Federal Reserve regulators had raised concerns with Goldman Sachs that deals that it helped put together for a Malaysian government investment fund, 1Malaysia Development Berhad ( 1MDB), could have put the firm’s reputation at risk, The Wall Street Journal reports, citing people familiar with the matter.
Posts Tagged ‘Corporate governance’
Need to Hide Some Income? You Don’t Have to Go to Panama Setting up a shell corporation in the United States is simple – especially in states like Delaware, Wyoming and Nevada.
Obviousl NYT is a constructive, bation-building newspaper like ST.
The files suggest that China is Mossack’s most important market. The firm’s Hong Kong office has been its busiest, and it has outposts in eight other Chinese cities. These nine offices set up 29% of all the firms Mossack had on its books at the end of 2015, according to the ICIJ.
Although there is no evidence of illegality, obeying the law is not the only requirement for Chinese officials. Almost all of those involved are Communist Party members, who must abide by the party’s code of conduct. This bans them from registering or investing in companies abroad. So they may have broken rules, if not the law. High-ranking officials in China can also be held responsible for the business dealings of relatives.
SMRT has the best corporate governance practices among the 30 companies of the Straits Times Index, according to an American consultancy, ST reported yesterday. SMRT did well on matters like compliance with the Code of Corporate Governance, structure of the board, what directors are paid in comparison to employees, and how much information the company discloses about itself and its involvement in community projects and events.
Obviously the quality of management and public communications, and contingency planning were not among the factors considered.
Olam International, SingTel, OCBC Bank, SIA Engineering. SIA, Noble Group, Neptune Orient Lines, Sembcorp Industries and Fraser & Neave (who ranked below SMRT in the corporate governance rankings done by this US firm) must hope that they are not tainted with the same brush as SMRT.
Seriously, the last thing the image of corporate governance in S’pore needs is to be associated with SMRT, or for SMRT to be the poster boy of good corporate governance here. Sigh.
And seriouisly, better take the bus (SBS only) the next few days. Who knows what else will happen to SMRT trains or its buses or its taxis. The latter have not had problems, but better safe than sorry.
Looks like analysts will have to lower their revenue forecasts for SMRT to take account of the coming fines, severance packages for senior managers, and higher maintenace costs.
I’m a bull on Indonesia* for all my sins and it hasn’t done me much gd. It is a treacherous place, navigating through opaque regulations, erratic business relationships, changing policies and deeply entrenched corruption.
Nat Rothschild, son of Jacob Rothschild (a semi- retired leading London- based financier), a good dealer-maker and savvy investor has found that out the hard way. He is chairman and a major shareholder of London- listed Bumi plc which owns a 29% stake in Jakarta- listed Bumi Resources, and 75% of Berau. He wrote in early November a very nasty letter to the CEO of both Bumi compaines (same man), complaining that
— despite being heavily in debt, Bumi Resources had US$867m of assets that had nothing to do with its core coal business; and
— these assets were held by “connected parties”.
It seems he has yet to receive an official response.
*Long on Lippo Malls Trust and hoping First Reit’s share price falls so I can buy.
Recently, K-Reit Asia succeeded in getting unitholder approval for its plan to buy 87.5% of Ocean Financial Centre (OFC), a prime Grade A Raffles Place office building, and raise some S$976 million through a rights issue (17 for 20) to fund part of the cost. It needs S$1.57 billion to buy from parent company Keppel Land a 99- year lease of the OFC office building. KepLand will see a net gain of about S$492.7 million from the sale. Meanwhile despite the massive rights issue, K-Reit will have leverage of around 42% by end of 2011, more than the Reit sector average of 36%. This at a time of a looming slow down.
Some unitholders questioned
— the price and timing of the deal what with a recession looming;
— that while the building in Raffles Place has a tenure of 999 years with 850 years remaining on the lease, but KepLand is only selling a 99-year lease;
— why K-Reit is paying its manager (which is owned by KepLand) an acquisition fee, though it is buying the asset from its parent company;
— the independence of the manager.
But dissenting unitholders have to accept much of the blame in allowing K-Reit an easy ride at the EGM when resolutions were passed with a show of hands. The chairman of K-Reit rejected a call to call for a poll at the EGM presumably because there was no five-member call for a poll or a request by unitholders controlling 10% voting rights.
If dissenting unitholders are not prepared to stand up and be counted, they deserve to be bullied.
