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Saturday, 29 November 2008
Gome Saga Shows We Have Not Progressed on Disclosure
Making it an offence to keep quiet will give regulators not only the muscle to squeeze more out from companies but also a formal ground to seek help from mainland authorities in gathering and verifying information.
Gome Saga Shows We Have Not Progressed on Disclosure
Shirley Yam 29 November 2008
Yesterday, shareholders of Gome Electrical Appliances Holding finally heard from the company a confirmation of the investigation of its chairman, Wong Kwong-yu, by Beijing police.
This is nine days after the billionaire’s arrest, a week after media reports of the arrest, and days after mainland journalists quoting his brother on the investigation.
This is after different explanations about his arrest in the public domain - of bribing a government official for approval to list in Hong Kong, price manipulation of a Shanghai-listed company, and tax evasion, to list a few.
In between, the Gome board has said only one thing: It is not in a position to “confirm the accuracy” of the media reports.
Upon confirming Wong’s arrest, Gome decided to extend its week-long trading suspension until further notice. No reason was given. So as a Gome shareholder, one is trapped.
This is not something we would expect to have happened in a market that regulators claim is of international standard. Exchange sources are quick to point to the usual explanations. One, it is the mainland. Two, Gome’s trading has been suspended.
The mainland-is-special excuse is convenient. The poor transparency and accountability of the law enforcement system means companies find it hard to get any arrest or investigation officially confirmed.
This case, as some have suggested, is further complicated by the fact that Mr. Wong is tagged the richest man in China and any collapse of Gome may have significant financial implication for the country’s electronic appliance manufacturers.
But in a post-Alexander Graham Bell era, failure to locate the chairman for one week is serious enough for any board to raise the warning flag. One does not need any police confirmation to tell shareholders this fact and whether it has any implication on its operation and finance.
Neither can the suspension of trading justify the poor disclosure. The argument that since no one can profit on privileged information, it is OK for the management to take its time in clarifying the picture, is faulty for three reasons.
First, allowing a company an unreasonably long time to disclose information is hurting investors’ right to choose to exit for fear of financial deterioration or to buy low with the hope of a white knight.
Second, it is unfair because under the present rules, listed firms can suspend trading for as long as they want. Regulators cannot order a company to resume trading unless they have initially ordered the suspension. That is exactly the case with Gome.
Third, with the breadth of industries listed in our market, one company’s information can be price-sensitive to many. Look at how the share prices of Gome’s suppliers and other private firms have been brutalised in the past two weeks.
What is worrying is not just the regulators’ excuses but that we have heard these many times before. There were the arrests of orchid seller Yang Bin, Shanghai developer Chau Ching-ngai and Bank of China (Hong Kong) chief executive Liu Jinbao. They had all been missing many days before their companies came up with a statement.
Over the years, we have seen the introduction of new laws that give regulators more teeth. We have seen the signing of more accords between Hong Kong and mainland regulators that promise more information exchange. But in Gome’s case, we are not seeing any improvement in disclosure.
More importantly, Wong will not be the last to disappear. Bankers knowing how mainland private entrepreneurs have lost their shirts in the accumulators and property markets will not hesitate to agree.
To make a fundamental change, Hong Kong needs regulators with the will and tools to prove their credibility. By tools, I mean the dust-covered proposal to give listing rules statutory backing.
The listing rules require companies to make timely and accurate disclosure. But without legal consequences, it is hard to get management to answer regulators’ phone calls and to speak up.
Making it an offence to keep quiet will give regulators not only the muscle to squeeze more out from companies but also a formal ground to seek help from mainland authorities in gathering and verifying information.
While the turning of the listing rules into law is now with the government, the regulators should not sit and wait for the change. It should foster closer working relationship with their mainland counterpart and informal information sharing. It should demonstrate the will to act.
1 comment:
Gome Saga Shows We Have Not Progressed on Disclosure
Shirley Yam
29 November 2008
Yesterday, shareholders of Gome Electrical Appliances Holding finally heard from the company a confirmation of the investigation of its chairman, Wong Kwong-yu, by Beijing police.
This is nine days after the billionaire’s arrest, a week after media reports of the arrest, and days after mainland journalists quoting his brother on the investigation.
This is after different explanations about his arrest in the public domain - of bribing a government official for approval to list in Hong Kong, price manipulation of a Shanghai-listed company, and tax evasion, to list a few.
In between, the Gome board has said only one thing: It is not in a position to “confirm the accuracy” of the media reports.
Upon confirming Wong’s arrest, Gome decided to extend its week-long trading suspension until further notice. No reason was given. So as a Gome shareholder, one is trapped.
This is not something we would expect to have happened in a market that regulators claim is of international standard. Exchange sources are quick to point to the usual explanations. One, it is the mainland. Two, Gome’s trading has been suspended.
The mainland-is-special excuse is convenient. The poor transparency and accountability of the law enforcement system means companies find it hard to get any arrest or investigation officially confirmed.
This case, as some have suggested, is further complicated by the fact that Mr. Wong is tagged the richest man in China and any collapse of Gome may have significant financial implication for the country’s electronic appliance manufacturers.
But in a post-Alexander Graham Bell era, failure to locate the chairman for one week is serious enough for any board to raise the warning flag. One does not need any police confirmation to tell shareholders this fact and whether it has any implication on its operation and finance.
Neither can the suspension of trading justify the poor disclosure. The argument that since no one can profit on privileged information, it is OK for the management to take its time in clarifying the picture, is faulty for three reasons.
First, allowing a company an unreasonably long time to disclose information is hurting investors’ right to choose to exit for fear of financial deterioration or to buy low with the hope of a white knight.
Second, it is unfair because under the present rules, listed firms can suspend trading for as long as they want. Regulators cannot order a company to resume trading unless they have initially ordered the suspension. That is exactly the case with Gome.
Third, with the breadth of industries listed in our market, one company’s information can be price-sensitive to many. Look at how the share prices of Gome’s suppliers and other private firms have been brutalised in the past two weeks.
What is worrying is not just the regulators’ excuses but that we have heard these many times before. There were the arrests of orchid seller Yang Bin, Shanghai developer Chau Ching-ngai and Bank of China (Hong Kong) chief executive Liu Jinbao. They had all been missing many days before their companies came up with a statement.
Over the years, we have seen the introduction of new laws that give regulators more teeth. We have seen the signing of more accords between Hong Kong and mainland regulators that promise more information exchange. But in Gome’s case, we are not seeing any improvement in disclosure.
More importantly, Wong will not be the last to disappear. Bankers knowing how mainland private entrepreneurs have lost their shirts in the accumulators and property markets will not hesitate to agree.
To make a fundamental change, Hong Kong needs regulators with the will and tools to prove their credibility. By tools, I mean the dust-covered proposal to give listing rules statutory backing.
The listing rules require companies to make timely and accurate disclosure. But without legal consequences, it is hard to get management to answer regulators’ phone calls and to speak up.
Making it an offence to keep quiet will give regulators not only the muscle to squeeze more out from companies but also a formal ground to seek help from mainland authorities in gathering and verifying information.
While the turning of the listing rules into law is now with the government, the regulators should not sit and wait for the change. It should foster closer working relationship with their mainland counterpart and informal information sharing. It should demonstrate the will to act.
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