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
Comments
R Sivanithy
18 September 2014
Earlier this year, a listed company here embarked on a non-underwritten rights issue to raise money for investment and working capital and, presumably to enhance the attractiveness of the offer, its announcements on the rights issue highlighted the fact that the company’s substantial shareholder had given an “irrevocable” undertaking to fully subscribe to its portion.
The Encarta World Dictionary gives the meaning of “irrevocable” as “not able to be revoked, undone or changed”, so it appeared that no matter what, the substantial shareholder would have had to fully take up its share.
Put another way, the company appeared to be guaranteed several million dollars from its biggest single shareholder which, it has to be said, had to be confidence-boosting to other shareholders pondering whether to take up their rights.
However, when the exercise was completed, it emerged that the substantial shareholder had only subscribed to about one-third its original allotment because of a clause in the offer information statement which said that if that shareholder ended up with more than 30 per cent of the company’s shares post-rights, the shareholder’s portion would be scaled back to below 30 per cent so as to avoid triggering a takeover.
Technically and legally, no rules were broken. Moreover, no one would reasonably begrudge excusing the substantial shareholder from the onerous burden of having to launch a mandatory takeover offer just because it contributed cash to help the company.
But the point to note here is that an “irrevocable” undertaking did not really live up to its billing as being “unchangeable” since it actually was changed.
It is important to address this because, in a disclosure-based regime, it is crucial that words carry the correct meanings.
Consider, for example, that there is no recourse for shareholders who may originally have been undecided as to whether to subscribe to the rights, but then were swayed by the idea that a substantial shareholder apparently had enough faith in the company to pump in several million dollars, only to find that the actual amount that shareholder paid was much less than thought.
Might public interest and the spirit of disclosure have been better served if, instead of the misleading word “irrevocable”, the original rights announcements had said upfront that the substantial shareholder had given a “conditional guarantee” to fully take up its rights, the condition being that the proportion would be scaled back if the shareholder ended up holding more than 30 per cent of the company?
We think so, for the simple reason that companies should be made to use the correct words when asking the public for money. The word “irrevocable” with its connotation of being immutable and cast in stone should not be permitted if there is a subsequent escape clause, and all the more so if that clause is disclosed in a separate document despatched to shareholders later.
As noted above, “conditional guarantee” would better capture the company’s intent as well as the obligation of the substantial shareholder - provided, of course, that the condition is also clearly explained right at the start.
Meanwhile, retail investors should note that when a rights issue is not underwritten, there is always a possibility that it could be heavily undersubscribed, in which case any promises and apparently unshakeable undertakings previously given by prominent shareholders could be changed. Until the rules require the correct words to be used, it’s best to note that in the stock market, there are no guarantees.