With many parties sewing up deal, it’s tougher for big firms
By LYNETTE KHOO 23 March 2009
Distrust is raging as recent market rumours of rights issues has sparked fears of leakage.
And now comes the hard question: How to prevent leaks when it comes to corporate transactions such as rights issues? It’s a tall order, say companies and industry professionals, considering the sheer number of people involved in a transaction.
The parties, ranging from company representatives, lawyers, financial advisers to underwriters, could easily total 10-20 people depending on the deal size.
‘It’s practically impossible to prevent all leakage,’ said Eddie Chng, chairman and chief executive officer of Equation Corp.
When companies do a ‘beauty parade’ to select an issue manager or underwriter, the number of parties in-the-know increases and this heightens the risk of a leakage, said a local issue manager who declined to be named.
Such ‘beauty parades’ are common but companies will probably become more discreet from now, he added.
According to a source, recent speculation on at least one company was the result of a ‘beauty parade’, with one underwriter falling out of the selection.
The recent spate of rights issues has left several listed companies on the radar as investors expect them to be next in line.
In the case of CapitaLand and CapitaMall Trust, rumours of imminent rights issues were rife before the official announcements in early February.
City Developments was hit by such rumours thereafter but clarified that they were not true.
Neptune Orient Lines, however, was slapped with a public reprimand from SGX last week for failing to quash market rumours over a rights issue.
Though professionals are made to sign non-disclosure agreements before they are let into confidential information, there is nothing to stop people from ‘whispering’, market watchers say.
Leakage could come from several sources - some seeking to gain publicity from the deals they are making or others looking to short the stock, according to dealers. But market rumours may be pure speculation.
Already, companies are seeking to lower the risk of leakage by minimising the number of people involved and to provide information only on a need-to-know basis.
‘Playing scramble’ on code names for the transaction and key parties is a common affair, industry players say. A code name may be anything under the sun, from ‘Thunder’, ‘Bravo’, ‘Noah’s Ark’ to ‘Project Sunshine’.
Companies should also try to meet their legal and financial advisers in private places, such as in meeting rooms or at the lawyers’ office, and refrain from discussion once they leave these places, lawyers say.
Stamford Law director Ng Joo Khin advises companies to minimise details in emails and bring in professionals only in stages.
Lawyers or financial advisers are often the first to know, followed by the underwriters or issue managers. For a Catalist firm, the sponsor is informed first.
The investor relations (IR) firms are the last in line. How soon the IR firms get involved also depends on the requirements of the clients.
They may be roped in to craft a press release only after an offer document is made public.
‘It could be anywhere from a week ahead or one to two months ahead,’ said an investor relations consultant. ‘Some clients want to discuss earlier on how to position themselves. Only the account team will know and subsequently, we just use code names.’
Some companies told BT they prefer not to have external professionals visiting their office as that could be seen by internal staff as having something in the works.
Larger firms or size deals appear more vulnerable to leakage as they tend to have one or more underwriters and the involvement of more parties, market watcher say.
Smaller caps, on the other hand, have recently undertaken or completed rights issues without stirring ripples.
HG Metal, which completed a non-underwritten rights issue last month that raised net proceeds of $11 million, said the process was a breeze.
‘We discussed at board meetings and kept it at a need-to-know basis,’ said HG Metal CEO Wee Piew.
‘Once the board agreed on the rights issue, we started meeting with the lawyers and professionals,’ he added. All it took was a couple of weeks to public announcement.
‘In all fairness, smaller companies are less vulnerable because people take less notice,’ Mr. Chng of Equation said. Equation recently undertook a non-underwritten rights issue to raise $10.3 million.
Last week, OSIM completed its rights issue that raised net proceeds of around $6.5 million.
Peter Lee, chief financial officer of OSIM International told BT that the group kept its rights issue plan only to relevant people on the working team and used its retained legal firm and in-house resources. ‘There is an evaluation phase which is done verbally among a very limited number of people,’ he said.
As OSIM’s founder and CEO Ron Sim gave an undertaking to subscribe to the issue, there was no need to appoint underwriters and issue manager.
On that note, a local issue manager said: ‘If you are a big boy, you will always attract wind.’
Smaller companies are also less likely to have underwriters for their rights issue, he added.
As small caps tend to be less liquid and have fragmented shareholdings, underwriters fear they would end up wiith a pool of unsubscribed rights shares.
