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BlackRock Asks Hong Kong to Stop Listed Companies Hoarding Cash

  • G-Resources is selling its biggest asset and keeping proceeds
  • Hong Kong exchange would have to consult on change to rules

BlackRock Inc., the world’s largest money manager, has asked Hong Kong’s regulators to force companies to return excessive cash holdings to their shareholders.

The U.S. asset manager wants Hong Kong Exchanges & Clearing Ltd. to change its listing rules, said Pru Bennett, head of corporate governance in the Asia-Pacific region for BlackRock. Firms that hold more than 50 percent of their net assets in cash should be compelled to give any funds above that threshold to shareholders.

The exchange’s listing rules do not set a level beyond which a company is defined to be holding excessive cash. BlackRock started its campaign after it failed to prevent a company called G-Resources Group Ltd. from selling its largest asset, a $775 million gold mine in Indonesia, and keeping the proceeds.

BlackRock is not the only investor in the former British colony to seek greater influence over listed companies. David Webb, a publisher and activist investor, is trying to make firms invest in productive projects, rather than holding lots of cash. He also campaigns against firms where the majority shareholder sells the assets to change the company’s focus to a different industry.

Webb has urged the exchange’s listing committee to compel companies to return excess cash. BlackRock wants Hong Kong’s Securities and Futures Commission to back these efforts. The SFC is responsible for safeguarding the interests of investors in Hong Kong.

HKEx declined to comment on BlackRock’s proposal, saying it welcomes market participants’ feedback. An SFC spokesman didn’t respond to a request for comment.

‘Doesn’t Make Sense’

“We’ve raised this mechanism as a possibility with the regulators in order to avoid situations like with G-Resources,” Bennett said in an interview. “To have a company listed where the majority of assets are in cash really doesn’t make sense. That’s not the type of investment we consider.”

BlackRock owns about 9 percent of G-Resources, according to data compiled by Bloomberg. The asset manager opposed the company’s decision to sell the mine and use the proceeds to become a financial-services firm. It was not alone. Shareholders representing a 41 percent stake voted against the sale at a special general meeting last month. The other 59 percent voted with management.

This is not the first time that G-Resources has moved from one industry to another. Until June 2009, the company traded as Smart Rich Finance Holdings Ltd., selling electronic goods and financial information. The business changed its name after agreeing to buy the Martabe gold and silver mine in Indonesia for $221 million.

Keeping Cash

G-Resources has discussed expanding its financial-services division since late 2014, Richard Hui, an executive director, said March 8. Jackie Wah, also an executive director, declined to comment on Tuesday.

If a company makes a cogent explanation for keeping cash then shareholders should approve it for a one-year period at an annual meeting, Bennett said. Otherwise, any excess above the 50 percent should be distributed in the form of a dividend, buyback, or some other way, she said. Bennett also serves as a member of the SFC’s public shareholders group.

BlackRock hasn’t heard back from G-Resources about the dividend, she said, declining to say whether the firm would need to sell its shares in the mining company. Neither the Hong Kong exchange nor SFC have replied to BlackRock’s proposals, she said.

“There are too many companies, including quite large ones, which are sitting on humongous piles of cash that could be better deployed,” said Webb, who is also a member of the SFC’s takeovers and mergers panel. “You need to have some threshold beyond which it is completely unreasonable to be holding so much of your shareholders’ money.”

If the proposals are accepted HKEx would need to hold a public consultation to make the changes to the listing rules, Webb said. He hasn’t heard back from the exchange.

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