Statement by Mr. T.L. Yang, Chairman of Exchange Fund Investment Limited

I am pleased to report that we have just had the second Board meeting of Exchange Fund Investment Limited (EFIL). The Financial Secretary announced last month to include the Hong Kong equity portfolio formerly held by the Land Fund and transferred to the Exchange Fund in the portfolio to be managed by EFIL. Following discussion by the Directors, we consider it appropriate to disclose in full the additional Hong Kong equity holdings to be placed under EFIL's management. In this connection, a table showing the stockholdings of the enlarged Hong Kong equity portfolio will be handed over to you later. You will see from the table that the additional Hong Kong equities to be passed to EFIL for management comprise Hang Seng Index constituent stocks with a total value of HK$9 bn as at 11 December 1998.

At today's Board meeting, we also discussed in detail a number of possible approaches for the orderly disposal of the Hong Kong equity portfolio of the Exchange Fund. These proposals include share placements, public auction, unitization and structured convertible bond issues. These different approaches are not mutually exclusive and we need to keep an open mind and respond flexibly to changing market conditions and investor appetite. Given the sheer size of the portfolio, it will not be realistic to expect that the disposal programme would be completed over a short period of time. Nor will it be meaningful to devise a very specific or rigid timetable for the disposal programme. The crucial point to bear in mind is that our primary objective is to dispose of the shares in an orderly manner without disrupting the stability of the market.

EFIL Directors believe that it will be useful to adopt a proactive approach in reaching out to potential investors. In this connection, we will proceed to appoint a panel of financial advisers to assist us in the design and implementation of a detailed framework for disposal. The financial advisers will be selected having regard to their technical expertise, placement capabilities and their presence and commitment to Hong Kong. The selection process will commence straight away and should hopefully be finalized by early next year.

The Board has also had a brief discussion on the question of proxy voting by the Government as a minority shareholder. On one hand, EFIL Directors feel that the Government should not interfere with the day-to-day management and operations of a company. On the other hand, Directors consider that it may not be advisable for the Government to refrain from exercising its voting rights in all circumstances. The crucial point here is to strike the right balance between non-interference with the commercial activities of the companies and the need to safeguard the Government's interest in these companies as a responsible shareholder. The Board has decided that there is a need to prepare a set of guidelines on the policy of proxy voting by the Government. In drawing up the guidelines, we will study the best practices amongst major fund managers in the developed markets such as USA and Europe.

I am happy to take a few questions. Thank you.

Exchange Fund Investment Limited

15 December 1998

Updated On 11 Jan 1999