SGX silence over China Sky about-face too deafening
Worry is, move may send wrong signals; with implications for S-chip governance
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Worry is, move may send wrong signals; with implications for S-chip governance
By LYNETTE KHOO
18 January 2012
Market watchers and shareholders of China Sky Chemical Fibre expressed disappointment at the lack of information surrounding the sudden withdrawal of court action by the Singapore Exchange (SGX) against China Sky.
There are also concerns that the pull-back may send the wrong signals and have wider implications for the governing of S-chips, which now number close to 150.
‘Frankly, I don’t think this sends the right signals,’ said a local restructuring specialist who declined to be named. ‘It is important that the authorities take a tough stance on companies that misbehave.’
David Gerald, president of Securities Investors Association of Singapore (SIAS), noted that the turn of events at China Sky ‘is not helpful’ for shareholders who remain trapped in the suspended counter.
‘Information is not flowing into the marketplace,’ he said. ‘Shareholders need to know what is happening.’
After a closed-door court hearing on Monday, SGX said that it had withdrawn its summons filed on Jan 6 in their entirety.
The dramatic U-turn followed an unprecedented move by SGX to ask the court to enforce its directives after China Sky refused to appoint special auditors to investigate certain transactions.
In its court application, SGX also wanted China Sky to appoint at least two independent directors (IDs) as all three IDs of the group had stepped down, fill the vacancies in its audit committee, and obtain SGX’s approval before appointing any director.
SGX said on Monday that its lawyers from WongPartnership and China Sky’s lawyer, Asia Ascent, had met and that the latter was seeking further instructions from China Sky.
No further explanation was given for SGX’s withdrawal of court action, while lawyers present at the court hearing on Monday were under a gag order that prohibited them from speaking to the media.
The reversal of events caught market watchers by surprise, many of whom felt that some explanation was in order.
Mr. Gerald said the statements issued by SGX on Monday shed little light on the new development while China Sky has not said if it would comply with SGX’s directives.
‘If SGX and the company have worked out a mutually agreed course of action to resolve the issues which had been earlier flagged, the market should be informed of the status as soon as possible, and, thereafter, the company should be permitted to resume trading,’ said Robson Lee, corporate lawyer and deputy secretary of SIAS.
When contacted, SGX declined to comment, saying that it ‘will take all necessary steps and measures to obtain compliance with its listing rules in the best interest of the investing public’.
Mano Sabnani, who holds shares in China Sky and a few other S-chips, said that while he does not agree with the merits of a special audit for China Sky, SGX’s dropping of the lawsuit has broader implications on investing in S-chips.
‘It is a negative signal to investors,’ said Mr. Sabnani, who felt that the exchange’s only clout is to delist defiant issuers. But a delisting could lead to an unfavourable exit offer, if any, for shareholders, he added.
Mr. Sabnani noted that the policy of wooing foreign listings needs a relook given the complex regulatory issues for companies that are listed in Singapore, have their operating assets based overseas, but are registered in yet another jurisdiction.
China Sky, whose operating assets are in Fujian province, is incorporated in the Cayman Islands while its three operating subsidiaries are held under a British Virgin Islands (BVI) company.
As early as 2003, market observers had cautioned against the hype attached to China plays registered in places such as BVI, Bermuda and the Cayman Islands, given concerns about shareholders rights and whether these companies are subject to the same company laws as other listed companies incorporated locally.
This may further weigh on the valuation of S-chips, which trade at around 0.7 times price-to-book, below the historical mean of 1.4 times. The sector’s 2009 trough valuation was around 0.58 times price-to-book, he said.
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