The demand for shell companies in Hong Kong has seemingly soared over the years. While acquiring a shell company allows the acquirer to gain access to a listed asset without having to go through the lengthy initial public offering (IPO) procedure, these transactions often leave investors in the dark over the nature of their holdings.
This report assesses four reverse takeover (RTO) transactions in Hong Kong of different dimensions and finds that reverse takeovers create little value for different stakeholders while serving the purpose of controlling shareholders.
The study also indicates that while listing on the Hong Kong Stock Exchange has allowed Chinese companies to attract more foreign funds, it could affect the value and prestige of the Hong Kong Stock Exchange as some of these companies have an opaque history and lack credibility.
We find that there are a few structural weaknesses and loopholes in Hong Kong regulations, which allow violation of corporate governance rules and a listing of lower quality stocks.