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Monday 16 March 2009
SGX has to beef up its gatekeeper role
Until there is a solution to this cross-border problem, investors are likely to continue to treat S-chips with caution, given the ‘heads you win, tails I lose’ situation it produces.
Investing early in a blue chip company is probably the nearest most of us will get to having a licence to print money.
Many have heard tales of those who got rich subscribing to Singapore Airlines’ (SIA) shares when it listed in 1986.
Despite the market crash, an investor who sank $1,000 into SIA back then would still be up by $2,400 today - and that is not including the dividends collected over the years.
So it was no surprise that newly listed firms with businesses in fast-growing markets like China were snapped up like hot cakes during the recent boom years.
But dreams of riches are fast turning into a nightmare. The past two weeks have been hellish for small investors as the S-chip sector - as China plays are known here - was hit by one scandal after another.
Two S-chips - Fibrechem Technologies and education play Oriental Century - have been suspended from trading over alleged accounting irregularities.
Problems plaguing bosses at another two S-chips, Beauty China and Sino-Environment, are threatening the financial health of both companies.
And three independent directors of Guangzhao Industrial Forest Biotechnology walked out on March 6, complaining that they were unable to effectively discharge their duties. The stock had been suspended from trading since last September.
With this state of affairs, it is not surprising to find that even tough-hearted believers in Singapore Exchange’s (SGX) disclosure-based regime are doubtful if insistence on mere disclosures is sufficient to cope with the challenges thrown up by the S-chip sector.
Sure, light-touch regulations and market forces were fine when things were booming. But the concern is that these mantras - chanted by investment bankers and stockbrokers in their zest for more business - now look like false idols.
Older financial journalists here have argued for more regulation, not less, as they have reported on their fair share of scams and scandals.
But it would be unfair to lay the blame squarely on the SGX for loosening the floodgates to allow companies of all complexions to list here in its quest to become the ‘Asian gateway’ for investors.
The SGX has tightened its rules considerably over the years.
After China Aviation Oil’s (CAO) US$550 million (S$844 million) trading loss, it made directors more accountable by forcing them to issue a ‘negative confirmation’ that there was nothing amiss with each release of a company’s interim results.
To ensure that merchant bankers keep a high standard on new listings, the SGX implemented a ‘name and shame’ policy by requiring newly listed firms to disclose the name of their sponsor during the first two years on the exchange.
It has also required companies to disclose the reasons for any departure of top management in order to allay investor fears that something might be amiss.
And professional managers who failed to play by the rules have been punished. These include Yip Hwai Chong, the former chief financial officer of Accord Customer Care Solutions, and Peter Lim, CAO’s former finance head. Both were jailed for white-collar crimes at their firms.
Two former independent directors of freight forwarder AirOcean were among the four people charged last August with consenting to the company making a misleading statement to the SGX.
But observers felt these measures also bred a certain cynicism among the professionals, sparking a high turnover among chief financial officers who would rather leave in haste than be caught out by any impending scandal.
They suggested that the SGX tackle the issue at its source and assess how it can beef up its gatekeeper role to ensure that only top-notch firms list here.
As SGX director Robert Owen once noted, the financial consequences of listing a company that later created problems could be horrendous.
The money spent sorting out the mess would far exceed the listing fees SGX would have collected, and that was not including the damage to its reputation.
True, the SGX is not a master of all trades and it would have to continue to rely on merchant banks to sieve potential listing candidates.
But a company should not be allowed to list simply because a merchant bank vouches for it and all the risk factors associated with its management and business have been disclosed in the prospectus.
Surely, posting a draft prospectus on the Monetary Authority of Singapore’s website and relying on feedback from the public is an insufficient check on a listing candidate.
The SGX must devise ways to make errant bosses of overseas-based companies accountable rather than tiptoe around the problem, as it does now, by putting the onus on the professionals and independent directors to keep them in check.
It scored an early success when former CAO chief executive Chen Jiulin returned here from Beijing voluntarily to face the music.
But Singapore has no extradition treaty with China, so there will be difficulties getting a wayward boss to face the music here, even if he readily confesses to cooking the books, as Oriental Century chairman Wang Yuean allegedly did.
Most of these China-based bosses do not own assets such as houses here. This makes it almost impossible for an investor to get any form of redress by suing them in the event of a financial misdeed.
There is also the problem of how to deal with listed firms incorporated in foreign jurisdictions such as Bermuda, where the Companies Act does not apply.
China waste-water treatment firm Bio-Treat Technology provided a glimpse of some of the cross-border problems.
Two years ago, former chairman Wing Hak Man came here alleging that his shares had been fraudulently transferred out of his name.
But the High Court told him last month that it was not appropriate for him to start proceedings against Bio-Treat here as its operations are abroad and the parties he is suing are non-Singaporeans.
Until there is a solution to this cross-border problem, investors are likely to continue to treat S-chips with caution, given the ‘heads you win, tails I lose’ situation it produces.
