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Monday 23 November 2009
Placement details food for thought
It wouldn’t be in the least bit surprising if the institutions which subscribed to China property developer Ying Li’s placement last week were less than happy with post-subscription events.
It wouldn’t be in the least bit surprising if the institutions which subscribed to China property developer Ying Li’s placement last week were less than happy with post-subscription events.
No, we’re not referring to the subdued share performance since placement, even though there must be some disappointment because the price hasn’t budged much from the placement price of 61 cents.
No, we’re referring instead to a Nov 19 ‘buy’ on Ying Li by broker DMG & Partners in which the fund managers who participated were named, all 11 of them.
Hats off to DMG for first obtaining the information and second, for publishing it - to the best of our knowledge, this may well be the first time in local market history that such specific information has appeared in connection with any placement, regardless of size.
Moreover, it’s certainly interesting for those in the industry to see a veritable ‘who’s who’ of local fund management listed in the DMG report.
Yet interesting though the information may be, equally intriguing is that it throws open a whole host of issues worth discussing.
First and most obvious is of course, where did the information come from? Not from Ying Li, or at least not from its public announcements - its press release only said the shares went to institutional investors and that the exercise ‘drew strong interest with participation from quality international funds’.
Furthermore, the company is not obliged to reveal who these international funds are. Under current Singapore Exchange (SGX) rules, the names of placement recipients need only be announced when the issuing company has not appointed a placement agent. Since JPMorgan (JPM) acted as the sole bookrunner and since JPM and DBS Bank acted as joint placement agents for Ying Li, then it wasn’t necessary to reveal who took the shares.
Also, it is generally accepted business practice to keep the names of placement recipients confidential - unless, of course, these parties agree to having their identities announced and/or if there’s some advantage to be gained by revealing those identities. Otherwise, confidentiality is the order of the day for a variety of reasons.
For example, funds sometimes indulge in quick punts to improve their performance but are typically reluctant to divulge details of such short-term trades. This unwillingness could possibly be because short-term trading might fall outside their mandates, or might be frowned upon by shareholders, or it could simply be that they don’t want the world to know their investment or operating strategies. So there’s good reason to believe that if consent was not granted, it would have come as a bit of a shock to the funds involved to see their names in the DMG ‘buy’ report.
Second and perhaps more importantly, the issue of disclosure. We have in the past argued that because placements are always at a discount, shareholders have a right to know the names of recipients - see for example, ‘Placement disclosure requires more information’ BT Hock Lock Siew, Dec 12, 2007.
In response, SGX in March this year modified its rules to require the names of placement shareholders to be made public but only when no placement agent is appointed. As stated earlier, this doesn’t apply to Ying Li since it did have placement agents but here’s the interesting thought: should SGX go one step further and make it necessary for all companies to make full disclosure of placement shareholders even if a placement agent has been appointed?
This is a difficult issue because as noted earlier, commercial sensitivities enter the equation. Many institutions are not in favour of the world knowing what they’re buying and selling, or how much money they’ve made (or lost, as the case may be), and in some cases, requiring disclosure all the time could unfairly restrict their operations.
Also, as we have noted a few weeks ago (BT Hock Lock Siew, Nov 6, ‘Too much disclosure can sometimes be bad’) providing excess or surplus information may not always lead to optimum outcomes because many investors are not equipped to process all data efficiently.
For example, it might not be of much use to an average retail investor if he was told that XYZ Asset Management or ABC Fund Managers bought into a company without knowing more about XYZ and ABC’s investment profiles, strategies, other shareholdings, track records and so forth. Partial disclosure in such cases would be meaningless.
So it’s a delicate balance which has to be struck, one that weighs public interest on one hand against business sensitivities on the other.
It’s one that’s best left to expert regulators to decide while in the meantime, the rest of us are left to ponder the implications of a possible stockbroking ‘first’ in the local market.
2 comments:
Placement details food for thought
By R SIVANITHY
23 November 2009
It wouldn’t be in the least bit surprising if the institutions which subscribed to China property developer Ying Li’s placement last week were less than happy with post-subscription events.
No, we’re not referring to the subdued share performance since placement, even though there must be some disappointment because the price hasn’t budged much from the placement price of 61 cents.
No, we’re referring instead to a Nov 19 ‘buy’ on Ying Li by broker DMG & Partners in which the fund managers who participated were named, all 11 of them.
Hats off to DMG for first obtaining the information and second, for publishing it - to the best of our knowledge, this may well be the first time in local market history that such specific information has appeared in connection with any placement, regardless of size.
Moreover, it’s certainly interesting for those in the industry to see a veritable ‘who’s who’ of local fund management listed in the DMG report.
Yet interesting though the information may be, equally intriguing is that it throws open a whole host of issues worth discussing.
First and most obvious is of course, where did the information come from? Not from Ying Li, or at least not from its public announcements - its press release only said the shares went to institutional investors and that the exercise ‘drew strong interest with participation from quality international funds’.
Furthermore, the company is not obliged to reveal who these international funds are. Under current Singapore Exchange (SGX) rules, the names of placement recipients need only be announced when the issuing company has not appointed a placement agent. Since JPMorgan (JPM) acted as the sole bookrunner and since JPM and DBS Bank acted as joint placement agents for Ying Li, then it wasn’t necessary to reveal who took the shares.
Also, it is generally accepted business practice to keep the names of placement recipients confidential - unless, of course, these parties agree to having their identities announced and/or if there’s some advantage to be gained by revealing those identities. Otherwise, confidentiality is the order of the day for a variety of reasons.
For example, funds sometimes indulge in quick punts to improve their performance but are typically reluctant to divulge details of such short-term trades. This unwillingness could possibly be because short-term trading might fall outside their mandates, or might be frowned upon by shareholders, or it could simply be that they don’t want the world to know their investment or operating strategies. So there’s good reason to believe that if consent was not granted, it would have come as a bit of a shock to the funds involved to see their names in the DMG ‘buy’ report.
Second and perhaps more importantly, the issue of disclosure. We have in the past argued that because placements are always at a discount, shareholders have a right to know the names of recipients - see for example, ‘Placement disclosure requires more information’ BT Hock Lock Siew, Dec 12, 2007.
In response, SGX in March this year modified its rules to require the names of placement shareholders to be made public but only when no placement agent is appointed. As stated earlier, this doesn’t apply to Ying Li since it did have placement agents but here’s the interesting thought: should SGX go one step further and make it necessary for all companies to make full disclosure of placement shareholders even if a placement agent has been appointed?
This is a difficult issue because as noted earlier, commercial sensitivities enter the equation. Many institutions are not in favour of the world knowing what they’re buying and selling, or how much money they’ve made (or lost, as the case may be), and in some cases, requiring disclosure all the time could unfairly restrict their operations.
Also, as we have noted a few weeks ago (BT Hock Lock Siew, Nov 6, ‘Too much disclosure can sometimes be bad’) providing excess or surplus information may not always lead to optimum outcomes because many investors are not equipped to process all data efficiently.
For example, it might not be of much use to an average retail investor if he was told that XYZ Asset Management or ABC Fund Managers bought into a company without knowing more about XYZ and ABC’s investment profiles, strategies, other shareholdings, track records and so forth. Partial disclosure in such cases would be meaningless.
So it’s a delicate balance which has to be struck, one that weighs public interest on one hand against business sensitivities on the other.
It’s one that’s best left to expert regulators to decide while in the meantime, the rest of us are left to ponder the implications of a possible stockbroking ‘first’ in the local market.
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