Business Times decided to raise a stinker, “This isn’t the first time – and probably it won’t be the last – that issues like these arise at a Reit. For some time now there has been growing disquiet among corporate watchers about weaknesses in the corporate governance structures in Singapore Reits where the Reit sponsor wholly owns the Reit manager, and also holds a large stake in the Reit.” Well BT should remember that there is a bear market, and issues abt corporate governance always rise when investors lose money.
“[C]ases of sponsors selling properties to Reits have raised concerns about conflict of interest, and unitholders have often questioned the purchase of these assets and how they were priced”. BT does not point out that
— it is public knowledge that here the Reit sponsor wholly owns the Reit manager, and also holds a large stake in the Reit; and
— in the K-Reit deal and other deals involving possible conflict of interests, the selling unitholder has by law to abstain from voting; and
— there have to be independent valuations.
“There is also the need to have more transparent structures to pay Reit managers and to tie these more closely to performance”, according to BT. It’s not as though these are hidden from investors or made retrospective. They are publicly available info.
Sorry BT. A piece of rubbish.
Having said all this, a Temasek-linked group like Keppel should set an example for others to follow. At the very least, K-Reit should have allowed a poll on the resolutions, rather than a show of hands. After all, the law is likely to be changed to make polls mandatory at general meetings. “Justice must not only be done, but seen to be done” and “Caesar’s wife must be above suspicion”.
And K-Reit chairman Tsui Kai Chong’s comment that “Our father organisation, Keppel Land, is only willing to sell it to us for 99 years”, tells me that, at the very least, he has an “attitude” problem: deferring to his KepLand where he is an independent director.
Or why a founder of a business who wants to control 51-75% of a company after it goes public is daft. He should aim for a decent float.
Company law says ownership of 50% plus one share entitles an investor to take control of a company. In practice, the picture is often much less clear. A simple majority can be achieved with much less, so long as some investors can be relied upon not to cast their votes. The UK experience http://www.guardian.co.uk/business/2011/nov/20/boardroom-control-minority-shareholders
In S’pore, in early November 2011, the chairman of K-Reit rejected a call to call for a poll at an EGM, presumably because the law didn’t compel him to because there was no five-member call for a poll or a request by unitholders controlling 10% voting rights. Some minority unitholders objected to a deal* betwen K-Reit and its sponsor Keppel Land. But not enough turned up at an EGM to demand a poll?
*Details tomorrow in another posting on corporate governance.
The majority of investors do not always know best, as shown by dreadful, shareholder-approved deals like Time Warner’s merger with AOL, Daimler’s deal with Chrysler, and Royal Bank of Scotland’s bid for ABN Ambro.
Scared shareholders could prevent deals that may be good longer term for them e.g. the Prudential’s aborted attempt to buy AIA.
Meddling investors can also impede development.
No, this is not to be taken as an allegory why S’pore should remain one nation under the PAP. I’m still waiting for the MIW to offer me serious money to become a covert blogger for them.
Susan Lim gave her side of the story to BT last week. I assume she wanted BT readers to understand her case and sympathise with her.
But the numbers she quoted (see below) made no sense, and annoyed this reader. They in no way supported her point that, This was a huge loss-making assignment. (Yahoo carried this report. My quotes are from the original BT report.)
She points to a detailed report produced by KordaMentheNeo’s Owain Stone, an expert in forensic accounting, which concludes – among other things – that the daily breakeven cost for Dr Lim’s practice, over a six-month period in 2007 during which she worked intensely on the patient, amounts to $46,000.
This compares to the $58,000 a day she billed the patient for, which included overtime pay and work done outside Singapore not factored into the calculation of the $46,000.
Her comments had this number cruncher wanting to know more because these numbers do not support her point that, This was a huge loss-making assignment.
Juz using her numbers, she made a net profit of $2.18m for these six months or 182 days: (58- 46) x 182 x 1000. Extrapolate these numbers and one gets a yearly income of $4.38m. Now $4.38m is close to the figure another surgeon (Ng Eng Hen) is alleged to have earned in the year before he entered politics. $4m is serious money for us lesser mortals.
Granted I “cheated” as, the $58,000 a day she billed the patient for, which included overtime pay and work done outside Singapore not factored into the calculation of the $46,000. True, but shouldn’t the accountants have added these overtime and overseas work into the breakeven cost so that the breakeven cost increases?*
And if they didn’t, why not? Proper accounting for costs is not rocket science, but sumething first- year students are taught in management accounting courses.
