Investors in Bermuda-registered firms listed here now get less protection
By Goh Eng Yeow 05 October 2009
The Singapore Exchange (SGX) has scored well in the global battle of the bourses to attract foreign companies, with about 40 per cent of all firms listed here from overseas.
Its attempt to turn itself into the Asian gateway has brought huge benefits, not just to SGX shareholders but investors generally.
Where else can you invest in bull semen and bust-firming cream without leaving home?
But ‘going international’ and luring foreign firms to list here has proved something of a double-edged sword since the global economy tanked a year ago.
The sticking point, as so often happens in severe downturns, centres on regulations, especially the different rules that apply to Singapore firms and those registered elsewhere but are listed here.
The main offenders have been S-chips - China-based firms listed in Singapore.
Recently, SGX chairman Joe Pillay acknowledged that a few S-chips hit the headlines because ‘of the remarkable audacity of a few miscreants, usually followed by their disappearance into remote regions and out of reach of the enforcement authorities here’.
The SGX is moving to combat the problem, with outgoing chief executive Hsieh Fu Hua outlining a solution which had contained suggestions made by the local press.
These included a proposal to ask controlling shareholders of listed firms to keep their shares under custody in Singapore so that in the event of a probe into any irregularities, there would be some ‘hold’ over them.
The SGX also wanted controlling shareholders to disclose financial arrangements relating to their holdings, such as if the number of pawned shares is large enough to trigger a change of ownership control or if the lender should want to enforce his claim over them.
But there are questions as to whether such additional safeguards are enough.
Some market watchers argue that to tackle the challenges thrown up by the delinquent S-chips, the SGX should go to the heart of the problem - the widespread use of companies registered in Bermuda and the Cayman Islands for listing purposes here.
Bermuda-registered listed vehicles first made their appearance here in 1991 when the Hong Kong conglomerate Jardine Matheson and its sister firms Jardine Strategic, Hongkong Land, Mandarin Oriental and Dairy Farm de-camped from Hong Kong and moved trading of their shares here.
In doing so, they had first reorganised themselves into Bermuda holding firms, purportedly after Hong Kong regulators refused to grant them an exemption from its takeover code.
Over the next decade, initial public offerings (IPOs) using Bermuda-registered vehicles became very popular, especially among China-based firms.
The Bermuda Companies Act is similar to the Singapore Companies Act in many respects. In fact, both legislations share the same origins, as Singapore is a former British colony, while Bermuda is still administered by Britain.
But there are key differences. Over the years, the Singapore Companies Act has evolved to offer more robust protection to shareholders.
For example, the Act deems it is illegal for a firm to extend a loan to any of its directors but Bermuda’s legislation is silent on such lending practices.
This allows a Bermuda-registered listed firm to extend loans to directors, and disclose them merely as an ‘interested person transaction’.
Such transactions are governed by the guidelines laid out by the SGX listing manual but the fact that loans can be extended at all by Bermuda-registered firms to directors points to a regulatory loophole.
This may be fine so long as the economy is humming along. In prosperous times, the company and the director who took out the loan should both be able to thrive and not face demands for repayment.
But when the economy hits the wall like it did late last year after the collapse of investment bank Lehman Brothers, fears suddenly surfaced over the cash balances maintained by some companies in their overseas bank accounts.
Anonymous e-mails started circulating, alleging that a few ‘miscreant’ company directors had raided the company coffers to play the stock market and pay for share trading losses.
Another big difference lies in the level of protection an investor gets from the two different Companies Acts when a company delists from the SGX.
Take local retailer CK Tang. Even though major shareholder Tang Wee Sung has delisted the firm from the SGX, he will have to cross other hurdles if he wants to buy out the remaining dissenting shareholders who refused to take up his delisting offer.
There are procedures in the Singapore Companies Act that need to be complied with to ensure that small investors’ interests are protected.
But investors in Bermuda-registered firms do not enjoy a similar high degree of protection.
One reader wrote to complain that a Bermuda-registered firm simply cancelled his shares and sent him a cheque after it was delisted from the SGX.
‘It simply invoked the Bermuda Companies Act and passed resolutions to cancel my shares even though I didn’t accept its offer. All these were done without the need for the company to go through a compulsory acquisition exercise or make adjustment to the exit delisting price,’ he said.
One unheralded benefit from the global financial crisis has been the flaws it has uncovered in the regulations governing financial markets, and the light it has shone on the ingenious ways businessmen and investment bankers use to circumvent them.
Local investors must not simply assume that the same stringent regulatory framework governing Singapore-registered companies also applies to foreign firms which are listed on the SGX.
The big challenge for the SGX is to ensure that investors get the same degree of protection whether a listed firm is incorporated here or elsewhere.
