Camsing/police detentions: lock-up period

It was not a rollercoaster that caused that sinking feeling. Shares in Camsing, a Hong Kong-listed theme park and entertainment company, fell 80 per cent because chairwoman Lo Ching had been detained by Chinese police. 

Camsing, which owns Pow! Entertainment, a business set up by Spider-Man creator Stan Lee, insisted daily operations were unaffected. That ignores the broader problem of steep key-person risks at many Chinese businesses. Founders are more powerful than in the west and more exposed to unexpected detention.

Not much has changed since Fosun went through a similar ordeal four years ago. Shares of affiliates at the Chinese conglomerate plunged after chairman Guo Guangchang disappeared. He was released after assisting police with an anti-corruption probe. Two years later, the shares dropped sharply on rumours he had disappeared again. This time Mr Guo had merely been delayed at an airport.

Police swoops on Chinese bosses are so common that nervousness quickly spreads to peer companies. Beijing Sports and Entertainment is unrelated to Camsing, but shares fell 80 per cent. 

Key-person risk is set to rise for HK-listed stocks. The exchange has relaxed rules to allow stock held by founders to bear a controlling chunk of voting rights. The bourse is trying to regain its crown as the world’s biggest market for initial public offerings, which it lost to New York this year. The number of Hong Kong IPOs fell by more than a quarter during the first half. 

As for Camsing, shares now trade at six times trailing earnings, compared with the sky-high ratio of more than 120 times at which they priced a year ago. It is of small comfort that shares of a mainland-listed company owned by Ms Lo have recovered from their own sympathetic sell-off on Monday morning.

Chinese companies listed in Hong Kong will increasingly lack adequate independent oversight. You could say the same for the Chinese police. Returns, like bosses, may disappear unexpectedly.

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