And if they did account for these, why didn’t she quote these numbers? They could have shown that her practice did lose money on the assignment.
Another question that is begging for an answer is, “Do the breakeven cost of $46,000 include any payments to you in the form of salary, director’s fees or advance payments?”. If they do, these numbers should have been disclosed by her when she bandied these numbers. These would have given an analyst a better understanding of what went into calculating the breakeven.
I’m not accusing Susan Lim or her accountants of anything shady or stupid. I’m juz trying to understand how the numbers she quoted prove that, This was a huge loss-making assignment.
And I am expected to believe her when she says her practice is technically bankrupt? Certainly not on the numbers she quoted.
Maybe the numbers are all there, but Susan Lim had airheads as her media handlers and advisers. From my experience, this is a not uncommon occurrence. They goofed, she suffered.
Whatever the case may be, the moral of the story is, “Don’t play play with numbers”. And don’t employ PR people who are uncomfortable with number. BTW I was a PR person for a short spell. And I am comfortable with numbers. And I was a lawyer.
*This was corrected at 7.40pm on 21 June 2011. “True, but shouldn’t the accountants have added these overtime and overseas work into the breakeven cost while deducting them from the billings, so that the breakeven cost increases and the billings decrease?”
SGX has mandated that S-Chips introduce new measures that could give them more control over their mainland-based legal representative or top executives.
But “constructive”, “nation-building” Today reports that there practical problems.
“If you don’t have the cooperation of the legal rep, then you might not be able to go through the whole procedure and then to effect the removal of the legal rep because you can foresee that the legal rep will not give full cooperation in helping you to remove himself,” said Mr Lin Song, co-head of international China practice group at law firm KhattarWong.
The lawyer was referring to the paperwork involved in effecting the removal of the Chinese-backed legal representative. Company transactions become binding only when they bear the firm’s corporate seal and the power to affix this seal is vested only in the legal representative.
“The issue is more on the execution level even though you might have in the articles of association all these provisions when you really need to remove the legal rep … you may face difficulty,” Mr Lin said.
“For example, the listed company might be required to present the local authority a stamp registration form and other documents which might require the legal rep to sign,” he added.
Mr Robson Lee, partner at Shook Lin & Bok LLP, echoed the same sentiment that the SGX ruling might not be enough to clip the wings of Chinese-backed executives.
Mr Lee, who also sits as a director for S-chip firm Youcan Food International, said there are practical enforcement difficulties to ensure compliance by the executive management that are based in China.
“It would be better to put in place the necessary legal provisions in the articles of association to give the board of the listed company the legal right to intervene when things go wrong,” he said.
Martin Wheatley, the outgoing head of Hong Kong’s securities market regulator, said today that sponsors’ due diligence of initial public offerings has been “inadequate” at times.
“In many cases, sponsors are spread too thinly in terms of the number of deals they’re bringing to the market at any one time”.
Hong Kong’s regulator may make sponsors of IPOs in the city liable for statements in their clients’ prospectuses to prevent fraud of locally listed Chinese companies.
Never ever heard any MAS official say there was anything wrong with sponsors’ due diligence despite some new listcos coming out with profit warnings shortly after being listed.
I’ve been told that MAS does not inspect sponsors to ensure that they are following “best practices”. It is left to SGX. A few years ago, a then prominent IPO sponsor was “suspended” from bringing new listings to market.
The HK proposal to make sponsors of IPOs in the city liable for statements in their clients’ prospectuses is a gd one, and should be adopted to prevent fraud in listing S-Chips.
Hongwei’s independent director Ji Yicheng has resigned saying,”personal reasons, heavy workload”. If the director of a troubled listco can quit when the listco gets into trouble, then what is corporate governance all abt? Such an action is making a mockery of the responsibilities of being an independent director
The SGX must do something to prevent an independent director of a troubled S-Chip, indeed any troubled listco, from resigning. Such a resignation must have the approval of SGX.
The directores at the time the company got into into trouble must sort out the mess. They cannot be allowed to “move on”.
S’pore Inc’s board of directors regularly rant at the US practice of allowing the media to play a major role in the governance of the US, the world’s hegemon. But funnily this board makes sure S’pore Inc follows American practice when it comes to the power of the board and management of corporations vis-a-vis its citizens i.e. shareholders.
Unlike the British practice in the law governing companies (which S’pore follows in company law), the US practice makes it difficult to remove directors and challenge or overturn management decisions. Shareholders often have only an advisory role in the company they own. If they are not happy with the board or management, they can quit the company (sell the shares) if company is listed.
