THE STOCK EXCHANGE OF HONG KONG LIMITED
(A wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited)
(the "Exchange")

  The GEM Listing Committee of The Stock Exchange of Hong Kong Limited
(the “Committee”) takes action against 
Deloitte & Touche Corporate Finance Limited (“Deloitte”)

At a meeting held on 22 June 2006, the Committee considered the facts in relation to the annual review of Deloitte’s continued inclusion on the list of GEM sponsors (the “List”) and decided that Deloitte may remain on the List but subject to conditions and only for the purposes described below.

Facts

In May 2005, Deloitte sought annual renewal of its GEM sponsor status pursuant to Rule 6.29 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Rules”).  That application was considered by the Committee on 5 May 2005, and again on 22 June 2006.

The review took into account matters in relation to the listing of the shares of Codebank Limited (“Codebank”) on GEM in December 2001, in which Deloitte was the sponsor (but not the lead underwriter).

In the Codebank listing application, the following incidents had occurred:          

1.	certain overdue and unpaid obligations were not adequately disclosed in the prospectus of Codebank issued on 17 December 2001;
2.	the payment arrangement stipulated by the underwriting agreement was altered between Codebank and an underwriter without informing the Listing Division;
3.	over $10 million of the listing proceeds remained outstanding after Codebank was listed on GEM;
4.	the issue of the outstanding listing proceeds was not reported to the Listing Division until May 2002; and
5.	Codebank’s declaration made to the Listing Division to the effect that all listing proceeds were received was inaccurate.

The Committee’s decision

In the sponsor’s declaration in Form 5A of the GEM Rules, Deloitte undertook to “keep the Exchange informed, at timely intervals, of the progress of the Codebank listing application”.

Rules 6.03 and 6.45 of the GEM Rules in force at the material time set out the Exchange’s general expectation of a sponsor’s conduct:

“… it is the expectation of the Exchange that each issuer should, with the guidance and assistance of the Sponsor, comply with and discharge its responsibilities under the GLR … the Sponsor is expected to advise the issuer on those responsibilities in a competent, professional and impartial manner, so providing reassurance to investors”

and 

“the Sponsor must be closely involved in the preparation of the listing document and must ensure that it has been verified to a standard that enables the Sponsor to submit to the Exchange the declaration in [Form 7G]”

The manner in which the Codebank listing was prepared has given rise to serious concerns on the part of the Committee as to: 

(i)	the competency and professionalism of the service and advice provided by Deloitte while it was acting as the sponsor to the Codebank listing;
(ii)	the guidance and advice provided to Codebank by Deloitte while it was acting as the continuing sponsor to Codebank after listing;
(iii)	the manner in which Deloitte discharged its responsibilities and obligations under the GEM Rules; and
(iv)	its competency in acting as a sponsor.

The Committee notes the allegations of the Securities and Futures Commission (the “SFC”) and the outcome of the SFC’s settlement with Deloitte, and the extensive cooperation between the Exchange and the SFC in these matters.  Please refer to the SFC’s press release available at http://www.sfc.hk.

Without admission of liability on the part of Deloitte and Mr Chia Kee Loong Lawrence (“Mr Chia”), principal supervisor of Deloitte, but with the agreement of Deloitte and Mr Chia and noting the outcome of the SFC’s settlement with Deloitte, the Committee applied GEM Rules 6.28 and 6.30 and decided that Deloitte may remain on the List but subject to the following conditions and for the sole purposes described below:

1.	Deloitte agrees and undertakes to withdraw and not to involve itself as a sponsor in any new GEM Board listing applications for a period of nine months (the “withdrawal period”) (starting from the date this press release is published);
2.	Mr Chia agrees and undertakes to withdraw and not to take on any GEM sponsor work for a period of six months (starting from the date this press release is published);
3.	Before resuming sponsorship of new listings, Deloitte will demonstrate to the satisfaction of the Exchange that it has retained competent staff, put in place appropriate and effective supervisory arrangements, and adopted an appropriate methodology for conducting due diligence;
4.	Deloitte is allowed to perform and carry out the duties and responsibilities of a compliance adviser under the GEM Rules during the withdrawal period for Shandong Molong Petroleum Machinery Company Limited (stock code: 8261) (Deloitte’s compliance adviser role will end on 31 December 2006 or an earlier date if the mandate is terminated by agreement before expiry); and
5.	Mr Chia is to remain and perform the role of a principal supervisor of Deloitte subject to the conditions attached to Deloitte and Mr Chia personally as described above.

Richard Williams, Head of Listing, commented: “It is well established that the Growth Enterprise Market is one which accommodates companies to which a higher investment risk may be attached.  Sponsors eligible to support listing candidates in this market play a very important role in upholding and maintaining the standard of GEM companies which are brought to that market for listing.  In consequence any failing by a Sponsor to perform that role to an acceptable level must be taken seriously from a regulatory standpoint.

Sponsors and compliance advisers should be in no doubt that they are expected to discharge their obligations diligently and that regulatory action will be taken, which may affect their ability to perform that role, if the standards applicable are not adhered to.”