PCCW Group Managing Director Alexander Arena is greeted by a barrage of journalists' questions and camera flashes as he steps from his car outside the High Court yesterday, for the first hearing on his company's controversial privatization plan. CNS

HONG KONG: PCCW yesterday gave its rebuttal to accusations by the Securities and Futures Commission (SFC) that the company had engaged in vote rigging in order to assure approval of PCCW's privatization plan.

The market watchdog yesterday submitted to the court the report of its investigation into the alleged vote manipulation. The report stated 26 stock agencies received PCCW shares as bonuses from a senior official identified in the report as Lam. Prices of the shares given as bonuses were between HK$3.8 and HK$3.9.

SFC opened its probe into the privatization after a group of PCCW minority shareholders charged the privatization ballot was being "rigged" prior to the Feb 4 shareholders meeting at which the vote was taken.

In court yesterday, PCCW lawyer Michael Todd argued that the shares bonuses were nothing unscrupulous.

"Share transfers to obtain a majority is a legal practice," Todd told the court.

Given that the bonus shares were significantly discounted over the privatization price offering at HK$4.5, it was expectable that those shareholders would vote in favor, to profit on the price spread, Todd said. The PCCW lawyer argued that the Hong Kong Companies Ordinance doesn't empower the regulator to trace equities trades to establish the end beneficiary unless there has been evidence of misconduct.

In response to the SFC contention that vote rigging took place, PCCW argued the accusation is without foundation. Todd submitted that the SFC should examine all PCCW share transactions over the past few months, rather than to take a narrow perspective focusing only on votes in favor of privatization.

He pointed out the SFC learned in its investigation that a regional manager at Fortis Insurance (Asia) used his company bonus to purchase PCCW shares between December and January. The manager later transferred the shares to his subordinates.

SFC alleged the transaction was "fishy," since the manager had not traded in shares for a long time prior to the deal.

However, Benjamin Yu, the lawyer who represented PCCW major shareholder Starvest, said that allegation showed bias.

Fortis Insurance (Asia) had been a subsidiary of PCRD, the largest shareholder of PCCW, but by a different name - Pacific Century Insurance - before Belgian banking giant Fortis Group acquired a 50 percent contolling stake in it and renamed it Fortis Insurance (Asia) in May 2007.

SFC lawyer Winston Poon found it suspicious that 800 new PCCW shareholders showed up at the shareholders' meeting and voted in favor of the buyout bid.

The trial will resume today. High Court Judge Susan Kwan said she did not expect the court would hand down an immediate ruling in the case, noting there is considerable information to be weighed.

(HK Edition 04/02/2009 page16)