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Technology Stocks : PCW - Pacific Century CyberWorks Limited -- Ignore unavailable to you. Want to Upgrade?

To: ms.smartest.person who wrote (500)	3/6/2001 10:44:18 PM
From: ms.smartest.person	Respond to of 2248

THE PRICE OF ABUSE What's wrong with the Hong Kong stock market? This is the blunt question I was asked recently by a student doing some research for her masters degree. I ended up saying that I thought the basic problem stemmed from a lack of seriousness in protecting shareholder's rights, in other words an inadequate regulatory regime. The simple fact of the matter is that the world's really successful stock markets are markets which operate under a tight regulatory regime. Being a diligent researcher she asked me to supply examples of the kind of abuses I had in mind. As ever I am not too good at doing this sort of thing off the top of my head so I fear that my response was less than comprehensive. However when I got home I thought I ought to have a quick flick through my files to see if I could really substantiate my claims of shareholder abuse. As it turned out I had no need to dig deep, indeed all I needed to do was review the news over the last couple weeks to come up with a rich crop of examples. I hasten to add that what follows is hardly a-typical, any given week would throw up similar examples. Let us start with Dickson Cyber Concepts (DCC), which has been a subject of a previous column in this space. Readers may recall that last July Dickson Management Consultancy Ltd. (DMC), which is wholly owned by Dickson Poon, the company's majority shareholder, was given a HK$130 million contract to provide consultancy services for the creation of a 70,000 square foot 'cyber-mall', DCC's main asset. In addition DCC was obliged to buy all its software and hardware via DMC at a cost of HK$110 million. Shareholders were told at the time that no one could manage this project better than Mr Poon's private company. Last week we discovered the true extent of the company's management brilliance. Some $35 million had to be written off in losses as half the workforce were laid off. Other than cutting staff, it is hard to see the company plans to do to revive the business. Mr Poon's connected transaction with his private management company is, however, slightly unusual. Far more common is the type of deal struck by Celestial Asia Securities Holdings (CASH) to acquire the Pricerite, a furniture retailer controlled by CASH chairman Bankee Kwan Pak-hoo. Why should a stockbroker want to buy a furniture and household goods retailer? Here's the marvelous answer supplied by Mr Kwan: 'What we plan to do is a horizontal expansion. Through the strategy, we hope to have scalability (whatever that is) to increase our revenue streams from different sectors". So, this, presumably is how it will work. A customer will walk into a Pricerite store to buy a sofa and, while the transaction is being completed the salesperson will cleverly attempt to sell a job lot of, say, PCCW, shares. What a brilliant idea! Meanwhile Mr Kwan will collect a paper profit of some $40 million for his 57 per cent stake in Pricerite purchased just a year previously. As for CASH shareholders, their equity has been diluted. They now own a company which has no obvious relationship with the business in which they invested and has only just started making the smallest of small profits. Over at Star Cyberpower, the name already tells you to be on guard, the company's chairman and majority shareholder Wong Kam-fu is selling a 80 per cent stake in a company called iTech for $16.8 million to the listed company and is then selling another of his company's, High Stone, for a further $2.8 million. Needless to say iTech is loss making, as is High Stone. The first of these companies makes electronic equipment in Shenzhen and the second is a property company. How either will contribute to Star Bio-tech Holdings, of which Star Cyberpower is a wholly owned subsidiary, is anyone's guess. Why do the directors engage in transactions of this kind? Simple, because they can get away with it. And they get away with it all the time. Not a day passes without some new shoddy connected transaction, some takeover which prevents minority shareholders from gaining a piece of the action, a flurry of rumours about some new bout of insider trading or some dubious listing on the Growth Enterprise (joke) Market. As long as this persists, the people who really make markets significant, i.e. the big institutional investors, will maintain minimal exposure to Hong Kong, regarding it as no more than an occasional punt. The stock market authorities keep boosting about how the percentage of share ownership held by retail shareholders is rising. This is an obvious sign of weakness, if I were them I would keep quiet about it. Meanwhile anyone really intent on loosing money can always cross the border and indulge in the current B-share madness, failing that are many good ways of loosing money back home, PCCW comes to mind in this respect. quamnet.com