26 May 2019
The Occupy protests have prompted listing hopefuls to add new risk factors in their IPO prospectuses. Photos: HKEJ
The Occupy protests have prompted listing hopefuls to add new risk factors in their IPO prospectuses. Photos: HKEJ

Occupy fallout: New language in IPO prospectuses

Even though calm has returned to the streets with the end of the occupation campaign, the pro-democracy movement continues to weigh on the minds of businessmen and market professionals in Hong Kong.

The civil disturbance threat and the political risk factor is being played up, so much so that listing candidates are incorporating new language in their IPO prospectuses. It would seem that for some firms, Occupy has even become a fashionable term.

Consider Hong Kong Broadband Network (HKBN) — a company founded but later offloaded by telecom maverick Ricky Wong Wai-kay — which plans to raise up to US$500 million next year.

As with all other listing hopefuls, the telecom service provider, which is now owned by private-equity group CVC Capital Partners, has to list out all its operating business risks under political and economic factors. There is, of course, the almost standard line that reads like this:

“Hong Kong enjoys a high degree of autonomy from China under the principle of ‘one country, two systems’. However, we can give no assurance that Hong Kong will continue to enjoy the same level of autonomy from China. Any intervention by the government of China in the affairs of Hong Kong, in breach of the ‘one country, two systems’ principle, may adversely affect our revenues and operations.”

However, the HKBN prospectus doesn’t stop with this. As Ming Pao noted, the document makes a specific reference to the recent student protests in Hong Kong.

“Recently, thousands of residents of Hong Kong engaged in civil disobedience protests. Activists protested outside key government buildings and occupied several major city intersections, causing major disruption to traffic and trade in their affected areas. Any political and social instability in Hong Kong, if significant and prolonged, could have a material adverse effect on our business, financial condition, results of operations and prospects.”

We can assume that Hong Kong Broadband has a deeper understanding of the political factor, given the experience of Ricky Wong, who is believed to still have a close relationship with the management of the company he founded. Several top executives of HKBN had worked with Wong earlier.

In the past two years, Wong had tried different routes to secure a TV broadcast license which he said the former Hong Kong administration had promised. He was one of the suitors, however unlikely the prospect may have seemed, for an existing free-to-air but ailing TV station which this week paid just half the salary for its staff for November while promising to work on the December payroll.

One can only speculate if HKBN’s valuation has suffered due to the developments following the release of Beijing’s white paper on Hong Kong and the end-August decision of the National People’s Congress on the electoral roadmap for the city.

However, what we can be certain is that the Ricky Wong-trained management at HKBN is an intangible asset for the company that should help draw investor interest.

Coming back to IPO prospectuses, HKBN is not alone in putting in new wording and referring to the recent civil disturbance in the city. We also have, for instance, In Construction Holdings, which outlined the following political risk in its document:

“There have been large-scale demonstrations and protests in HK seeking reform of the electoral system for the Hong Kong Chief Executive. Any change in Hong Kong’s existing political environment may bring about instability of the economy in Hong Kong, thereby adversely affecting the construction industry in which we operate.”

Now, how valid are the risk perceptions?

Instability? It’s possible, but the student movement, it should be noted, was largely peaceful and bloodless. What about ‘material economic impact’? Well, the government claimed some financial damage, but the retail sales figure last month showed a 4.1 percent rebound, ending months of a downtrend. 

So, one can argue that the new risk factors cited could be more of a knee-jerk reaction, rather than a well-thought out conclusion. 

Given the current climate, we won’t be surprised if an immigration consultant or an education service agency now lists the Occupy campaign to drum up more business from people seeking to move overseas.

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EJ Insight writer

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