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Monday 30 November 2009
Sino-Env: tough questions need to be addressed
The gathering of over 70 minority shareholders of Sino-Environment at a meeting chaired by Singapore Investors Association (Singapore) or SIAS this evening is sure to whip up some heated discussion about the sorry state of affairs at the S-chip.
The gathering of over 70 minority shareholders of Sino-Environment at a meeting chaired by Singapore Investors Association (Singapore) or SIAS this evening is sure to whip up some heated discussion about the sorry state of affairs at the S-chip.
Though one could go on lamenting the apparent lapses in corporate governance and question how things could have been allowed to deteriorate so badly, the more urgent question for shareholders with every intention to salvage their investments is to consider how best to drive the company forward now.
It appears that voting out the executive directors (EDs) from the board is in order. But there are challenges in doing so.
If the EDs are removed, can the independent directors (IDs) swiftly install interim managers who can hold the fort and run the group’s subsidiaries in China? Can they enforce the resignation of the EDs at the subsidiaries level by ensuring that the EDs relinquish their control over the subsidiaries, return the company’s seals and authorise others to manage the company’s bank accounts in China?
Enforcing a change in management control has proven to be difficult. When the EDs resigned earlier in May, they did not step down from their operational roles at the Chinese subsidiaries, forcing the IDs to bring them back on board.
To recap, trouble at waste recycler Sino-Environment first surfaced in March when founder and chairman Sun Jiangrong defaulted on his personal loan and risked losing his entire 56 per cent stake in the group, which he had pledged as collateral. His eventual loss of control of the stake then triggered a default of $149 million worth of convertible bonds issued by Sino-Environment.
From there, things got worse - from dodgy cash transactions flagged by auditors Pricewaterhouse- Coopers (PwC) to the sacking of financial controller Raynauld Liang in questionable circumstances. This drew a rap from the Singapore Exchange (SGX), after the IDs said that the summary dismissal was unjustified and without board approval.
It is unfortunate that shareholders had to witness the war of words between the EDs and the IDs that soon followed. But, ironically, thanks to the public squabble between the two camps, more light has been shed on various issues facing the group. Yet, at the same time, more questions have been raised.
According to the IDs, the EDs did not query the review by PwC till ‘questionable cash transactions’ were discovered and police reports were lodged by the IDs. Neither did the EDs attend meetings with bondholders to facilitate standstill agreements, even though the whole saga stemmed from Mr. Sun’s personal financial woes.
There were also two huge transactions worth 189.64 million yuan (S$38.5 million) made earlier this year without the IDs’ knowledge. These unapproved payments suggest governance lapses and weakness in internal controls. The non-disclosure is also at odds with SGX listing rules.
While these revelations have left investors shaking their heads at the apparent lack of corporate governance shown by the management, the IDs will not be spared scrutiny either.
Expected to be present at the meeting today, they will be taken to task on some allegations made by the EDs. For one thing, the IDs need to provide some clarity on how they are making good use of the services of PwC and independent financial adviser nTan Corporate Advisory, as the EDs have complained that PwC was paid $952,874 while nTan received a retainer fee of $3 million.
The IDs will also be asked about the steps they have taken to safeguard the assets of the group and their efforts to protect the interests of shareholders.
On that note, shareholders need to question the merits of putting the company under judicial management (JM) - a recent proposal mooted by the IDs.
Arguably, given the split within the board, bringing in a neutral third party to run the company is one possible option. And should the EDs exit immediately, the company may be left without a ready management team.
But a JM would place shareholders last in the pecking order under a pro-creditor regime that focuses on repaying the creditors - in this case, the bondholders - first.
Interestingly, the EDs are seeking to appoint a new chief financial officer at a forthcoming board meeting on Thursday and to reinstate a former ID, 63-year-old Pan Jinquan, who had retired last July. These intended appointments seem opposed to the appointment of a JM.
With the IDs being outnumbered by the EDs on the board, it remains to be seen how the various issues will be sorted out. The group needs first to have a properly functioning board.
Even if that could present difficulties, the best option for shareholders is to exercise their rights and request an extraordinary general meeting to oust the EDs - who are reported to have been uncooperative in the ongoing investigations and the still incomplete audit review by PwC.
