Deloitte resigns as auditor for 50 HK-listed companies to focus on high-growth mainland firms

03-Jun-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

Deloitte, one of the Big Four international accounting firms, has resigned as an auditor for 50 Hong Kong-listed companies this year to focus on higher-growth companies, according to newly appointed China chair Dennis Chow Chi-in.

The resignations cut the number of listed companies it audits from about 350 to about 300. In terms of revenue, the reduction represents a very small percentage of Deloitte China’s combined audit and advisory sales as these companies are relatively small. Its audit income has dropped to only 35 per cent of all its businesses, down from more than 60 per cent a decade ago. The rest is from advisory services.

“This is part of our client portfolio rebalancing as we want to focus on serving bigger customers who are market leaders as well as the high-growth companies, ” Chow said in an interview.

Its client list includes online shopping firm, delivery firm Dada Nexus, reproductive services provider Jinxing Fertility, cancer drug maker Alphamab Oncology with many more in its pipeline of initial public offerings.

Deloitte will hire a net 2,300 more people in China, including about 300 in Hong Kong, this year, boosting its headcount to about 20,000 within the 24 offices in the mainland, Hong Kong and Macau from about 18,000, he said.

Deloitte’s strategy mirrors the local market, which expanded its listing regime in 2018 to welcome new economy companies with multiple classes of shares and biotech firms with no revenue.

The bourse has been rolling out the welcome mat for US-listed mainland Chinese tech firms to decamp to Hong Kong due to the increasingly tense relationship between the US and China. and gaming giant NetEase have already applied for a secondary listing in the city.

Deloitte is also fast developing its advisory businesses and it sees growth throughout China, especially during these challenging times, he added.

To be sure, not all of these fast-growing businesses pay handsomely, on time and sometimes not at all. Deloitte Advisory (Hong Kong) is suing a subsidiary of debt-ridden Chinese conglomerate HNA Group, claiming HK$4 million (US$515,952) in unpaid fees, according to a court document. Deloitte declined to comment while HNA did not respond.

The risk of clients failing to pay their bills is rising as both mainland China and Hong Kong face their worst economic slump in decades as a result of the Covid-19 pandemic.

In addition, bankers and professional firms face the risk of becoming embroiled in corporate governance scandals. Lenders led by Credit Suisse are targeting the family assets of Luckin Coffee chair Lu Zhengyao as they try to recoup losses on more than $500 million (HK$3.9 billion) in margin loans that soured after the company became embroiled in an accounting scandal.

Chow, a 56-year-old father of two daughters, was appointed as China chair of Deloitte on Monday, replaced Philip Tsai Wing-chung who retired.

A Deloitte lifer, Chow joined the firm 34 years ago in Britain, after graduating from the University of Birmingham. He is following in the foot steps of his father, who was the chief accountant of Green Island Cement (Holdings).

He returned to Hong Kong in 1992, a year before Chinese companies started to list here. He was auditor of firms including Sun Hung Kai Properties, the largest developer of Hong Kong in terms of market value.

Before being appointed as chair, Chow was Deloitte’s managing partner for the south of China since 2017, during which he has expanded the firm’s auditing and advisory services substantially in the Greater Bay Area. The bay area includes Hong Kong, Macau and nine cities in Guangdong which Beijing wants to turn into a significant economic cluster.

“The Greater Bay Area, with a population of 65 million and a large number of potential start-ups and wealthy billionaires, will have a lot of business opportunities for Deloitte,” he said.


Category: Hong Kong

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