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Let’s level the playing field for listed firms
Investors in Bermuda-registered firms listed here now get less protection
By Goh Eng Yeow
05 October 2009
The Singapore Exchange (SGX) has scored well in the global battle of the bourses to attract foreign companies, with about 40 per cent of all firms listed here from overseas.
Its attempt to turn itself into the Asian gateway has brought huge benefits, not just to SGX shareholders but investors generally.
Where else can you invest in bull semen and bust-firming cream without leaving home?
But ‘going international’ and luring foreign firms to list here has proved something of a double-edged sword since the global economy tanked a year ago.
The sticking point, as so often happens in severe downturns, centres on regulations, especially the different rules that apply to Singapore firms and those registered elsewhere but are listed here.
The main offenders have been S-chips - China-based firms listed in Singapore.
Recently, SGX chairman Joe Pillay acknowledged that a few S-chips hit the headlines because ‘of the remarkable audacity of a few miscreants, usually followed by their disappearance into remote regions and out of reach of the enforcement authorities here’.
The SGX is moving to combat the problem, with outgoing chief executive Hsieh Fu Hua outlining a solution which had contained suggestions made by the local press.
These included a proposal to ask controlling shareholders of listed firms to keep their shares under custody in Singapore so that in the event of a probe into any irregularities, there would be some ‘hold’ over them.
The SGX also wanted controlling shareholders to disclose financial arrangements relating to their holdings, such as if the number of pawned shares is large enough to trigger a change of ownership control or if the lender should want to enforce his claim over them.
But there are questions as to whether such additional safeguards are enough.
Some market watchers argue that to tackle the challenges thrown up by the delinquent S-chips, the SGX should go to the heart of the problem - the widespread use of companies registered in Bermuda and the Cayman Islands for listing purposes here.
Bermuda-registered listed vehicles first made their appearance here in 1991 when the Hong Kong conglomerate Jardine Matheson and its sister firms Jardine Strategic, Hongkong Land, Mandarin Oriental and Dairy Farm de-camped from Hong Kong and moved trading of their shares here.
In doing so, they had first reorganised themselves into Bermuda holding firms, purportedly after Hong Kong regulators refused to grant them an exemption from its takeover code.
Over the next decade, initial public offerings (IPOs) using Bermuda-registered vehicles became very popular, especially among China-based firms.
The Bermuda Companies Act is similar to the Singapore Companies Act in many respects. In fact, both legislations share the same origins, as Singapore is a former British colony, while Bermuda is still administered by Britain.
But there are key differences. Over the years, the Singapore Companies Act has evolved to offer more robust protection to shareholders.
For example, the Act deems it is illegal for a firm to extend a loan to any of its directors but Bermuda’s legislation is silent on such lending practices.
This allows a Bermuda-registered listed firm to extend loans to directors, and disclose them merely as an ‘interested person transaction’.
Such transactions are governed by the guidelines laid out by the SGX listing manual but the fact that loans can be extended at all by Bermuda-registered firms to directors points to a regulatory loophole.
This may be fine so long as the economy is humming along. In prosperous times, the company and the director who took out the loan should both be able to thrive and not face demands for repayment.
But when the economy hits the wall like it did late last year after the collapse of investment bank Lehman Brothers, fears suddenly surfaced over the cash balances maintained by some companies in their overseas bank accounts.
Anonymous e-mails started circulating, alleging that a few ‘miscreant’ company directors had raided the company coffers to play the stock market and pay for share trading losses.
Another big difference lies in the level of protection an investor gets from the two different Companies Acts when a company delists from the SGX.
Take local retailer CK Tang. Even though major shareholder Tang Wee Sung has delisted the firm from the SGX, he will have to cross other hurdles if he wants to buy out the remaining dissenting shareholders who refused to take up his delisting offer.
There are procedures in the Singapore Companies Act that need to be complied with to ensure that small investors’ interests are protected.
But investors in Bermuda-registered firms do not enjoy a similar high degree of protection.
One reader wrote to complain that a Bermuda-registered firm simply cancelled his shares and sent him a cheque after it was delisted from the SGX.
‘It simply invoked the Bermuda Companies Act and passed resolutions to cancel my shares even though I didn’t accept its offer. All these were done without the need for the company to go through a compulsory acquisition exercise or make adjustment to the exit delisting price,’ he said.
One unheralded benefit from the global financial crisis has been the flaws it has uncovered in the regulations governing financial markets, and the light it has shone on the ingenious ways businessmen and investment bankers use to circumvent them.
Local investors must not simply assume that the same stringent regulatory framework governing Singapore-registered companies also applies to foreign firms which are listed on the SGX.
The big challenge for the SGX is to ensure that investors get the same degree of protection whether a listed firm is incorporated here or elsewhere.
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