Hong Kong Exchanges and Clearing's proposed delisting mechanism
triggered a big hit on penny stocks yesterday, with 17 companies
vaporising more than 30 per cent of their shares prices.
About HK$6 billion in market capitalisation was wiped off 105 listed
companies whose share prices fell below 50 HK cents, the minimum level
required for continued listing under the new proposals.
Multimedia electronic product maker Terabit Access Technology posted
the biggest fall yesterday, diving 87.65 per cent to 2.1 cents on a
trading volume of 2.58 billion, followed by leather product trader Dah
Hwa International, which tumbled 53.64 per cent to 5.10 cents on
volume of 748,000 shares. The Lai Sun Garment International slid 48.37
per cent to 7.9 cents.
Retail investors sold off their shares in small companies fearing they
would lose the chance to cash in if the stocks were delisted.
Friedmann Pacific Securities executive director Ross Yuen said the
sell-off was a rational move and the proposal was backed by good
"But the watchdogs should look into details, instead of just
imitating the delisting arrangement in the US superficially," he
"The US retail investors can dispose of their delisted shares on the
OTC [over-the-counter] market, but I can't see any similar facilities
mentioned in the consultation paper."
HKEx chief executive Kwong Ki-chi said on Thursday the exchange would
not set up an OTC-style market to trade the delisted shares. The OTC
refers to broker-dealers who negotiate directly with one another over
computer networks and by telephone for securities not traded on an
Research director at Phillip Securities Lois Wong said there had been
a "selling frenzy" yesterday with penny stocks.
"But I advise investors not to panic because the proposals are just
in the consultation stage."
The Secretary for Financial Services and the Treasury Frederick Ma
sought to calm nervous investors, saying the proposals were not in use
"They will not be implemented until the end of this year or early
2003, and there'll be a 12-month transitional period for companies
even after the new mechanism is in place," Ma said.
Ma said the proposed measures would enhance market transparency and
safeguard minority shareholders, beefing up the quality of the stock
market in the long run.
But Growth Enterprise Market listing committee member Gary Chan was
concerned that the interests of minority investors would suffer under
the sweeping reforms.
So was small investors' advocate David Webb, who said distressed
companies generated very little revenue for the exchange but took up a
disproportionate amount of staff resources. As a result, the HKEx
could make better profits by delisting "difficult companies", he
"That demonstrates the (HKEx's) conflict of interest and is another
reason why we should move regulation to the SFC," Webb said.
On Thursday, the HKEx proposed delisting main board companies with an
average market capitalisation of less than HK$30 million, or an
average volume-weighted price of less than 50 HK cents, for 30
consecutive trading days. Companies posting three straight years of
after-tax losses, and having an average market capitalisation of less
than HK$50 million over 30 trading days may also be delisted.
Main board listing committee member Peter Wong said: "The main board
is a capital market, not a milking machine for these poor companies to
raise funds by consolidating their penny shares repeatedly."
Nearly half of the 781 listed companies on the main board at the end
of May were trading at or below the 50 cents level.
Editorial: Page 16
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