Hong Kong’s Securities and Futures Commission has warned investors “to exercise extreme caution” when dealing in the shares of Imperial Pacific International Holdings Ltd.
It is the second time in under a year that the SFC has warned investors of a concentration of ownership in the same listed entity.
The company – which invests in a profit stream of the Macau junket consolidator Hengsheng Group – on July 15 said in a filing that its unit Best Sunshine International Ltd had won an exclusive licence to develop and operate a casino resort on the Pacific island of Saipan.
On Friday the SFC said the results of a “recent inquiry” it conducted into Imperial Pacific’s ownership structure showed a “high concentration of shareholding in a small number of shareholders,” that amounted to just 19 stockholders having 92.61 percent of the issued shares as at July 15.
The SFC stated: “In view of the high concentration of shareholding in a small number of shareholders, shareholders and prospective investors should be aware that the price of the shares of the company could fluctuate substantially even with a small number of shares traded, and should exercise extreme caution when dealing in the shares.”
In October last year, the commission said the firm – then known as First Natural Foods Holdings Ltd and sharing at least one common shareholder across the two inquiry periods, namely Cui Li Jie – had just 14 shareholders holding 94.22 percent of the stock.
The asset providing the Macau junket profit stream was married with First Natural – an already listed business – in March this year. Such asset exercises involving already listed businesses – and who exactly owns those businesses at the point of the asset exercise – are questions not subjected to the same level of scrutiny as would a similar exercise involving a firm newly applying for a Hong Kong listing.
Hong Kong’s rules for newly listing companies say that as a general rule, “not more than 50 percent of the securities in public hands at the time of listing can be beneficially owned by the three largest public shareholders.”
A discussion paper issued by Hong Kong Exchanges and Clearing Ltd in April 2013 in the wake of a raft of financial scandals in mainland China and Hong Kong-listed companies, said that in theoretical terms the key corporate governance risk of high concentration of ownership “is the possible expropriation of minority shareholders by the dominant shareholders”.
The paper added that 75 percent of Hong Kong listings have a dominant shareholder that owns “30 percent or more” of interests in the issuer – which HKE said was the highest proportion in any major equity market studied by the CFA Institute, a global body with a mission to improve ethical standards in investment.
In early September last year, the then First Natural reported unusual increases in the price and trading volume of its shares. The directors at that time filed a report saying they had no knowledge as to the reason. The following month the firm confirmed it was interested in linking to an asset that had access to a Macau junket profit stream.
The SFC says in its latest report on the now Imperial Pacific International that the share price surged 700 percent between February 7 and July 15 – the date of the announcement of the Saipan licence. On June 19, the company had told the bourse in a filing it was not aware of any reasons for fluctuations in the share price and increases in trading volume.
The Lottery Commission of the Commonwealth of the Northern Mariana Islands – covering a U.S. territory that includes Saipan – has faced a legal challenge over the process that led to the Saipan licence award.
Imperial Pacific appeared in a filing on Friday to offer an incentive to the CNMI government for early issuance of a casino licence it was promised on July 15. The filing said the firm had agreed with the CNMI government some amendments to the escrow arrangements for the casino project. Under the changes, the US$30 million refundable deposit required by licence applicants will – in the case of Imperial Pacific – be refunded to the government along with any interest earned, if the casino resort developer licence promised by the government is issued to the firm’s subsidiary Best Sunshine International Ltd, “on or before 1 September”.
The money would amount to early payment of the US$15 million annual licence fee payable by any successful bidder in the first and fifth year of the licence according to Imperial Pacific’s filing.
Imperial Pacific said in a further filing on Sunday evening regarding the Hong Kong SFC’s warning on trading the company’s shares: “The board wishes to clarify that the above information is extracted from the SFC announcement and that the board has not verified such information and is not in a position to comment on the accuracy of the above information. Nevertheless, to the best knowledge of the directors and having made all reasonable enquiries, the controlling shareholder, namely Inventive Star, held 6,003,643,080 shares, representing approximately 75 percent of the issued shares as at 15 July 2014 and the date of this announcement and Inventive Star is wholly and beneficially owned by Ms Cui Li Jie.”
(Updated at 8.52am, August 4)
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