New Hong Kong Stock Option Rules Likely To Cost Firms Dear

by Mary Swire, for LawAndTax-News.com, Hong Kong

03 June 2004

According to a report recently released by international consulting firm, Watson Wyatt Worldwide, new rules on employee stock options set to come into force next year in Hong Kong could adversely affect some 67% of companies listed on the main board of the HKEx.

Under the new international accounting rule, which will take effect in Hong Kong on January 1, 2005, stock options must be recorded as expenses in profit and loss accounts every year until they expire, even if they are never exercised.

Watson Wyatt revealed that although 67% of the 800 main-board listed companies in the territory use share options, none of them have, as yet, booked them into their profit and loss accounts.

It suggested that as a result of the new rules, the affected firms will post an average drop in earnings next year of 2.15%, with small-cap and information technology companies hardest hit, and potentially facing drops in profits of 13.69% and 10.86% respectively.

Speaking with regard to the research report's findings, Watson Wyatt employee benefits analyst, Bob Charles observed that:

"In Hong Kong, we are moving from a world in which options had no apparent cost to companies to one in which the cost is very clear. The implication for the bottom lines of companies operating in Hong Kong will be significant."

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