1 comment:
Curbing leakage - Mission impossible?
With many parties sewing up deal, it’s tougher for big firms
By LYNETTE KHOO
23 March 2009
Distrust is raging as recent market rumours of rights issues has sparked fears of leakage.
And now comes the hard question: How to prevent leaks when it comes to corporate transactions such as rights issues? It’s a tall order, say companies and industry professionals, considering the sheer number of people involved in a transaction.
The parties, ranging from company representatives, lawyers, financial advisers to underwriters, could easily total 10-20 people depending on the deal size.
‘It’s practically impossible to prevent all leakage,’ said Eddie Chng, chairman and chief executive officer of Equation Corp.
When companies do a ‘beauty parade’ to select an issue manager or underwriter, the number of parties in-the-know increases and this heightens the risk of a leakage, said a local issue manager who declined to be named.
Such ‘beauty parades’ are common but companies will probably become more discreet from now, he added.
According to a source, recent speculation on at least one company was the result of a ‘beauty parade’, with one underwriter falling out of the selection.
The recent spate of rights issues has left several listed companies on the radar as investors expect them to be next in line.
In the case of CapitaLand and CapitaMall Trust, rumours of imminent rights issues were rife before the official announcements in early February.
City Developments was hit by such rumours thereafter but clarified that they were not true.
Neptune Orient Lines, however, was slapped with a public reprimand from SGX last week for failing to quash market rumours over a rights issue.
Though professionals are made to sign non-disclosure agreements before they are let into confidential information, there is nothing to stop people from ‘whispering’, market watchers say.
Leakage could come from several sources - some seeking to gain publicity from the deals they are making or others looking to short the stock, according to dealers. But market rumours may be pure speculation.
Already, companies are seeking to lower the risk of leakage by minimising the number of people involved and to provide information only on a need-to-know basis.
‘Playing scramble’ on code names for the transaction and key parties is a common affair, industry players say. A code name may be anything under the sun, from ‘Thunder’, ‘Bravo’, ‘Noah’s Ark’ to ‘Project Sunshine’.
Companies should also try to meet their legal and financial advisers in private places, such as in meeting rooms or at the lawyers’ office, and refrain from discussion once they leave these places, lawyers say.
Stamford Law director Ng Joo Khin advises companies to minimise details in emails and bring in professionals only in stages.
Lawyers or financial advisers are often the first to know, followed by the underwriters or issue managers. For a Catalist firm, the sponsor is informed first.
The investor relations (IR) firms are the last in line. How soon the IR firms get involved also depends on the requirements of the clients.
They may be roped in to craft a press release only after an offer document is made public.
‘It could be anywhere from a week ahead or one to two months ahead,’ said an investor relations consultant. ‘Some clients want to discuss earlier on how to position themselves. Only the account team will know and subsequently, we just use code names.’
Some companies told BT they prefer not to have external professionals visiting their office as that could be seen by internal staff as having something in the works.
Larger firms or size deals appear more vulnerable to leakage as they tend to have one or more underwriters and the involvement of more parties, market watcher say.
Smaller caps, on the other hand, have recently undertaken or completed rights issues without stirring ripples.
HG Metal, which completed a non-underwritten rights issue last month that raised net proceeds of $11 million, said the process was a breeze.
‘We discussed at board meetings and kept it at a need-to-know basis,’ said HG Metal CEO Wee Piew.
‘Once the board agreed on the rights issue, we started meeting with the lawyers and professionals,’ he added. All it took was a couple of weeks to public announcement.
‘In all fairness, smaller companies are less vulnerable because people take less notice,’ Mr. Chng of Equation said. Equation recently undertook a non-underwritten rights issue to raise $10.3 million.
Last week, OSIM completed its rights issue that raised net proceeds of around $6.5 million.
Peter Lee, chief financial officer of OSIM International told BT that the group kept its rights issue plan only to relevant people on the working team and used its retained legal firm and in-house resources. ‘There is an evaluation phase which is done verbally among a very limited number of people,’ he said.
As OSIM’s founder and CEO Ron Sim gave an undertaking to subscribe to the issue, there was no need to appoint underwriters and issue manager.
On that note, a local issue manager said: ‘If you are a big boy, you will always attract wind.’
Smaller companies are also less likely to have underwriters for their rights issue, he added.
As small caps tend to be less liquid and have fragmented shareholdings, underwriters fear they would end up wiith a pool of unsubscribed rights shares.
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