The task of getting interim managers to run the show in place of the EDs, in the meantime, will be a tall order, but that’s something for the IDs to grapple with and prove their worth.
2 comments:
Sino-Env: tough questions need to be addressed
By LYNETTE KHOO
30 November 2009
The gathering of over 70 minority shareholders of Sino-Environment at a meeting chaired by Singapore Investors Association (Singapore) or SIAS this evening is sure to whip up some heated discussion about the sorry state of affairs at the S-chip.
Though one could go on lamenting the apparent lapses in corporate governance and question how things could have been allowed to deteriorate so badly, the more urgent question for shareholders with every intention to salvage their investments is to consider how best to drive the company forward now.
It appears that voting out the executive directors (EDs) from the board is in order. But there are challenges in doing so.
If the EDs are removed, can the independent directors (IDs) swiftly install interim managers who can hold the fort and run the group’s subsidiaries in China? Can they enforce the resignation of the EDs at the subsidiaries level by ensuring that the EDs relinquish their control over the subsidiaries, return the company’s seals and authorise others to manage the company’s bank accounts in China?
Enforcing a change in management control has proven to be difficult. When the EDs resigned earlier in May, they did not step down from their operational roles at the Chinese subsidiaries, forcing the IDs to bring them back on board.
To recap, trouble at waste recycler Sino-Environment first surfaced in March when founder and chairman Sun Jiangrong defaulted on his personal loan and risked losing his entire 56 per cent stake in the group, which he had pledged as collateral. His eventual loss of control of the stake then triggered a default of $149 million worth of convertible bonds issued by Sino-Environment.
From there, things got worse - from dodgy cash transactions flagged by auditors Pricewaterhouse- Coopers (PwC) to the sacking of financial controller Raynauld Liang in questionable circumstances. This drew a rap from the Singapore Exchange (SGX), after the IDs said that the summary dismissal was unjustified and without board approval.
It is unfortunate that shareholders had to witness the war of words between the EDs and the IDs that soon followed. But, ironically, thanks to the public squabble between the two camps, more light has been shed on various issues facing the group. Yet, at the same time, more questions have been raised.
According to the IDs, the EDs did not query the review by PwC till ‘questionable cash transactions’ were discovered and police reports were lodged by the IDs. Neither did the EDs attend meetings with bondholders to facilitate standstill agreements, even though the whole saga stemmed from Mr. Sun’s personal financial woes.
There were also two huge transactions worth 189.64 million yuan (S$38.5 million) made earlier this year without the IDs’ knowledge. These unapproved payments suggest governance lapses and weakness in internal controls. The non-disclosure is also at odds with SGX listing rules.
While these revelations have left investors shaking their heads at the apparent lack of corporate governance shown by the management, the IDs will not be spared scrutiny either.
Expected to be present at the meeting today, they will be taken to task on some allegations made by the EDs. For one thing, the IDs need to provide some clarity on how they are making good use of the services of PwC and independent financial adviser nTan Corporate Advisory, as the EDs have complained that PwC was paid $952,874 while nTan received a retainer fee of $3 million.
The IDs will also be asked about the steps they have taken to safeguard the assets of the group and their efforts to protect the interests of shareholders.
On that note, shareholders need to question the merits of putting the company under judicial management (JM) - a recent proposal mooted by the IDs.
Arguably, given the split within the board, bringing in a neutral third party to run the company is one possible option. And should the EDs exit immediately, the company may be left without a ready management team.
But a JM would place shareholders last in the pecking order under a pro-creditor regime that focuses on repaying the creditors - in this case, the bondholders - first.
Interestingly, the EDs are seeking to appoint a new chief financial officer at a forthcoming board meeting on Thursday and to reinstate a former ID, 63-year-old Pan Jinquan, who had retired last July. These intended appointments seem opposed to the appointment of a JM.
With the IDs being outnumbered by the EDs on the board, it remains to be seen how the various issues will be sorted out. The group needs first to have a properly functioning board.
Even if that could present difficulties, the best option for shareholders is to exercise their rights and request an extraordinary general meeting to oust the EDs - who are reported to have been uncooperative in the ongoing investigations and the still incomplete audit review by PwC.
The task of getting interim managers to run the show in place of the EDs, in the meantime, will be a tall order, but that’s something for the IDs to grapple with and prove their worth.
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