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 issue manager
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FRANKIE HO
15 November 2013
The dust has yet to settle after the collapse last month of Blumont Group, Asiasons Capital and LionGold Corp, but at least one brokerage firm initially said to have suffered substantial losses from trades linked to the stocks has disclosed its exposure.
AmFraser Securities had “gross exposure” of about RM120 million ($46.7 million) to the three counters, according to a Nov 12 statement from its Malaysian parent AMMB Holdings, also known as AmBank. “The recovery efforts are progressing to expectations and we have proactively provided RM40 million, well in advance of regulatory requirements,” said the bank. It added that it was comfortable with its current position and had retained its FY2014 financial guidance.
But while AmBank appears to be taking the fallout from the stock crash in its stride, observers say management changes are expected at the stock broking firm as the group seeks to beef up its risk management in the wake of the Oct 4 meltdown. AmFraser Securities is a direct subsidiary of Amlnvestment, a unit of AmBank. AmBank’s website lists Ho Chee Kin as managing director and CEO of AmFraser Securities.
According to people with knowledge of the matter, Ho was interviewed by the authorities more than a week ago as part of an investigation by the central bank and the Singapore Exchange into the trading activities surrounding the three stocks. The Monetary Authority of Singapore (MAS) said late last month that the incident had raised broader issues regarding the market’s structure and practices, which it and SGX intend to review and change if necessary.
“[Ho] was questioned on why AmFraser was so aggressive in opening up its credit lines. He basically told the regulators that it was for business development purposes,” says one of the people familiar with the situation.
Another person, who works at AmFraser, says it was incredulous that the firm was willing to take such risks, given that the massive run-up in the stock prices over a relatively short period was not backed by any significant improvement in the companies’ underlying fundamentals.
“Even if you go to the casino, they don’t simply extend that kind of lines to you; what more a broking house,” this person says. “How in the world did [those investors] get that kind of lines? The decision to open those lines was definitely not from the Malaysia office. Malaysia left it to Singapore.” AmFraser staff and traders have so far not been told of any management changes though, according to this person. AmBank and Ho did not respond to queries from The Edge Singapore.
Over at Phillip Securities, another house rumoured to have large contra positions in Blumont, Asiasons and LionGold, insiders say instalment plans have been made available to remisiers with clients who have problems paying up.
While broking houses and investors nurse their wounds, the blame game continues as aggrieved parties struggle to come to terms with the fallout. UOB Kay Hian is among those accused of contributing to the demise of the trio. Before the crash, the firm had slapped trading curbs on a bunch of stocks with highly volatile behaviour, including Blumont, Asiasons and LionGold. It has also been accused of attempting to get other brokerage firms to restrict trading on similar counters.
“We did call up a few other houses before the crash, but not to ask them to designate the stocks. Rather, it was to find out what they were doing in terms of protecting themselves as the penny stocks continued to run up strongly,” says an insider at UOB Kay Hian.
In any case, perhaps spooked by the crash, other houses like DMG & Partners and Lim & Tan have since followed in the footsteps of UOB Kay Hian to introduce trading curbs on various small-cap stocks.
Even the Securities Investors Association (Singapore), the supposed champion of retail investors’ rights, has drawn flak from some quarters. Its president, David Gerald, issued a statement on Oct 1 urging the authorities to investigate Blumont’s massive price rally since the start of the year. Gerald’s call came after SGX issued an unusually detailed query on the same day regarding the stock’s strong run-up over the months.
“Rumours that the CAD [Commercial Affairs Department] and MAS were knocking on the doors of these companies and broking houses started flying after Gerald made those comments. The next thing you know, the crash happened,” says an analyst, who declines to be named.
Double standards?
Some investors, meanwhile, are still fuming over the way SGX handled the situation, noting that it did nothing beyond querying the three companies about the huge run-up in their share prices before the crash. Citing the erratic behaviour of Sky One Holdings’ shares on Oct 28 and the lack of follow-up action by SGX beyond its standard query, these investors now claim double standards on the part of the regulator.
Like the trio, Sky One plummeted on heavy volume in early trade, prompting a query from SGX barely an hour after the opening bell. SGX did not suspend trading though. Instead, the logistics service provider sought and was granted a trading halt. And, unlike the three stocks, SGX did not prohibit short-selling and contra trading on Sky One, which resumed trading in the afternoon after the company said it was not aware of any reason for the sharp fall. By the end of the trading session on Oct 28, the stock was down 80%.
In its defence, SGX said two days later that not all sharp price movements warrant a trading suspension and designation, and that its review of the circumstances surrounding Sky One’s price movement found it posed no threat to “fair, orderly and transparent trading”.
As investors attempt to pick up the pieces, the companies in question, too, are trying to soldier on. Certain deals have already been called off because of the deflated share prices, but progress is still seen on other fronts.
LionGold, for one, reported on Nov 13 a 40% increase in projected gold resources at its mine in Bolivia. On its part, Blumont said on Oct 18 it had secured funding of US$200 million ($250 million) from New York-based hedge fund Platinum Partners through a sale of redeemable convertible bonds. Blumont will invest the proceeds in Australia-listed copper producer Discovery Metals.
Still, general investor interest in these stocks is likely to remain low in the foreseeable future. If anything, the shares may even head lower as the companies have just issued a weaker business outlook intheir most recent quarterly results announcements released this month.
Blumont, which earned $33.7 million in the September quarter on the back of fair-value gains on financial assets, expects a loss in the current quarter, citing expected fair-value losses in its equity investments in Singapore and Malaysia because of recent market volatilities. Its equity holdings include small stakes in LionGold and Asiasons.
LionGold, which booked a net loss of $47.8 million in the September quarter because of fair-value losses on financial assets, expects fluctuations in gold prices to affect its top line.
Asiasons expects to book a fair-value loss of $106 million in the three months to December because of the sharp fall in value of some of its equity investments in October. The private equity firm, which counts LionGold as one of its investee companies, says fund-raising activities in the coming months may be tougher as a result of its weakened share price. Asiasons earned $33.4 million in the September quarter, driven by fair-value gains in its portfolio of investments. It had a net loss of $5.7 million a year earlier.