Doesn’t this sound like the corporate governance of S’pore Inc? Not happy, be a quitter. You can’t change the board or management.
The only realistic outcome of the coming general election is for the board and management to feel the anger or dis-satisfaction of the shareholders, if these feelings are real and not just astroturfing by anonymous Internet posters.
Either the Reform Party or the SDP (I give up on WP and the Chiams, and NSP is too small, and asking RP and SDP to cooperate may be unrealistic) should try to work on an index to show how badly S’poreans have done since 19991 (when present SM became PM) and 2004 (when LHL became PM). Remember Ronald Reagan became president by asking if Americans were better-off than when his opponent became president. No hope of change here, but such an index can help people decide if they are angry or dis-satisfied. And whether they want to send a message.
(They may not want to if they have landed property or HDB flatshttps://atans1.wordpress.com/2009/12/15/property-prices-mm-lee-is-too-modest/ bought years ago
Seriously, we need some hard numbers because as the Polish philosopher Leszek Kolakowski said: there was never a shortage of arguments to support any doctrine one wanted to believe in for whatever reasons. He called this insight the law of the infinite cornucopia.
Interestingly S’pore Inc practices “betterest” and “baddest” corporate governance at the same time.
When it comes to CEO succession, we follow best corporate practice (and that of North Korea, China, and the Roman Catholic Church).
There is gd succession planning for the post of PM (CEO), and cabinet posts. People are talent spotted and groomed and tested. Some have remained as junior ministers, while now and then a cabinet minister is sent packing. Though sadly such best practice is not infallible: it led to the hubby of Peanuts Choo becoming PM, resulting in the “lost 14 years”, when S’pore lost its way. But to the fair to the system, at that time an Indian was thought by someone as not acceptable to the Chinese majority, while another candidate didn’t want the job. So what to do?
But we have a rotten practice when it comes to ex-CEOs. In any well run listco, does the ex-CEO retain his place on the board of directors? The answer is no, not unless he also happens to be the controlling shareholder.
The presence of the ex-CEO will be taken as a sign of no-confidence in the new CEO. Or that the new CEO is weak. Or both. Or that it is all wayang kulit. The ex-CEO is the puppet master. and the new CEO is his puppet.
In the cabinet (S’pore Inc’s board), we have two-ex PMs and now one ex-DPM. Err what does this say abt the PM? Or what the ex-PMs think about him?
If S’pore Inc were listed in London or NY, what would the shareholders have done?
Funnily this worst practice is not practised at S’pore Inc’s lower levels: e.g. in the admin service and SAF. When senior officers make way for new fresh blood, the former don’t hang around in posts where they can monitor their successors.They are given new posts: like a general becoming a investment director at Temasek.
— unhappiness with or criticism of any policy is met with “kind to be cruel”, “it contributes to economic growth stupid”, “don’t be ungrateful”, anger or hostility;
— govmin goof-up is met with spin* and then by “move on” if the spin is not believed; and
— stayer who raises questions abt national identity is met with hostility,
is this govmin, a government to look after our lives like a guardian or a trustee?.
Is S’pore a place whose political system [ ] is fair, honest, accountable, and stable … which can produce an honest and effective government; and which can deliver the kind of buzz which Singaporeans want for their country?
Only the PSC chairman gets it: If we strive to be world-class, we will be judged by world-class standards. If we say that we have one of the best governments in the world, the public will expect it to solve virtually any problem Singapore faces. Some of our citizens are now beginning to expect the government to do the impossible. Many citizens are now less prepared to give the government room to make mistakes and are less forgiving and more demanding. They tend to regard explanations as excuses.
If the ruling party doesn’t get it (and talk of a military coup if there is a freak election result), and we can’t change the system, isn’t it time for us to be rational abt the value of being S’porean, and “move on”?
I’ve “moved on” mentally. The antics of the PAP (esp that of SM), and two leading Opposition parties, the WP and Chiams, annoy and sadden me . The WP thinks passivity is the answer, while the Chiams are saying, “We run the SPP and SDA”.
Feel free to call me a quitter-in-residence. Hotel room and service gd here, even if I can find better value overseas.
If the daughter of SM and “peanuts” Choo can “move on”, why can’t or don’t you?
