Results Delayed
30 September 1999
Look at your newspapers today and you will find a surge in interim results announcements for the six months ended 30th June 1999. In Hong Kong, listed companies are allowed up to 3 months to produce these scanty reports, often containing just a few lines of unaudited financial data. For the more detailed audited annual results, they are allowed 5 months.
Some of the worst company results are released at the latest possible date, opening the door to insider dealing in the stocks up to one month before the results date. Soon after the financial period has ended, the directors should know that they have a poor set of figures on their hands, but public shareholders are still in the dark, waiting for a dim light to be shed on them.
That's no way to run a "wannabe" global financial centre. The Stock Exchange knows this, and on 11-Dec-98 it published proposals to shorten the reporting deadlines to 2 months for interim results and 3 months for full-year results, and to greatly expand the interim report disclosure to include balance sheets, cashflow statements and detailed profit and loss accounts rather than the 5-line efforts you get today. They even gently mooted the idea of quarterly reporting. You can read the announcement or the consultation paper on their web site.
Webb-site.com made a submission on these proposals on 17-Jan-99 which was generally supportive. A copy can be found here. The deadline for submissions was 30-Jan-99 although we believe this may have been extended by one month. Even so, the consultation period finished at least 7 months ago. No results of the consultation have been published, and no changes to the listing rules have resulted. The SEHK did not return a call seeking comment on the delay.
GEM Disclosure will be weak too
The soon to be launched GEM market has separate listing rules from the main board. In addition to introducing quarterly reporting (which was only meekly mooted for the main board), the GEM rules require quarterly reporting within 45 days of the end of the quarter, and annual reports within 3 months. These deadlines are almost the same standards as in the USA under SEC rules (45 days and 90 days respectively).
However, the GEM rules do not implement many of the other proposals in the consultation paper. For example, the quarterly reports will continue to be short on detail, offering no balance sheet or cashflow statements and no disclosure of key items such as depreciation, amortisation or interest income and expenses. As such, the quarterly results will be as useless as the interim reports on the main board. It's a bit like looking at Kowloon from the Peak on a typical polluted day - you can see the outline, but none of the detail.
The delay in releasing the results of the consultation and implementing the proposals to improve financial disclosure is surely not in the interests of a transparent market. It leaves the outlook for disclosure on GEM and the main board shrouded in uncertainty. This is particularly worrying when GEM companies will often be growing rapidly and their annual balance sheets will be meaningless soon after they are published.
We have to wonder to what extent this regulatory role will take a back seat when the Stock Exchange is floated as part of a profit-making entity (HKEC) next year. Will the SFC step in and accelerate the pace of regulatory reform? This delay is another strong argument for relieving the Stock Exchange of its role as regulator of listed companies and passing that role to the SFC along with the listing fees. But then the HKEC would not be worth so much, would it?
© Webb-site.com, 1999
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