Delisting from HK? Enterprises should think it over
Updated: 2016-06-01 06:51
(HK Edition)
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The US Securities and Exchange Commission's probe into the accounting practices of Chinese mainland e-commerce giant Alibaba Group has touched on issues behind the huge discounts in prices of Hong Kong-listed H shares to their Shanghai-listed A shares.
Many mainland entrepreneurs are irked by the disparity, which has persisted even after the launch of the Shanghai-Hong Kong Stock Connect in November 2014. As the spread continues to widen, more mainland entrepreneurs are talking about delisting from Hong Kong, complaining that their companies' shares in the SAR are trading at below net asset value.
Some mainland stock analysts have attributed the low valuation of H shares in Hong Kong to the failure of foreign investors to understand the business environment, accounting practices and management style of mainland enterprises. As a result, the uncertainties have been unfairly factored into the pricing of various H shares.
In the case of Alibaba, it's common knowledge that many vendors on the company's e-commerce platform Taobao use the so-called "phantom" trades to boost credibility and attract eyeballs. Investors have complained that it's not clear how such "trades" are accounted for in Alibaba's books.
Hong Kong's capital market is dominated by institutional investors and fund managers. They abhor uncertainties because uncertainties make it difficult for them to fully comply with the basic requirements of due diligence. Failing to measure up to such requirements can expose them to endless lawsuits filed by disgruntled clients.
The original intention of many mainland enterprises to list in Hong Kong was to tap into the global capital market and bring their corporate governance and accounting practices in line with international standards. They will need to recognize that the Hong Kong market is fundamentally different from that of Shanghai, which is dominated by personal investors who apply a rather different set of criteria in making investment decisions. These investors don't have to worry about being sued by someone else for negligence when money is lost.
Before seeking to delist from Hong Kong, those entrepreneurs should ask themselves if they have done enough to satisfy institutional investors' needs for transparency.
(HK Edition 06/01/2016 page8)