SGX regulations shake-up for listed companies
Move an attempt to beef up corporate governance in wake of S-chip scandals
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Move an attempt to beef up corporate governance in wake of S-chip scandals
By Yasmine Yahya
15 September 2011
Singapore-listed companies will soon have to tell the market if there is a risk that a major shareholder’s share pledging agreement could lead to a breach of the firm’s loan contracts.
This is just one of a slew of new listing rules the Singapore Exchange (SGX) will be implementing on Sept 29, in a bid to strengthen corporate governance practices and foster greater disclosure of material information.
Back in 2009, several China-based firms listed in Singapore, or S-chips, including Beauty China and Sino-Environment Technology Group, landed in hot water because of share pledging made by their major shareholders.
At Sino-Environment, for example, major shareholder Sun Jiangrong had pledged his 56 per cent stake in the firm, plus other assets, to get a loan of $120 million from hedge funds.
When he had difficulties repaying, the hedge funds threatened to sell the shares. This move led to the early redemption of the firm’s convertible bonds. One condition by the bondholders was that there be no change in controlling interest. It was a similar story at other S-chips, with varying stake sizes involved.
But from late this month, firms will have to notify the SGX and investors if a major shareholder has entered into a share pledging agreement which may come into conflict with the company’s own loan arrangements.
Among the other changes is another inspired by the spate of S-chip scandals - those seeking to list here must disclose the identity of their legal representatives or persons of equivalent authority. The company will have to describe this person’s powers and responsibilities, any risks that might exist in relation to his appointment and a description of the procedures it has in place to mitigate these risks.
The firm will also have to disclose if there might be any impediments to removing the representative if the need arises, and if it has adequate processes to overcome such obstacles.
Companies already listed will have to make a public announcement any time they appoint or change their legal representative.
The position of the legal representative is one that is common at many Chinese firms. Under Chinese law, the company boss is also usually the ‘legal representative’, a person with vast authority to execute agreements, transfer assets such as cash and land, and provide guarantees on the firm’s behalf - all without any board oversight.
Firms must tighten internal controls
Some S-chips here have had problems with rogue legal representatives for their Chinese subsidiaries and have also found it almost impossible to remove them.
Under the new rules, companies must disclose whether any of their independent directors have been appointed to the board of their principal subsidiaries based outside Singapore.
Firms must also have a robust and effective system of internal controls that addresses financial, operational and compliance risks.
Mr. Basil Chan, who serves as an independent director at several firms, said the rule will motivate smaller companies to tighten their internal controls. ‘Smaller companies are not always the most successful but they can still be listed. Sometimes they have tight cash flow situations, so the business considerations come first and always internal controls are not put at the forefront although they should be.’
The chief financial officer of BH Global Marine, Mr. Keegan Chua, said most of his company’s practices already coincide with the new rules. While these rules will go some way towards addressing the gaps in corporate governance at some listed firms here, he says, they would not be able to eradicate future financial scandals stemming from previously unknown loopholes.
‘I think rules are rules, but at the end of the day it depends on the individuals,’ notes Mr. Michael Gray, an independent director at two locally listed firms.