HONG KONG (Reuters) - Hong Kong’s financial watchdog warned deal-makers over mis-valuing assets on Monday, saying it was concerned that some firms are harming shareholder interests by buying assets at inflated prices or undervaluing asset sales.
The Hong Kong Securities and Futures Commission (SFC) said it had issued new guidelines for company directors and bankers valuing assets in corporate transactions to address the issue.
The regulator did not say why it believed companies may be mis-valuing assets, but market participants said this can occur as a result of failings in due diligence or in some cases to artificially boost returns for one of the parties involved.
“Directors do not appear to have always acted properly when assessing targets or disposals. The SFC will seek to take action where it can be shown that such failures by the directors have resulted in loss to the shareholders,” Ashley Alder, the SFC’s Chief Executive Officer said in a statement.
The SFC guidelines emphasise that listed company directors must act in good faith in the interests of the company and exercise due and reasonable care, skill and diligence when considering, proposing or approving corporate transactions.
They add that directors should take all reasonable steps to verify the accuracy and reasonableness of material information that is likely to affect any valuation. Directors must also consider whether the proposed transaction or arrangement is in the interests of the company and its shareholders as a whole.
Financial advisers are also required to scrutinise the valuation process and conduct their own checks and assessments when appraising assets, the SFC added.
Editing by Alexander Smith