Two of China's most prestigious newspapers, Southern
Weekend and Business Watch, discuss China
Life's New York Stock Exchange listing and the subsequent
disclosure debacle.
Southern Weekend: Is ignorance an excuse?
There were two disputed decisions during the reorganization and
overseas listing of China Life. One was the method of dealing with
the predecessor's losses from interest rate adjustments, which
amounted to some 176.4 billion yuan (US$21.3 billion). They were
finally assigned to a foundation set up jointly by the Ministry of
Finance and the China Life Group. The other was the company's
listing in the United States. Some executives opposed the NYSE
listing, saying that supervision there is far stricter than in Hong
Kong or on the domestic stock exchange.
The US securities regulations, promulgated in 1934, are geared
heavily toward protecting medium-size and small investors. US law
permits the filing of class actions when groups claim similar
damages from the same entity.
The class action lawsuit will be heard by a jury composed of
common people, who tend to sympathize with medium-size and small
investors. The absence of related fees greatly encourages accusers
and lawyers. In addition, any investor might be eligible to obtain
compensation if he or she doesn't give up rights.
Professor Larry Lang of the Chinese University of Hong Kong says
that China Life's underwriters were also responsible in this case,
because they pushed the listing forward too quickly and made
serious mistakes during the initial public offering (IPO).
"These international underwriters are not familiar with Chinese
businesses," said one New York lawyer. He attributed the disclosure
failure to this lack of experience.
The main underwriters were Citigroup, Deutsche Bank, Credit
Suisse First Boston and China International Capital
Corporation.
China Life lacked familiarity with the applicable laws as
well.
This lack of experience was embodied in two mistakes made
concerning the company's listing on the Hong Kong market. On
December 17, 2003, the day before its IPO on the Hong Kong Stock
Exchange, the number of scrip shares for small investors published
in the South China Morning Post and Hong Kong Economic
Times was incorrect. The Hong Kong securities regulator
reportedly considered delaying the IPO for fear that share
transactions might be influenced.
On April 7, China Life released the National Audit Office's
notice of penalty against the company's predecessor. The English
version was published in the English-language South China
Morning Post, but the Chinese version appeared in the Hong
Kong Economic Times the next day. All listed companies on the
HK Stock Exchange are required to publish both Chinese and English
announcements at the same time. China Life claims that it did not
know about this regulation until it received complaints.
Business Watch: No escaping family ties
It was the predecessor, China Life Group, that was punished by
China's Audit Office for irregularities, China Life is trying to
claim. It says that there is no connection between the two
companies.
Let's take a look at these SOEs whose subordinate companies
split from the parent for listing. How can these companies maintain
their existence once their good assets are split off? The method of
splitting off China Life was said to be innovative. Sinopec, CNOOC,
China Mobile and China Unicom are still big shareholders in their
listed subsidiaries. However, China Life Insurance Company Limited
and China Life Group are two equal corporations.
But no matter how they were restructured, their bad assets from
before 1999 are still around. These assets add to the financial
burden of the predecessor, most of which survive on the earnings
from their listed subsidiaries.
China Oilfield Service Limited, the predecessor of CNOOC, trades
its shares in Hong Kong. It is believed that this trial listing can
improve the competitive ability and transparency of the listed
parent.
However, listing of the predecessor is not a popular way to
solve the problem. The affiliations in capital and business usually
cause investors to lose confidence.
(China.org.cn, translated by Tang Fuchun April 21, 2004)