TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issu...
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By R SIVANITHY
24 June 2011
How is it that fundamentally good companies are delisting from the Singapore Exchange (SGX) or seeking a dual listing elsewhere while S-chips, tainted by dubious accounting and governance practices, are still listed and in many cases enjoyed rises to record highs over the past few years?
Is it really good enough to shrug off this anomaly as one of those supposedly infrequent instances when the market mechanism fails, when irrational investor exuberance and unpredictable emotional frailties overcome logic?
Or should more be done to redress this imbalance, to enable the mechanism to function as it should, channelling scarce resources to their best possible uses?
Over the past few years, financially sound and profitable companies like Soilbuild, MCL Land, Allgreen Properties and Pertama have either departed SGX or are in the process of going private. Oil and gas firm KS Energy is currently being taken over and although the buyers have indicated they will keep the company listed, it remains to be seen for how long.
Many others have either successfully sought a dual listing in Hong Kong or Taiwan, or are in the process of applying, a move which is widely seen as a precursor to an eventual SGX delisting.
This is a ‘hollowing out’ of the local market which resembles the exodus in the late 1990s when top-class contract manufacturers like NatSteel Electronics, NatSteel Broadway, Omni Mould and JIT were taken over and privatised by large foreign interests, creating a void which the local market has never been able to properly fill.
However, although both periods share some similarities, there is a significant difference.
The delistings of the 1990s were motivated by a desire by external parties to grow and acquire Asian manufacturing expertise as quickly as possible. In contrast, the present spate of privatisations/delistings is motivated by frustration and disillusionment at being persistently undervalued and having to suffer poor liquidity.
Instead of the entry of powerful external parties willing to pay hefty premiums for control, this time it’s incumbent shareholders who see no more virtue or value in remaining listed and who are paying depressed prices to walk away from the public eye, albeit at prices that are slightly elevated from the prevailing market.
This is a disconcerting turnaround from conventional thinking, where gaining a listing was akin to acquiring a corporate badge of honour, a stamp of respectability that commanded a premium in the market. So how has it gone so wrong in the space of a decade?
The answer lies in the failure of the existing approach to regulation. In his excellent ‘Measuring the Effectiveness of Different Corporate Governance Systems: Towards a More Scientific Approach’, Cornell Law School’s Jonathan Macey states: ‘If a corporate governance system is functioning well, then all other things being equal, public markets for capital should function well. Firms will be eager to go public since doing so provides a low-cost method of funding projects.
‘On the other hand, if the corporate governance system is not disciplining managers effectively, entrepreneurs will not be able to make credible commitments to outside investors that the latter will be treated fairly after their initial investments have been made ... thus where a corporate governance system is not functioning well, there will be relatively few public offerings’. (In ‘The Revolution in Corporate Finance, fourth edition 2003, Stern & Chew eds).
By the same token, it is also a sign of malfunctioning governance (some might argue monumentally so) that third-rate China companies with dodgy financials and shady accounting could have qualified for a listing here and see their stock prices shoot upwards after listing while solid companies are queueing up to exit the market at discounted prices.
A revamp of present governance arrangements should start by questioning everything, starting with whether the market-based regulatory model has really served its purpose, or whether it has created a regime that is too lax and over-eager for business while unfairly favouring the big players to the detriment of retail customers.
It should question the rationale of a listed regulator, the idea of which has never sat comfortably with most observers (outside of SGX). It should ask how it is that no one has yet been held accountable for the S-chip fiasco, where some of the developments are so farcical that they defy belief. It should ponder heftier fines and greater penalties for those who failed in discharging their fiduciary duties.
It should consider amending the rules to set a definite timeline for updating the market on results of investigations, particularly those involving suspended stocks, instead of the present practice where stocks can remain in limbo for years with zero information.
In short, if a listing is to be held in the high regard it once was, it’s time to include ‘sellers beware’ in the regulatory culture. If not, it’s hard to see many buyers returning to the market in a hurry.