Brian Gaynor: Shareholder activism Hong Kong style

David Webb, who is creating a huge stir in Hong Kong, is a unique figure in the shareholder activism movement.

He is an outspoken critic at many company meetings but is also a director of the Hong Kong Stock Exchange, a member of the Hong Kong Takeovers and Mergers Panel and past chairman of Hong Kong Mensa, the society for individuals with high IQs.

If Webb is acceptable to the HK Stock Exchange and Takeovers and Mergers Panel, why can't New Zealand Shareholders Association chairman Bruce Sheppard be appointed to similar positions in NZ?

Webb is a 37-year-old Oxford University graduate who moved to Hong Kong in 1991. He worked in investment banking and corporate finance until 1998 when he retired to spend his time researching the Hong Kong market and editing his website (www.webb-site.com).

He is a high-profile figure and - according to the United States publication Business Week - he "has almost single-handedly changed the terms of the corporate governance debate in Hong Kong".

Webb was appointed to the Takeovers and Mergers Panel in 2001 and last month he was elected to the board of the Hong Kong Exchange & Clearing, the listed company that runs the HK Stock Exchange.

Ten individuals stood for six Stock Exchange seats and Webb received the fourth-largest number of votes. All the rejected candidates were brokers; three were incumbents recommended by the board.

The annual meeting was a major coup for Webb because it was the first election for directors since the exchange was demutualised and listed in 2000. The existing board opposed his election and he had been a strong critic of the organisation but many brokers have sold their shares and new shareholders supported Webb.

He gave the board a taste of what lay ahead by bulldozing a reluctant chairman into opening the meeting to the press and insisting that each resolution be voted on by a poll rather than a show of hands.

One of Webb's major objectives, which he calls Project Poll, is to have every motion at company meetings determined by a poll rather than a show of hands. He believes that this is a more transparent process and it stops companies from filling meetings with insiders who put up their hands in support of every motion.

The Project Poll concept would be easy to achieve in New Zealand as only five shareholders are required to demand one.

Tomorrow's Trans Tasman Properties meeting is a perfect situation for shareholders to demand a poll.

Although all the motions will be carried, because Sea Holdings has a 55.2 per cent controlling interest, a poll would show the strength of feeling among minority shareholders towards the company's dismal performance.

Securities Commission

New Zealand investors need the Bruce Sheppards of this world, and could do with a few David Webbs, because our enforcement agencies are totally underfunded. As a result these agencies are only partially effective and aggrieved investors have to pursue their own enforcement through the courts, a time-consuming and costly exercise.

As the accompanying table shows, the New Zealand Securities Commission (NZSC), our main enforcement agency, received a $1.2 million boost in the Budget but it gets much less than the Australian Securities & Investments Commission (Asic).

The Asic - which also had a big Budget boost - gets A$192.6 million ($216.2 million) for the June 2004 year, or A$9.60 per capita. The NZSC's appropriation is $5.1 million, or $1.30 per capita.

Although the Asic has wider functions than the NZSC it is in a far better position to police capital markets. In recent weeks the Asic has successfully prosecuted two high-profile individuals, stockbroker Rene Rivkin for insider trading and John Elliott for insolvent trading.

It is 10 years since our Securities Commission took a substantive case to court.

BIL International

The battle for control of BIL International, formerly known as Brierley Investments, is offering New Zealand shareholders an excellent opportunity to sell their shares.

A share-buying frenzy by two Singapore businessmen, Indonesian born Oei Hong Leong and BIL chairman Quek Leng Chan, has seen the share price rise 48c at the start of the month to close yesterday at 75c.

Oei has raised his stake from 4.8 per cent to 8.1 per cent and Quek has gone from 24.4 per cent to 29.4 per cent. Under Singapore takeover rules Quek will have to make a takeover offer for all BIL's shares if he wishes to go beyond 30 per cent.

(Quek is executive chairman of Hong Leong Group, which controls the London-listed hotel group Millennium & Copthorne Hotels. Millennium & Copthorne owns 70.2 per cent of CDL Hotels New Zealand.)

In the meantime BIL has made a takeover bid for Thistle Hotels and raised its shareholding from 45.8 per cent to 72.5 per cent.

The English hotel group is the company's most important asset by a wide margin. The others are Molokai Ranch, Hawaii (100 per cent owned), the Weeks Oil Royalty (100 per cent), Air New Zealand (5.5 per cent) and Bass Strait Oil Trust (45 per cent).

With Thistle Hotels facing difficult trading conditions, because of terrorism, Sars and the general downturn in tourism, many New Zealand shareholders are taking the opportunity to sell out of the company.

This is probably a wise move because most New Zealand analysts believe that BIL's net asset backing is about 60c a share and its share price will fall once Oei and Quek stop competing with each other.

Paramount Property Trust

The revelation that Paramount Property Trust is having trouble with its AGC Building in the Viaduct Basin, which represents 63 per cent of the trust's value, is no surprise.

Cuisine Market Management, which leased 13.2 per cent of the building's net lettable space for retail activities, has been placed into liquidation. Most of the space was empty when the trust was floated late last year and there hasn't been much sign of activity from prospective tenants.

Symphony Group, Robin Congreve's property company, has guaranteed Cuisine Market's rental through to October 2006. This will protect the trust's income in the short term, but its property values and unit price will suffer if this space is not leased.

Symphony was Paramount's main sponsor and Forsyth Barr the lead manager, organising broker and underwriter. Forsyth Barr was also lead broker to the Newmarket Property Trust float in 1994 that had a similar rental guarantee. Investors looked beyond Newmarket Trust's rental guarantees and judged it on the basis of its leasing expertise.

Forsyth Barr clients seem to own more than their fair share of Paramount Property Trust. Forbar Custodians, which is controlled by Forsyth Barr, is a significant shareholder and has been a big buyer since the trust was listed.

One of the trust's largest shareholders is Barry Colman, the owner of National Business Review, with 3.2 per cent.

Colman was recently appointed to the Forsyth Barr board. Was this a reward for his support of the Paramount Trust issue or is he trying to ensure that Forsyth Barr keeps a close eye on Robin Congreve's listed vehicle?

Paramount units were issued at $1. They closed yesterday at the issue price.

* Email Brian Gaynor