By Mak Yuen Teen
A report in the Business Times “Hong Kong regulator says IPO sponsors still performing below expectations” (Oct 11, 2018) shows that the HK Securities and Futures Commission (SFC) understands the important role that sponsors and other intermediaries play in ensuring that questionable companies are not brought to list on the exchange.
The report is available here: https://www.businesstimes.com.sg/companies-markets/hong-kong-regulator-says-ipo-sponsors-still-performing-below-expectations
It is not just talk but action. Well known international banks like Citigroup and UBS have been fined or suspended (the latter’s suspension still under appeal).
No blind faith in a so-called “disclosure-based regime” – a disclosure-based regime can only work if there are significant legal repercussions from false or misleading disclosures and intermediaries and directors play their proper roles.
The SFC’s director of enforcement said that “since 2017, the SFC had issued proposed disciplinary notices to nine firms and four sponsor principals, and that more could follow.”
The SFC is also “looking into what he called ‘nefarious networks’ of listed companies, licensed dealers, money lenders, financial advisory services and placing agents, which enrich themselves at the expense of unsuspecting investors.”
“Enrich themselves at the expense of unsuspecting investors” – sounds very familiar here judging by the quality of IPOs. It is not only sponsors that bring companies to list, but also continuing sponsors that are supposed to help oversee Catalist companies. Some of them are red flags to investors (unfortunately, I cannot name them).
I have also previously written about enforcement actions against directors and key officers in HK, including independent directors. This also differentiates HK from our market here.
What is likely to happen is that valuations and liquidity in markets like HK will continue to improve as public investors move their funds to markets where they feel adequately protected. This is good for HK but worrying for us if we do not significantly step up investor protection, which includes holding sponsors, continuing sponsors and other intermediaries accountable.
