HK Regulator to Take 'Hard' Look into Share Pledge Financing

Hong Kong's securities regulator said on 27 April it would take "a hard look" into pledging of shares for loans, such as in the case of China Huishan Dairy Holdings Co Ltd which last month saw a sudden stock plunge on concerns over its finances.

On 24 March, shares of Huishan plunged 85 percent in just a few hours, wiping $4 billion of its market value in a single day as investors worried about its financial position.

Trading in shares of China's largest integrated dairy firm has been halted since that day.

Huishan's controlling shareholder Champ Harvest later said it had pledged nearly all of its shares to secure loans from Chinese banks. 

"We do need a hard look at share pledges that unravel," said Ashley Alder, chief executive of the Securities and Futures Commission ("SFC"), when asked about the fall in Huishan shares.

"We do need to scope out the extent to which there are problems that shareholders need to know upfront."

Alder did not specify what steps the regulator may take as it examines how shares are pledged for loans, but added any potential rule changes could take the form of guidelines and not every share pledge would need to be disclosed.

The regulator will also continue to focus on IPO sponsor failures, Alder said, when asked whether the SFC planned to probe banks that worked on Huishan's $1.3 billion listing in 2013.

The SFC plans to crack down on overly-valued asset sales by listed companies in the city, part of a move to clean up capital market activity in Hong Kong, Alder said.

It also plans to step up scrutiny of initial public offerings and listed companies, after it recently took a closer look at IPOs in the small-cap Growth Enterprise Market ("GEM") at the Hong Kong stock exchange because of massive debut price spikes during listings.

"We hope to tackle quite a longstanding and thorny problem to do with unrealistic valuations used to support often quite suspicious asset disposals by listed companies," Alder said during a media luncheon.