*Maybe the spin meisters have not kept up with the literature on risk. Such things may be inherent in the complexity of the world and no one person or group can be blamed. Warning: piece is 6 pages in three columns per page. But it’s a great, disturbing read. And talking of spin, which moron allowed the release of these without the methodology (sample size etc) details? I mean these stats seem to be a tad too convenient.
Some time back, BT pontificated:
The aim must be to gradually equip small investors with the skills needed to make more informed decisions and thus minimise losses and complaints when they occur. To do this, a fundamental mindset change is needed – dismantling contra and improving disclosure are only the first steps.
Changes have to be made with a mind to what small investors really need to be told instead of what the financial community wants to tell them.
My problem with this is that it lays the responsibility on anyone but the retail investor. If he wants to punt mindless, let him accept the consequences. Why spend money and effort trying to educate him when he isn’t interested?
A fool and his money is soon parted.
As the chairman of SGX, Pillay (he was one FT that contributed to S’pore — at SIA and as one of the contributors to and implementers of Dr Goh Keng Swee’s policies) said, retail investors have to take an interest in corporate governance. Ironically a report on his speech appeared in BT on the same page as the above rubbish.
This was the message the High Court gave last week when it doubled the one-year disqualification order imposed on Mr Ong Chow Hong for failing to use reasonable diligence in the discharge of his duties when he was a director of then-listed company Airocean Group in 2005.
The SGX had halted trading of Airocean shares and asked for clarification on a media report that said the CEO was being investigated by the Corrupt Practices Investigation Bureau.
A directors’ meeting was convened but Mr Ong missed it to attend a golf function. Airocean sent out a “misleading” public statement later that night, which led to three other directors being charged. Their cases are still before the courts.
Appeal Judge V K Rajah said Mr Ong, had “committed nothing short of a serious lapse in entirely abdicating his corporate responsibilities … One would think that any competent director would immediately comprehend the pressing urgency and significance of (the SGX’s) query and the critical need to respond accurately and promptly.”
“The gravamen of the charge here is that the appellant consciously abdicated from his responsibilities; he never asked to see the draft announcement before it was released to the public, and was quite content to delegate his responsibilities to another director.”
Justice Rajah said the public must be protected against all errant directors “by an uncompromising reaffirmation of the expected exemplary standards of corporate governance”, referring to the court’s discretion to impose disqualification orders that would be “sufficient to deter serious lapses in corporate behaviour”.
During the appeal hearing, Justice Rajah noted that the law “does not impose the obligation for directors to get it right all the time but it requires directors to exercise due diligence, that you must participate if called upon”.
Directors have to “bring to bear their own judgment” in evaluating advice received from professionals and not “seek shelter behind other specialised directors” even if they are not experts in that issue of concern.
Update on 18 October at 10.30 am
Today: 16/10/ 2014
The High Court has set aside the conviction of former Airocean chairman Ong Chow Hong for failing to use reasonable diligence in the discharge of his duties as a director of a company, saying it would “constitute a serious injustice” if the conviction were allowed to remain, considering that other directors involved in the case have since been acquitted of their charges.
The charge was in relation to Mr Ong having approved the release of an announcement by Airocean Group in November 2005 to the Singapore Exchange without first having sight or knowledge of the statement.
Mr Ong had pleaded guilty in 2009 to not having exercised “reasonable diligence” in the allegedly misleading press release related to the company’s chief executive officer being in a corruption probe.
Then, the prosecution’s statement of fact said Mr Ong “chose to turn a blind eye and deliberately distance himself from an act of the company … that can have an impact on the investing public”.
Mr Ong was eventually fined S$4,000 and disqualified from taking part in the management of any company for two years.
Yesterday, Judge of Appeal Chao Hick Tin allowed a criminal revision petition by Mr Ong and set aside his conviction, ordering that the fine, which Mr Ong had already paid, be refunded to him.
“For the petitioner to remain convicted, whereas the rest of Airocean’s board of directors were acquitted of the charges against them, would be grossly unfair and would not be commensurate with the relative culpability of the petitioner as compared with the other directors who had approved of the announcement,” said Justice Chao.
In arriving at his decision, Justice Chao reasoned that there had since been a pronouncement by the High Court in a case involving the other Airocean directors that the announcement was not misleading in a material particular. He also noted that the fact that Mr Ong had pleaded guilty did not preclude him from bringing a petition for a criminal revision.
