum of 100 investors at the time of the listing. However, the small number of placements have led to the highly volatile trading on the second board.

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A total of 167 investors received the share allocation from GME’s placement, with 25 of them holding 60 per cent of all the shares on offer, according to the company’s exchange filing.

The Growth Enterprise Market acts as the second board in Hong Kong and was launched in 1999 to cater for companies that couldn’t meet the profit requirement to list on the main board. It was envisaged as Hong Kong’s version of Nasdaq for start-ups but was never successful in attracting new technology firms to list. Instead, the lower listing requirements led to criticism that some of the listed companies were of poor quality.

“The Growth Enterprise Market requires companies to only need 100 investors, which is too low. It should follow the main board to require companies to have at least 300 investors,” said Christopher Cheung Wah-fung, a broker and the lawmaker representing the financial services sector.

He added that second board listings should also be required to explain how they do the placement and reveal the number of shares held by the shareholders

According to the GME Group announcement, out of the 125 million placement shares, 4 per cent were allocated to Tam Cheuk Hang, a substantial shareholder of China Times Securities, which is a distributor under the placement, and thus a connected client of China Times Securities.