Tencent unit seeks to withhold shareholding information, raising governance concerns (updated)

Hony Media

06/07/2017 13:11

* China Literature filed for Hong Kong IPO on Monday 
    * Tencent unit asked to withhold shareholding info for 
executives 
 
 (Adds comment from Hong Kong stock exchange) 
    By Elzio Barreto 
    HONG KONG, July 6 (Reuters) - Tencent Holdings'  0700.HK  
online publishing subsidiary has sought a waiver from Hong Kong 
listing rules to allow it to withhold shareholding information 
of some executives, drawing criticism from corporate governance 
advocates. 
    China Literature Ltd requested the unusual exemption from 
the Hong Kong bourse, saying revealing the three executives' 
stakes "would attract unnecessary attention amongst Tencent's 
employees and would likely create an unfavorable and political 
working environment which would significantly distort Tencent's 
workplace culture and distract them from their business duties 
within  Tencent  as well as their duties as directors of our 
Company."     
    The online publisher filed for a Hong Kong IPO on Monday. 
The three executives are its board members and would have to 
disclose their stakes in Tencent as per the city's listing 
rules. The waiver request will now be vetted by the listing 
committee of the Hong Kong stock exchange.  urn:newsml:reuters.com:*:nL3N1JV1HO  
    "That's an outrageous waiver request, and I hope that the 
listing committee will reject it," said David Webb, Hong Kong's 
leading investor activist and a former director of the Hong Kong 
stock exchange. "It is the thin end of a nasty wedge if the 
listing committee allows companies not to disclose directors' 
shareholdings in their parent company." 
    Jamie Allen, secretary general of the Asian Corporate 
Governance Association, said it would set a bad precedent to 
grant the exception. 
    Tencent and China Literature did not reply to Reuters 
requests for comment. A spokesman for Hong Kong Exchanges and 
Clearing (HKEX)  0388.HK , which operates the stock exchange, 
said the firm has a general policy of not commenting on 
individual companies. 
    China Literature asked for a waiver so it does not have to 
reveal the stakes held in Tencent by James Gordon Mitchell, a 
former Goldman Sachs banker and Tencent's chief strategy 
officer; Cheng Wu, CEO of Tencent Pictures; and Lin Haifeng, 
general manager of the merger and acquisitions department at 
Tencent Science & Technology (Shenzhen) Co. 
    The three are non-executive directors in China Literature's 
nine-member board, with Mitchell also acting as chairman. 
    They hold "an insignificant percentage of share capital" in 
Tencent, the filing added. But with a market capitalization of 
nearly $330 billion, even a tiny stake in China's biggest social 
network and online entertainment firm would make the executives 
multi-millionaires. 
    In its 2016 annual report Tencent disclosed the stakes held 
by Chairman Ma Huateng, also known as Pony Ma, President Lau Chi 
Ping Martin, or Martin Lau, and four independent non-executive 
directors. The value of the stakes ranged from $29 billion for 
Ma to as low as $126,348 for one of the independent directors. 
    As in most markets, shareholders owning 5 percent or more of 
any stock must be disclosed to the Hong Kong stock exchange and 
under listing rules IPO candidates must also reveal the 
interests and short positions their board directors hold in the 
issuer itself or "associated corporations."  
    Publicly listed companies must also disclose the interests 
and short positions of their CEOs and all directors in shares 
and debentures in the companies themselves or associated 
corporations under a separate rule, the Securities and Futures 
Ordinance (SFO). 
    That means even if China Literature were granted the waiver, 
it would still have to reveal the stakes at a later date. 
    "The listing committee has no powers to waive SFO 
obligations, so as soon as the company is listed, they would 
have to file disclosures, which will be available to the 
public," investor Webb added. "So not including them in the 
prospectus would only delay disclosure." 
 
 (Reporting by Elzio Barreto; Editing by Muralikumar 
Anantharaman and David Evans) 
 ((elzio.barreto@thomsonreuters.com;)(852)(2843-1608; Reuters 
Messaging: elzio.barreto.thomsonreuters.com@reuters.net)) 
 
Keywords: TENCENT CHINALITERATURE/GOVERNANCE