It was less than a month ago that Sino-Environment annced that S$14 million had been “secured”. https://atans1.wordpress.com/2010/03/29/sino-e-wheres-the-14m/ and implied that things were looking up
Were the independent directors doing the right thing earlier this year? https://atans1.wordpress.com/2010/01/10/sino-e-where-are-the-managers-doc/
Or were they intent on making sure they could not be sued?https://atans1.wordpress.com/2010/01/03/sini-e-the-plot-thickens/
Hopefully someone will explain to the shareholders how within the space of less than a month expectations were raised and then dashed. Though I doubt it.
Maybe MM Lee shld take a lesson from N Korea, even though S’pore is not N Korea https://atans1.wordpress.com/2010/03/19/our-swfs-staff-shld-be-thankful/
No not execute* the GIC and Temask executives whose judgement lost us billions and made MM look no longer like a sage that he undoubtedly is, but an ordinary mortal that is stupid. He had defended the bank investments saying they were for 30-yrs. Now we know that it might take that long to recoup our principal in UBS; and that Temasek sold out of BoA while a top hedgie was buying.
But he could do something to those who goof up, so that others are more careful of messing-up. Even if those who goofed do not deserve to be punished.
What about caning them? So that the executives in GIC, Temasek , TLCs and GLCs will buck up. My friend heard him say at a lunch some years back of “Lining up some people and giving them six of the best [cane them]”. He was speaking at a lunch in his honour when he last visited KL. My friend was seated beside him, or so my friend claims. But my friend has been known to tell fibs.
If caning sounds outrageous in a civilised place, in the mid-18th century, the British court-martialled and executed an admiral for failing to “do his utmost”. It was meant “to encourage the rest”**. As the admiral executed was the son of an admiral, all naval officers (aristocrats, gentry or upper middle, the lot of them) knew that, if it could happened to a lord and an admiral’s son, it could happen to any of them.
A naval historian wrote that the execution forged “a culture of aggressive determination which set British officers apart from their foreign contemporaries, and which in time gave them a steadily mounting psychological ascendancy”.
For the rest of the 18th century and the whole of the 19th century, Britannia ruled the waves.
BTW the admiral had reason and justice on his side (just like the SWF executives, I’m sure): little gd it did him. And little gd should it do the executives. There are more important things that justice and fair play for individuals when matters of state or profit are concerned.
Hmm, maybe the N Koreans know their British history, better than MM, a Cambridge man.
*They executed the finance chief who messed up a currency reform resulting in protests and a climb-down by a government that is usually brutal towards protestors.
** Another reason was to appease public opinion. People were upset that as a result of his actions (very reasonable), a fortress was lost.
If this can happen to a UK listco, which is part of the Hong Leong Gp, could happen to Sino-E or any other S-Chip that has or had management or corporate governance problems. SIAS and SGX should ask listcos what steps they have taken to prevent sumething similar happening to them in China? FT reports
Millennium & Copthorne, the hotel group, underscored the challenges for western companies operating in China on Monday after it revealed that a former employee at one of its joint ventures there had allegedly sold $48m (£31m) of the venture’s assets without M&C’s permission.
The company said the employee, Cheung Ping Kwong, sold the assets – which included a hotel and development land – in spite of a Chinese newspaper advertisement issued by the joint venture warning that he had been removed from his position at the group and was not authorised to sell the holdings.
Can’t understand why Sino-Environment spends $ on advisers* in connection with the proposed restructuring of the Company’s 4% convertible bonds due 2013 issued in an aggregate principal amountof S$149 million (the “Bonds”) and its debt obligations.
When it terminated nTan Corporate Advisory in March as the independent financial adviser (IFA ) to the Company, the board said, “In line with the Company’s cost-cutting measures, the Company has terminated the appointment of the IFA with effect from 18 February 2010. The Company’s newlyappointed chief executive officer, Mr Sam Chong Keen, will undertake the task of negotiating and liaising with the Company’s bondholders.”
I think the board owes the shareholders an explanation for this change of mind. And I hope SIAS or SGX will ask the board for an explanation. Though something tells me that nothing will happen. Poor shareholders, they might reasonably think that directors are spending shareholders’ money to ensure that the board doesn’t get sued.
Or that the board thinks CEO is not up to job?
*Ernst & Young Solutions LLP (“E&Y”) is the financial adviser. “E&Y’s scope of work will include, among other things:
(a) advising and assisting the Group on suitable options for discussion with the holders of the Bonds (the “Bondholders”) and providing assistance on the development of a comprehensive debtrestructuring plan of the Company’s existing borrowings and liaising and negotiating with the Bondholders in connection with the debt restructuring exercise; and
(b) undertaking a business and financial analysis on certain related matters.”
