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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Michelle Quah
18 March 2014
The Singapore Exchange’s (SGX) recent attempt to enhance its regulatory might was put to its first major test this past week, when Temasek Holdings made an offer for Olam International. The jury is still out on how effective SGX’s new rule is, but the incident has definitely highlighted its practical issues.
The rule in question requires listed companies to notify SGX on a confidential basis if they are in discussions that could lead to a takeover. It was one of several new rules that came into effect on March 3, as part of SGX’s attempt to “enhance its regulatory tools in line with international standards”.
SGX brandished the new rule on Sunday, in its response to criticisms in the media as to why it, as regulator, failed to query the unusual leap in Olam’s share price in the lead-up to the offer announcement.
In what might be seen by some as an attempt to diffuse the attention on SGX, the regulator started off its response by reminding the market that parties to a takeover shared some responsibility, too. It stressed “the responsibilities placed on potential offerors and/or listed companies when they are in confidential discussions that may lead to a potential takeover offer”.
It brought up its new March 3 rule, which states that companies are “required to notify SGX where its board is, either aware of discussions or negotiations of a potential proposal, or in discussion or negotiation on an agreement or document which may lead to a takeover, reverse takeover or a very substantial acquisition by the company”.
“SGX will keep such notifications confidential”, the rule added.
SGX’s decision to bring up the rule, as the starting point of its response, is a curious one. For one, it has the undesirable effect of suggesting that such a rule was not followed, and can be considered to be a rather unfair remark to make at this point, given that Temasek and Olam - bound by takeover rules - cannot confirm or deny that they have informed SGX. Market participants are left none the wiser as to what actually happened.
For another, it highlights the practical difficulties of enforcing and of complying with this rule - concerns that surfaced among listed companies when the rule was first announced.
From the listed companies’ point of view, there is great uncertainty as to how exactly they are expected to comply; SGX’s Practice Note 7.2 (on this matter) gives little guidance beyond what the rule states. Questions which many have - that remain unanswered - include:
Practice Note 7.2 says this is “when the board of an issuer is:
i) made aware of discussions or negotiations on a potential proposal; or (ii) in discussion or negotiation on an agreement or document, whether binding or non-binding”.
This encompasses a whole range of stages: when an expression of interest is first made; when a preliminary offer is put on the table; or when an irrevocable agreement has been entered into. A deal can also fall apart at any point, with the greater possibility occurring when discussions are at a very preliminary stage. So, would it be relevant, timely and useful for SGX to be informed at the first instance that the board is, if this occurs at the most preliminary stage, or only when discussions are more definite?
If takeover talks are amicable, should all parties involved inform SGX at the same time, so that one party isn’t left looking like it shirked its duty?
What if the takeover attempt is a hostile one? Should the acquirer announce its intentions to SGX before making its move? It is commonly accepted that the element of surprise is a critical one in hostile takeovers, so one wonders how SGX’s rule can be practically adhered to in this case - for example, how much in advance should such a notification be made?
SGX’s Practice Note - which states that, “where the discussions or negotiations are carried out by a controlling shareholder of the issuer and without the knowledge of the issuer, that controlling shareholder shall (through their advisers or otherwise) notify the Exchange directly if the discussions or negotiations are likely to result in the above transactions (takeover or reverse takeover of issuer, or very substantial acquisition by issuer)” - doesn’t quite answer the question.
SGX’s Practice Note sets out a simple template of information that needs to be provided in such notifications, including name of issuer, type of transaction, etc. It says notifications should be emailed to privylist@sgx.com. It does not, however, say who mans this email account. So, an issuer does not know if it is a junior or senior officer, a small group of people or an entire department, who will have access to this sensitive information or how secure this email account is.
And, should a deal break in the middle of the night, mere hours before an issuer intends to publicly announce it, would sending off an email to this account - when one doesn’t know if it is manned at all hours of the day and night - suffice as a proper notification?
The assumed answer to this question is, “very” - as in, every single person who could possibly have knowledge of this deal, including the tea lady who might happen to walk in on discussions in the conference room. If so, it would mean very detailed record-keeping for the entities involved.
These are some of the practical issues listed companies have to wrangle with. What of SGX’s enforcement of the rule?
It is unclear, at this stage, how SGX intends to deal with the companies that do not comply with the rule; for example, what are the punitive actions it can/will bring against companies that fail to notify the Exchange?
It is also unclear - based on the aforementioned challenges faced by companies - what exactly constitutes non-compliance. Would non-compliance be notifying a day late, or at the wrong stage, or leaving a name out of the privy list?
It is also unclear how SGX intends to use the information given to it, to improve its monitoring of trading activities. For example, in the event of a seeming information leak, one assumes the Exchange would use the privy list to question everyone who might have knowledge of the deal. Or it might use the notification email to try to determine when such information became known to which set of people.
Its effectiveness, however, would depend very much on the accuracy of the information provided - which SGX might not have a way of verifying.
This is not to say that SGX has been remiss in its duty as a regulator; as with every new rule or legislation, greater clarity and understanding always comes with time - seeing how it is implemented, and through observing test cases.
In this case, the Temasek-Olam deal has served as a reminder of the need for greater clarity on this rule, to enable the market and its regulator to benefit from it.