Safe Haven? the Slippery Slope; Market Watcher David Webb Says Shady China Deals Threaten Hong Kong's Once Sterling Reputation
Wehrfritz, George, Newsweek International
Byline: George Wehrfritz
Hong Kong still enjoys a reputation for British standards of governance amid the investing chaos of China. Former investment banker and shareholder activist David Webb takes a different view. He warns that without reform, Hong Kong could become a backwater where major stockholders rule, the minority suffers, and double dealing with the mainland runs rife. At a time when Chinese IPOs in Hong Kong are attracting global interest, the warning is timely. Webb spoke with NEWSWEEK's George Wehrfritz. Excerpts:
WEHRFRITZ: What are your concerns for Hong Kong?
WEBB: Over 90 percent of listed companies have a shareholder who owns more than 20 percent and has de facto control. Where either a family or a government controls most listed companies, you tend to get abuse in the form of controllers' engaging in related party transactions, paying themselves excessive salaries as directors and electing independent directors who are not really independent, like old schoolmates [and] golfing buddies.
You've reported that the Air China IPO allowed it to lend up to 70 percent of the funds raised in Hong Kong to its unlisted parent company. Are such tactics common?
This is a worrying trend. [Chinese conglomerates] are starting to look like the old Japanese zaibatsu or the chaebol of South Korea. Groups think they must have an internal bank to pool funds from every company in the group, including the listed ones. …