“The Company has also appointed Stamford Law Corporation as its legal adviser to act for the Group in relation to matters arising from the debt restructuring.”
Princeton University economist Burton Malkiel, the author of “A Random Walk Down Wall Street”, a book that introduced many to the idea of investing via indexed-linked funds, sees value in Chinese shares, he tells the FT.
The FTSE-Xinhua index of the 25 largest Chinese stocks quoted in Hong Kong (”H” shares) is different [from the Shanghai “A” shares which he thinks overvalued], he says. This year, while the Shanghai has gained 53.8 per cent, the FTSE Xinhua is up 6.8 per cent – less than the S&P 500.
A “matched pair” study – comparing oil company CNOOC with ExxonMobil, its equivalent in the S&P, and so on – shows that FTSE-Xinhua price/earnings multiples are higher than in the S&P. But their rate of earnings growth is also higher. Crucially, their “PEG ratio” (the earnings multiple divided by the growth rate) is actually lower. So, Malkiel says, Chinese “H” shares are “moderately priced” compared to the S&P.
That is why he is buying China. But Malkiel is not selling his principles. He recommends investing in “H” shares via exchange-traded funds tied to the index – and not backing anyone who says they can beat the market. (Note there is an ETF traded here that tracks the FTSE-Xinhua index of the 25 largest Chinese stocks quoted in Hong Kong (”H” shares): DBXT FTChina25.)
Bubble or collapse in China?
He would not be surprised if China took a near-term hit. But long term, he believes it is the place to be … He is concerned about asset bubbles forming in real estate, banking, and in the stock market. “This is bound to occur wherever economies grow fast, and China’s expansion over the past decade has been unprecedented in the history of industrialisation.”
But will the economy collapse if any of these asset bubbles burst? “Absolutely not,” says Mr Malkiel. “They will correct, and restart because of the strength of the underlying story and the country’s extraordinary balance sheet.”
He does not think the country can continue to rely on export-led growth for both geopolitical and economic reasons.
“China potentially has the largest consumer market in the world, but its consumption is less than 40 per cent of GDP, a ratio that has not changed over the past decade. In the US, the ratio is about 70 per cent.”
But key reasons for low consumption remain extant: people need to save because there are virtually no government safety nets; and the one-child policy makes it difficult for children to adequately care for their parents.
The divide between the Haves and the Have Nots is what most worries Mr Malkiel. “There are seismic gaps in China between rich and poor, especially seen in the affluent east versus the impoverished central and western regions.”
This has already led to some unrest. Potential instability is a great danger. “But that’s why the government is developing infrastructure, education and a nascent social safety net,” he says.
He contends that a purchasing power-adjusted gross domestic product weighting, which adjusts for the renminbi’s significant undervaluation by this measure, suggests equity exposure of between 6 and 12 per cent.
So how does he (and his clients) invest in China?
As chief investment officer of China-focused AlphaShares, he is certainly helping investors find their way into the mainland. He has crafted a series of indices, some of which are trading as ETFs, that provide specific sector exposure (infrastructure, consumer, technology and real estate) and market exposure (all cap and small cap).
But his firm has also developed a set of private actively managed funds. These include a China-linked fund, which invests in non-Chinese companies that are directly benefiting from China’s growth, and an enhanced index fund – a broad-market fund with an enhanced weighting of small and value stocks. A buy-write fund aims to exploit Chinese market equity volatility by going long the highly liquid FTSE Xinhua 25 Index and writing options against it to pick up premium income. AlphaShares may take these funds public.
Mr Malkiel squares this active management with his long-term embrace of passive investing by citing the inherent inefficiencies in the way the Chinese market functions and is tracked. He believes unprecedented growth, trifurcated shares [mainland, Hong Kong and foreign classes], and volatility present special opportunities that cannot be captured through traditional indices.
Finally, it should be no surprise, he is a bull on emerging markets, and equities in general.
For a 40-something US investor with a family, he is recommending a portfolio with 80 per cent equity exposure. And he thinks half of that should be foreign stocks. He believes long-term investors will be best served with half of this international exposure being in emerging markets such as Brazil, India, and China.
