SGX’s move signals to firms that vague replies are unacceptable, say lawyers and experts
Alvin Foo, Straits Times 19 March 2009
Companies here are likely to respond to market speculation with more forthright and precise answers, after the Singapore Exchange (SGX) reprimanded Neptune Orient Lines (NOL) over its tardy response to market talk of a rights issue.
That was the view of lawyers and corporate governance experts who assessed the likely impact of NOL being rapped over the knuckles on Tuesday night.
Public statements failing to directly address issues swirling around a nervous market are unacceptable, they said.
It is unhealthy for a company to bury its head in the sand, especially in an uncertain climate, as the market could make wrong assumptions, they added.
The SGX said the shipping giant had breached listing rules by failing to ‘sufficiently clarify or deny market speculation of a possible rights issue’.
NOL’s share price plunged last week after speculation of a US$250 million (S$383 million) rights issue surfaced in a Dow Jones report.
Initially, NOL responded to the market talk with a vague statement that did not rule out a rights issue. Finally, last Friday, it stated clearly that it would not turn to its shareholders to raise funds.
‘The SGX is sending a timely message to all companies that announcements which do not address the crux of rumours are unacceptable,’ said corporate governance advocate Mak Yuen Teen.
Drew & Napier director Marcus Chow said: ‘It serves as a warning to other companies to properly manage price-sensitive information in order to avoid leakages.’
While the SGX’s move will be beneficial for the market as it increases transparency, it could also make it more complicated for companies to execute transactions.
Some industry players said the mounting pressure for clearer disclosure could create an additional burden for companies already struggling with the credit crunch and shrinking bottom lines.
‘It will make it more challenging for companies to keep the integrity of transactions while satisfying listing requirements,’ said a lawyer who declined to be named.
So how should companies respond to market speculation?
‘The key is to be forthright,’ said Professor Mak, a co-director of the Corporate Governance and Financial Reporting Centre at the National University of Singapore Business School.
‘In the current environment especially, not being open and transparent is likely to hurt a company. If you issue a boilerplate statement, the market will probably assume the worst.’
For instance, if the company is exploring its options, it should come out and say so, said Singapore Management University associate professor of finance Jeremy Goh.
He added that the company could say: ‘We are considering that possibility, but it is too early to officially announce it to the public. If we have a final decision and board approval, we will call a press conference to make the announcement.’
The SGX’s reprimand should also send a reminder to companies to raise the bar regarding confidentiality.
They can implement several practical measures to maintain the secrecy of price-sensitive deals, said Mr. Chow of Drew & Napier.
Companies could keep working groups small, use code names, extract confidentiality covenants from staff, and restrict access to documents to prevent leaks.
The SGX’s action will have ‘major implications for other companies’ in that they will have to be ‘more responsive’ to rumours, said Prof Goh.
Independent director Robson Lee, a lawyer at Shook Lin & Bok, said the SGX’s reprimand of NOL will make him ‘more vigilant’. He will remind the management of those companies he sits in of the need to react in a ‘clear, unequivocal manner’ to market rumours.
However, Prof Mak felt more public reprimands may be needed before the SGX’s message is heeded.
He added: ‘Perhaps there needs to be more serious consequences and sanctions for companies that persist in doing so.’
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‘Clearer responses likely’ after NOL rap
SGX’s move signals to firms that vague replies are unacceptable, say lawyers and experts
Alvin Foo, Straits Times
19 March 2009
Companies here are likely to respond to market speculation with more forthright and precise answers, after the Singapore Exchange (SGX) reprimanded Neptune Orient Lines (NOL) over its tardy response to market talk of a rights issue.
That was the view of lawyers and corporate governance experts who assessed the likely impact of NOL being rapped over the knuckles on Tuesday night.
Public statements failing to directly address issues swirling around a nervous market are unacceptable, they said.
It is unhealthy for a company to bury its head in the sand, especially in an uncertain climate, as the market could make wrong assumptions, they added.
The SGX said the shipping giant had breached listing rules by failing to ‘sufficiently clarify or deny market speculation of a possible rights issue’.
NOL’s share price plunged last week after speculation of a US$250 million (S$383 million) rights issue surfaced in a Dow Jones report.
Initially, NOL responded to the market talk with a vague statement that did not rule out a rights issue. Finally, last Friday, it stated clearly that it would not turn to its shareholders to raise funds.
‘The SGX is sending a timely message to all companies that announcements which do not address the crux of rumours are unacceptable,’ said corporate governance advocate Mak Yuen Teen.
Drew & Napier director Marcus Chow said: ‘It serves as a warning to other companies to properly manage price-sensitive information in order to avoid leakages.’
While the SGX’s move will be beneficial for the market as it increases transparency, it could also make it more complicated for companies to execute transactions.
Some industry players said the mounting pressure for clearer disclosure could create an additional burden for companies already struggling with the credit crunch and shrinking bottom lines.
‘It will make it more challenging for companies to keep the integrity of transactions while satisfying listing requirements,’ said a lawyer who declined to be named.
So how should companies respond to market speculation?
‘The key is to be forthright,’ said Professor Mak, a co-director of the Corporate Governance and Financial Reporting Centre at the National University of Singapore Business School.
‘In the current environment especially, not being open and transparent is likely to hurt a company. If you issue a boilerplate statement, the market will probably assume the worst.’
For instance, if the company is exploring its options, it should come out and say so, said Singapore Management University associate professor of finance Jeremy Goh.
He added that the company could say: ‘We are considering that possibility, but it is too early to officially announce it to the public. If we have a final decision and board approval, we will call a press conference to make the announcement.’
The SGX’s reprimand should also send a reminder to companies to raise the bar regarding confidentiality.
They can implement several practical measures to maintain the secrecy of price-sensitive deals, said Mr. Chow of Drew & Napier.
Companies could keep working groups small, use code names, extract confidentiality covenants from staff, and restrict access to documents to prevent leaks.
The SGX’s action will have ‘major implications for other companies’ in that they will have to be ‘more responsive’ to rumours, said Prof Goh.
Independent director Robson Lee, a lawyer at Shook Lin & Bok, said the SGX’s reprimand of NOL will make him ‘more vigilant’. He will remind the management of those companies he sits in of the need to react in a ‘clear, unequivocal manner’ to market rumours.
However, Prof Mak felt more public reprimands may be needed before the SGX’s message is heeded.
He added: ‘Perhaps there needs to be more serious consequences and sanctions for companies that persist in doing so.’
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