Jardine to withdraw from Hong Kong exchange after row: Founding 'hong' snubs colony and China in Bermuda move

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JARDINE Matheson Holdings yesterday angered the Hong Kong business and financial community and the Chinese government by announcing that it will drop its listing on the Hong Kong Stock Exchange at the end of the year.

The move arose because of a dispute over whether Jardine should submit itself to the Hong Kong takeover code as the market authorities demanded. Jardine, one of the hongs that founded the colony 150 years ago on the back of the opium trade, is instead to bind itself to the new takeover code of Bermuda, where the holding company moved its domicile 10 years ago.

Sir Charles Powell, the former civil servant and confidant of Lady Thatcher who is a director of Jardine, said the move was not a withdrawal from Hong Kong and was simply to avoid the practical difficulties of obeying two regulatory codes, in Bermuda and Hong Kong, at the same time. 'This is not a drama, far from it,' he added.

But in Hong Kong the move was interpreted as a snub to China. The Keswick family that runs Jardine is seen as distancing itself from the territory's affairs ahead of the Chinese takeover in 1997 and as shoring up defences against any future takeover threat from the Hong Kong Chinese business community, which has long been encroaching on the old hongs. The Keswick family controls less than 10 per cent of Jardine shares.

Jardine Matheson's business with China goes back to the 1830s when William Jardine and James Matheson were selling 6,000 chests a year of opium. The company is 10 years older than Hong Kong itself.

Hong Kong's Securities and Futures Commission reacted aggressively, saying the Hong Kong code still applied to the company whatever Jardine did because it was still a public company in the colony. It said the code was necessary to protect minority shareholders.

Sanctions for any future breaking of the code would be a reprimand or alternatively a 'cold shoulder' - banning the Hong Kong financial community from acting for Jardine.

Jardine asked three years ago to continue its secondary share listing in Hong Kong but with an exemption from the local takeover code, which it criticised as administratively difficult. The company's primary listing was switched to London three years ago.

The SFC said the regulatory structure in Bermuda 'does not provide adequate investor protection for Hong Kong shareholders'. It said that the Bermuda authorities, at Jardine's request, enacted five statutory takeover codes, one for each of five companies in the Jardine group.

These codes would be effective from 1 July this year, but would not apply to other Bermuda companies. The SFC added that the five special Jardine codes would involve regulation at a considerable distance which would not protect investors.

The Bermuda authorities did not have the same knowledge of the local market in Hong Kong as did the colony's regulators. It would be difficult for the Bermuda Monetary Authority to investigate alleged breaches in Hong Kong and expensive for Hong Kong investors to protect their rights in Bermuda.

The SFC offered a small concession by saying it was prepared to negotiate a formal understanding with Bermuda.

Paul Chow, chief executive of the Hong Kong Stock Exchange, said the London exchange should think carefully about whether the Bermuda code was acceptable for a London listed company. But a spokeswoman for the London exchange said it would not re-examine Jardine's London listing.

Jardine Matheson Holdings' shares plunged nearly 10 per cent in Hong Kong to HKdollars 49.25 when the move was announced at lunchtime, provoking another row with the local exchange. Mr Chow said Jardine had promised to wait until after the market closed.

He added that the exchange had to treat the Jardine delisting as a commercial decision. But he expressed disappointment at the loss of a company which represents 2.6 per cent of Hong Kong market capitalisation. More seriously, if associated companies in the Jardine empire were also to delist, the total loss would be more than 6 per cent of the Hong Kong market.

Jardine said 80 per cent of its shares were beneficially owned outside Hong Kong, but the Stock Exchange said the bulk of trading was done in the colony.

Sir Charles said shareholders would still be able to trade their Hong Kong shares and the company was confident they would be fully protected by the new statutory Bermuda code, which was based on the voluntary London code.