Webb cites dickens of hurry over Tom

Your correspondent likes to do his own work and claim all the credit himself but sometimes has to concede that others have already done it and better than he can.

Independent financial commentator David Webb has taken a close look at unusual aspects of the listing of Tom.com and has raised questions the Securities and Futures Commission urgently needs to address.

Specifically he points out that the extraordinary number and scope of listing-rule waivers given to Tom.com and asks whether the stock exchange's incarnation as a profit-making entity is compatible with its regulatory role.

Public accusations are already growing of favouritism by the exchange in the hasty listing of this overheated Internet concept play on its trivial pursuits board, the Growth Enterprise Market (GEM), but Mr Webb has done the best job so far of fleshing out this criticism.

First there is GEM rule 17.29, prohibiting new issues within six months of listing but stating in a note that 'in exceptional circumstances, the exchange may be prepared to waive the requirements of this rule, for example, where the listed issuer raised, at the time of its initial public offering, less than the maximum amount stated in its listing document'.

The example obviously does not apply as Tom.com is fully underwritten and more than one million application forms for it have already been snapped up.

Yet the waiver was granted and we are left with thin air as to what exceptional circumstances the exchange saw in this case.

Next we get GEM rule 23.03(2), which limits share-option schemes to 10 per cent of the issued share capital of the listed issuer.

The idea here is that small high-technology start-ups can sometimes attract the key people they need only by giving them equity in the business. No-one objects to the exchange accommodating this entirely legitimate practice.

But the Tom got a waiver lifting this limit to 50 per cent with the requirement only that shareholder approval is required if options are granted to a full-time employee who is also a substantial shareholder or an associate of one. Falling into this net we have one woman and her family.

Again no reason was given, although other hi-tech companies (is this really one?) have just as much need to attract employees with option schemes.

There is plenty of reason to worry, however. Such wide powers to issue new shares are easily abused, for instance by directors ahead of a major announcement or to stave off a takeover bid. Couldn't happen, could it? Then we have GEM rule 13.16, which prohibits sales of holdings by initial management shareholders for two years after listing.

The success of hi-tech start-ups depends closely on their founders' support and we have this lock-up because outside investors should have some assurance that the people they are backing will be there with them.

But you guessed it. The Tom got a waiver under an 'exceptional circumstances' clause reducing its lock-up to six months for 48.4 per cent of its share capital. Why exceptional? Don't ask.

Yes, the Tom is backed by Li Ka-shing and he is rich enough to be good for his money, but that still leaves you with the question - if he does not intend to ramp, stuff it and run and won't dilute everyone else out, why does he need these waivers? Finally we have the question of the GEM rule requiring a two-year track record under the same management. The Tom has a six-week record with a few transferred holdings from Metro Radio plus some other acquired businesses. Bit of a stretch, but GEM listing rules are made of spandex anyway.

The question of whether to buy it is simple, however. You make payment in kind for businesses like these. Your bid is Marvin Gardens, half rent on Waterworks and a get-out-of-jail-free card. No, take back that jail card. It's worth something.