1 comment:
SGX has to beef up its gatekeeper role
Goh Eng Yeow, Straits Times
16 March 2009
Investing early in a blue chip company is probably the nearest most of us will get to having a licence to print money.
Many have heard tales of those who got rich subscribing to Singapore Airlines’ (SIA) shares when it listed in 1986.
Despite the market crash, an investor who sank $1,000 into SIA back then would still be up by $2,400 today - and that is not including the dividends collected over the years.
So it was no surprise that newly listed firms with businesses in fast-growing markets like China were snapped up like hot cakes during the recent boom years.
But dreams of riches are fast turning into a nightmare. The past two weeks have been hellish for small investors as the S-chip sector - as China plays are known here - was hit by one scandal after another.
Two S-chips - Fibrechem Technologies and education play Oriental Century - have been suspended from trading over alleged accounting irregularities.
Problems plaguing bosses at another two S-chips, Beauty China and Sino-Environment, are threatening the financial health of both companies.
And three independent directors of Guangzhao Industrial Forest Biotechnology walked out on March 6, complaining that they were unable to effectively discharge their duties. The stock had been suspended from trading since last September.
With this state of affairs, it is not surprising to find that even tough-hearted believers in Singapore Exchange’s (SGX) disclosure-based regime are doubtful if insistence on mere disclosures is sufficient to cope with the challenges thrown up by the S-chip sector.
Sure, light-touch regulations and market forces were fine when things were booming. But the concern is that these mantras - chanted by investment bankers and stockbrokers in their zest for more business - now look like false idols.
Older financial journalists here have argued for more regulation, not less, as they have reported on their fair share of scams and scandals.
But it would be unfair to lay the blame squarely on the SGX for loosening the floodgates to allow companies of all complexions to list here in its quest to become the ‘Asian gateway’ for investors.
The SGX has tightened its rules considerably over the years.
After China Aviation Oil’s (CAO) US$550 million (S$844 million) trading loss, it made directors more accountable by forcing them to issue a ‘negative confirmation’ that there was nothing amiss with each release of a company’s interim results.
To ensure that merchant bankers keep a high standard on new listings, the SGX implemented a ‘name and shame’ policy by requiring newly listed firms to disclose the name of their sponsor during the first two years on the exchange.
It has also required companies to disclose the reasons for any departure of top management in order to allay investor fears that something might be amiss.
And professional managers who failed to play by the rules have been punished. These include Yip Hwai Chong, the former chief financial officer of Accord Customer Care Solutions, and Peter Lim, CAO’s former finance head. Both were jailed for white-collar crimes at their firms.
Two former independent directors of freight forwarder AirOcean were among the four people charged last August with consenting to the company making a misleading statement to the SGX.
But observers felt these measures also bred a certain cynicism among the professionals, sparking a high turnover among chief financial officers who would rather leave in haste than be caught out by any impending scandal.
They suggested that the SGX tackle the issue at its source and assess how it can beef up its gatekeeper role to ensure that only top-notch firms list here.
As SGX director Robert Owen once noted, the financial consequences of listing a company that later created problems could be horrendous.
The money spent sorting out the mess would far exceed the listing fees SGX would have collected, and that was not including the damage to its reputation.
True, the SGX is not a master of all trades and it would have to continue to rely on merchant banks to sieve potential listing candidates.
But a company should not be allowed to list simply because a merchant bank vouches for it and all the risk factors associated with its management and business have been disclosed in the prospectus.
Surely, posting a draft prospectus on the Monetary Authority of Singapore’s website and relying on feedback from the public is an insufficient check on a listing candidate.
The SGX must devise ways to make errant bosses of overseas-based companies accountable rather than tiptoe around the problem, as it does now, by putting the onus on the professionals and independent directors to keep them in check.
It scored an early success when former CAO chief executive Chen Jiulin returned here from Beijing voluntarily to face the music.
But Singapore has no extradition treaty with China, so there will be difficulties getting a wayward boss to face the music here, even if he readily confesses to cooking the books, as Oriental Century chairman Wang Yuean allegedly did.
Most of these China-based bosses do not own assets such as houses here. This makes it almost impossible for an investor to get any form of redress by suing them in the event of a financial misdeed.
There is also the problem of how to deal with listed firms incorporated in foreign jurisdictions such as Bermuda, where the Companies Act does not apply.
China waste-water treatment firm Bio-Treat Technology provided a glimpse of some of the cross-border problems.
Two years ago, former chairman Wing Hak Man came here alleging that his shares had been fraudulently transferred out of his name.
But the High Court told him last month that it was not appropriate for him to start proceedings against Bio-Treat here as its operations are abroad and the parties he is suing are non-Singaporeans.
Until there is a solution to this cross-border problem, investors are likely to continue to treat S-chips with caution, given the ‘heads you win, tails I lose’ situation it produces.
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