Ernst & Young chief proposes delisting plan

An accountant has urged Hong Kong Exchanges and Clearing (HKEx) to combine two controversial delisting proposals, saying this would protect the interests of minority shareholders.

The proposals - a compulsory winding-up and a mandatory share buy-back - are among four suggestions for delisted stocks contained in a soon-to-be released HKEx consultation paper.

The other two are a 'third board' for delisted stocks or an over-the-counter (OTC) market operated by a third party.

Anthony Wu Ting-yuk, Ernst & Young chairman for Hong Kong, China and Far East, said he preferred a combination of a share buy-back and a winding-up.

'The winding-up of a company may sound quite scary to investors but in fact it would help them recoup their investment provided the liquidation can be done in a transparent way,' he said.

Mr Wu said that in the case of a company with a high net asset value and low market turnover and share price, minority shareholders would be trapped even if the shares were shifted to a third board or an OTC market.

'If these shares were trading at a low price for a long time and could not attract much turnover, it would not change much when they were shifted to other markets after being removed from HKEx,' he said.

Mr Wu said the exchange should first allow major shareholders to attempt to privatise their companies.

If the offer price was too low and the privatisation plan was rejected by shareholders, the exchange should then force the company to be wound up, subject to agreement from more than 50 per cent of shareholders.

'The winding-up option would force the major shareholders to offer a more reasonable price to buy back the shares from small investors,' he said.

Investors would be offered two alternatives, Mr Wu said. They could either accept a privatisation plan or share the assets of the company through a liquidation.

The exchange plans to reissue the delisting consultation paper next month.

Since HKEx chief executive Kwong Ki-chi released details of the revised paper at a seminar on Friday, some commentators have said the compulsory wind-up and share buy-back proposals were impractical and would not help small investors.

They said it would be better for Hong Kong to follow overseas markets by setting up an OTC market for delisted stocks.

But Mr Wu rejected that idea as Hong Kong had no experience with such markets and there would be regulatory problems.