HK regulator to take 'hard' look into share pledge financing

Michelle Price

(Adds comments on share pledges, Huishan share plunge)

HONG KONG, April 27 (Reuters) - Hong Kong's securities

regulator said on Thursday it would take "a hard look" into

pledging of shares for loans, such as in the case of China

Huishan Dairy Holdings Co Ltd which last month saw a

sudden stock plunge on concerns over its finances.

On March 24, shares of Huishan plunged 85 percent in just a

few hours, wiping $4 billion of its market value in a single day

as investors worried about its financial position.

Trading in shares of China's largest integrated dairy firm

has been halted since that day.

Huishan's controlling shareholder Champ Harvest later said

it had pledged nearly all of its shares to secure loans from

Chinese banks.

"We do need a hard look at share pledges that unravel," said

Ashley Alder, chief executive of the Securities and Futures

Commission (SFC), when asked about the fall in Huishan shares.

"We do need to scope out the extent to which there are

problems that shareholders need to know upfront."

Alder did not specify what steps the regulator may take as

it examines how shares are pledged for loans, but added any

potential rule changes could take the form of guidelines and not

every share pledge would need to be disclosed.

The regulator will also continue to focus on IPO sponsor

failures, Alder said, when asked whether the SFC planned to

probe banks that worked on Huishan's $1.3 billion listing in


The SFC plans to crack down on overly-valued asset sales by

listed companies in the city, part of a move to clean up capital

market activity in Hong Kong, Alder said.

It also plans to step up scrutiny of initial public

offerings and listed companies, after it recently took a closer

look at IPOs in the small-cap Growth Enterprise Market (GEM) at

the Hong Kong stock exchange because of massive debut price

spikes during listings.

"We hope to tackle quite a longstanding and thorny problem

to do with unrealistic valuations used to support often quite

suspicious asset disposals by listed companies," Alder said

during a media luncheon.

(Writing by Elzio Barreto; Editing by Muralikumar Anantharaman

and Biju Dwarakanath)