A market with firm convictions

VIEW FROM HONG KONG

The Yiddish word chutzpah is better known in New York stock exchange circles than in Hong Kong but that does not prevent it from succinctly describing the way the colony's exchange behaves when its officials fall down on the job.

Chutzpah is sometimes explained by the story of the child who murders his parents and pleads for clemency on grounds of being an orphan. In Hong Kong it means that the stock exchange committee can decide that its officials are doing their job well when they allow company directors with a criminal record to hide their past from investors.

Last Tuesday the listing committee of the stock exchange congratulated the head of the listing division, Herbert Hui, for failing to pass on details it received of a criminal conviction against Tsang Hin Chi, one of the territory's best-known businessmen, even though he told them about it at the time of the listing of Goldlion Holdings, a company he chairs.

Perhaps congratulate is too strong a word. The committee's own words were that it "notes and appreciates the head of listing division's immediate acknowledgment of the listing division's responsibility in this matter".

So it appears that the stock exchange has no objection to the negligence of its officials, as long as they quickly own up to their mistakes.

That, in some eyes, is bizarre enough, but even more bizarre is the treatment of Mr Tsang, a very influential gentleman with blue-chip connections among the Chinese leadership. Mr Tsang is not being censured for falsifying a director's declaration made in respect of Goldlion's 1992 listing application, although it is now admitted that he informed the exchange of one criminal conviction in 1978, but failed to disclose another in 1971.

He has, however, been publicly censured for not disclosing either criminal conviction in the director's declaration for the flotation of Denway, a mainland Chinese company for which he served as a non-executive director. He has since resigned from the board of Denway.

So what penalty will Mr Tsang pay for his breach of the exchange's rules? In effect, very little. He has received a slight rap over the knuckles in the case of Denway, but has anyway already resigned. As far as Goldlion is concerned, no further action is being taken, although the board will have to send out a circular detailing Mr Tsang's criminal convictions and expressing a view on his continued position as a director.

The exchange's regulatory authorities are showing a similar spirit of generosity towards the co-sponsors and advisers to the Goldlion shares public offering. "The co-sponsors have expressed regret over this matter and the listing committee has accepted this", the exchange said.

This statement ends with a reminder to sponsors "of their obligation to raise with the exchange all material matters in respect of listing applications'. In practice, however, the exchange is saying that sponsors who fail in their duty need have no fear of incurring a penalty.

As if all this were not enough to show the forgive-and-forget nature of the Hong Kong stock market, it now appears that Yu Pun-hoi is due for rehabilitation as chairman of Ming Pao Holdings.

Mr Yu is also very well known, very well connected in China, and owns a controlling interest in Ming Pao, one of Hong Kong's leading newspapers. Thanks to the efforts of reporter Carol Lai, who does not, and probably never will, work for Ming Pao, the Hong Kong public learned that Mr Yu acquired a small string of criminal convictions while resident in Canada. This revelation started the current spate of stories and concern about the criminal background of company directors.

Mr Yu has spent a hardly demanding six months away from the post of chairman, vacating the seat for Oei Hong-leong, who has suddenly discovered that he is far too busy to do the job and recommends the reinstatement of Mr Yu.

A more recent visitor to the law courts is Albert Yeung, the boss of the Emperor group of companies, who also has friends in high places, including Australia's former prime minister, Bob Hawke, who serves on the board of one of his companies, and the government of Cambodia, which allowed him to open the first foreign-owned bank in the country.

Mr Yeung was charged with holding a former employee prisoner and threatening to break his leg. The trial produced some astonishing allegations about how this public company was run by a man who demanded that employees literally had to grovel before him and were threatened with physical violence.

Yet Mr Yeung is now a free man. His freedom came after five key prosecution witnesses suffered an extraordinary and simultaneous attack of amnesia, leading the magistrate to comment that he could "not be sure justice has been done".

Meanwhile mystery still surrounds the exchange's failure to notice that Win Win International came to the market with directors Garry and Savio Lam, who had been convicted for armed robbery and handling stolen goods. They have now resigned, as has their brother Daniel, the former chairman.

The long-suffering shareholders remain bewildered and out of pocket as Win Win's listing remains suspended. Goodness only knows what will happen when Win Win resumes trading because Hong Kong investors have demonstrated a quite exceptionally understanding attitude towards the legally challenged.

Having piled out of Goldlion shares when news about Mr Tsang's criminal background broke, they have now piled back, leaving Goldlion Holdings shares trading at close to an all-year high.

Stephen Vines