More China checks on S-chips - timely idea with many challenges
Lawyers, market watchers discuss various possibilities of tighter controls
By LYNETTE KHOO 1 April 2009
Get Chinese regulators to tighten their checks on Chinese companies listed here?
The idea is timely but the devil is in the details as lawyers and market watchers mull over the various challenges.
Some feel the Chinese authorities would prefer to steer clear of supervising companies incorporated overseas, such as in Bermuda or the Cayman Islands, as they do not come directly under Chinese company laws.
Others say that tracing errant management is no child’s play, considering the size of China.
‘It may not be that straightforward or easy, not to mention the logistics involved,’ said UOB-KayHian dealing director Chan Tuck Sing.
Head of Rajah & Tann China Service Group Chia Kim Huat noted that the Chinese authorities could at least tighten their checks on companies during the screening process before overseas listings.
Many of the current S-chips, however, are red chip listings that have bypassed this screening process.
Because of the longer time and uncertainty in getting listing approval from the China Securities Regulatory Commission (CSRC), many smaller Chinese firms went by the red chip method. This involves setting up offshore vehicles and transferring their assets to these wholly foreign-owned enterprises before listing them overseas.
China has since tightened the rules in 2006, requiring all Chinese companies to obtain approval from CSRC to list overseas. But most Chinese listings on SGX have been restructured before 2006.
Mr. Chia noted that while CSRC’s listing approval takes a longer time, ‘that also means that there is some quality check’. Those listed in Hong Kong went through that process.
‘For companies that go through the normal approving procedures in China, it is possible for the Chinese authorities to assert greater supervision and control to ensure that those that eventually are approved for overseas listing are of a suitable quality and size,’ Mr. Chia said.
But he added that one should not be too quick to assume that a CSRC approval gives full assurance against future misdeeds by companies. It is probably of interest to recall the fiasco of China Aviation Oil, a state-owned enterprise that had CSRC’s approval. Its hefty derivative losses in 2004 nearly brought about its collapse.
But lawyers note that if the fraud takes place at the China-based subsidiary level, the Chinese authorities can enforce their laws on the subsidiaries. To assist the Singapore authorities to trace errant managers and extradite them, which no doubt is an arduous task, would be of practical help.
At the provincial level, it may be helpful if Singapore can sign a memorandum of understanding (MOU) which can include a clause to receive assistance from the Chinese authorities in bringing errant management back to face the music, said Robson Lee, partner at Shook Lin & Bok LLP.
‘There is certainly room for tightening,’ said Stamford Law senior director Lee Suet Fern. ‘The Chinese officials may not be able to enforce anything but it doesn’t mean that the right messages cannot be conveyed, and I think that alone is still helpful.’
On that note, SGX’s Beijing representative office works with China MOU partners and the local authorities to promote corporate governance among Chinese listings.
1 comment:
More China checks on S-chips - timely idea with many challenges
Lawyers, market watchers discuss various possibilities of tighter controls
By LYNETTE KHOO
1 April 2009
Get Chinese regulators to tighten their checks on Chinese companies listed here?
The idea is timely but the devil is in the details as lawyers and market watchers mull over the various challenges.
Some feel the Chinese authorities would prefer to steer clear of supervising companies incorporated overseas, such as in Bermuda or the Cayman Islands, as they do not come directly under Chinese company laws.
Others say that tracing errant management is no child’s play, considering the size of China.
‘It may not be that straightforward or easy, not to mention the logistics involved,’ said UOB-KayHian dealing director Chan Tuck Sing.
Head of Rajah & Tann China Service Group Chia Kim Huat noted that the Chinese authorities could at least tighten their checks on companies during the screening process before overseas listings.
Many of the current S-chips, however, are red chip listings that have bypassed this screening process.
Because of the longer time and uncertainty in getting listing approval from the China Securities Regulatory Commission (CSRC), many smaller Chinese firms went by the red chip method. This involves setting up offshore vehicles and transferring their assets to these wholly foreign-owned enterprises before listing them overseas.
China has since tightened the rules in 2006, requiring all Chinese companies to obtain approval from CSRC to list overseas. But most Chinese listings on SGX have been restructured before 2006.
Mr. Chia noted that while CSRC’s listing approval takes a longer time, ‘that also means that there is some quality check’. Those listed in Hong Kong went through that process.
‘For companies that go through the normal approving procedures in China, it is possible for the Chinese authorities to assert greater supervision and control to ensure that those that eventually are approved for overseas listing are of a suitable quality and size,’ Mr. Chia said.
But he added that one should not be too quick to assume that a CSRC approval gives full assurance against future misdeeds by companies. It is probably of interest to recall the fiasco of China Aviation Oil, a state-owned enterprise that had CSRC’s approval. Its hefty derivative losses in 2004 nearly brought about its collapse.
But lawyers note that if the fraud takes place at the China-based subsidiary level, the Chinese authorities can enforce their laws on the subsidiaries. To assist the Singapore authorities to trace errant managers and extradite them, which no doubt is an arduous task, would be of practical help.
At the provincial level, it may be helpful if Singapore can sign a memorandum of understanding (MOU) which can include a clause to receive assistance from the Chinese authorities in bringing errant management back to face the music, said Robson Lee, partner at Shook Lin & Bok LLP.
‘There is certainly room for tightening,’ said Stamford Law senior director Lee Suet Fern. ‘The Chinese officials may not be able to enforce anything but it doesn’t mean that the right messages cannot be conveyed, and I think that alone is still helpful.’
On that note, SGX’s Beijing representative office works with China MOU partners and the local authorities to promote corporate governance among Chinese listings.
Post a Comment