He remains a believer that passive exchange traded funds are the most efficient means of gaining market exposure around the globe. His recommended 50 per cent US exposure is close to the MSCI All-Country World Index weighting of 44 per cent. However, he deviates significantly in his exposure to so-called EAFE countries, the developed world ex-US and Canada. He recommends 25 per cent EAFE exposure versus the global weighting of almost 41 per cent, in the belief that Europe and Japan will not experience significant growth in the coming years.
He departs from market-cap benchmarking even more materially in recommending 25 per cent equity exposure to emerging markets, twice the All-World Index’s weighting.
Mr Malkiel justifies this by citing a perceived fundamental shift in growth away from developed to emerging markets. “My portfolio strategy remains passive, I’m not picking stocks,” he says. “I’m adjusting for economic realities. And we see the need for such investment modification in China where a low free float [on which most indices are based] undercounts China by at least a factor of four.”
In the middle of March, BT reported that the CEO declined to comment on the S$14 million cash reserves the group’s former executive directors claimed to have kept in a Xiamen bank, saying: “We haven’t sent the auditors in yet, so I don’t want to make any comments on the cash as that could be quite misleading.”
Have the auditors gone in yet? And if not, when? Sin0-E shld be telling its shareholders.
[Update on 18 April 2010 — Co says money is there and that it has been secured]
As a group of managers have asked for the opportunity to subscribe for 20% or more of the group’s issued paid-up capital in the form of new shares, shareholders could be reassured that there is value in Sin0-E, something that the CEO was quick to point out. But they should worry that this request was tied to a pledge of support to the new directors.
A polite threat?
It was reported in Today that ” Minority shareholders of Lion Asiapac are making another push for the company to pay out special dividends. Previous calls for such distribution were ignored.”
‘Mr Mano Sabnani, a Lion Asiapac shareholder, said: “The company has got more money than it needs. It can easily pay out 20 cents a share and still have a big cash hoard for new businesses.
‘Shareholders had previously petitioned Lion Asiapac’s chairman Othman Wok, calling for the distribution of special dividends to boost the stock price, which is trading at a heavily-discounted 33 cents to its cash value of 47 cents.”
The problem is that the company is a subsidiary of Lion Group, a M’sian listco, which means that Lion Group has the votes to block any such resolution.
Buying on a deep discount to NTA only works if the value investor can see some catalyst that will unlock value. Where there is a controlling shareholder or shareholders, this catalyst often does not exist. Witness Haw Par https://atans1.wordpress.com/2009/12/11/hidden-tiger/,
And bear in mind that such a discount could also be a sign that investors are concerned that the cash or assets could be used up in unprofitable businesses, rather than given back to shareholders. Again where there is a controlling shareholder or shareholders, this is more likely to happen. Not because the shareholder wants to screw the others but often because his time horizon is very, very long. And he has other reasons for his holdings say sentimentality.
Chinese dot.com companies listed on Nasdaq were trading below their net cash positions after the dot.com bust. Investors rightly assumed that they would not see the cash.The cash would be used to fund internet ventures etc. Anything else except be returned to shareholders. They were right.
The ST suggested that S-Chips should deposit their cash in in DBS, OCBC or UOB and not Chinese banks. This could reassure investors that the S-Chips’ cash were safe. This would in turn help the shares to trade above their net cash per share.
Err might not be a gd idea. Forget about the practical reasons like
— the companies not having the cash they claim they have; or
— withdrawing the cash after depositing it for reporting purposes and deposting it again just before the next reporting date. To prevent this the banks would need clear mandates to report such actions, and manpower and systems to track such movements.
It could be that the investors are (or will be) concerned that the cash could be used up in unprofitable businesses. Chinese dot.com companies listed on Nasdaq were trading below their net cash positions after the dot.com bust. Investors rightly assumed that they would not see the cash.The cash would be used to fund internet ventures etc. Anything else except be returned to shareholders.
They were right.
I’ve always wondered why SIAS had been quiet on the lack of news from Sino-E’s board on what was being done to protect the assets and business of the company. I had tot that maybe company had quietly assured SIAS that things were in motion but that publicity could cause problems.
So I was surprised to read in Wednesday’s papers that SIAS had gone public on Tuesday, saying it had asked asked questions since December, but had been ignored. ST also reported that Sino-E had responded in a sense. No wonder it didn’t earlier reply or inform shareholders, the news is not reassuring. Bugger-all has been done other than reconstituting the board and appointing a CEO. Production has ceased, and the cash has not been secured.
Though to be fair, the board is S’pore-based, while business, assets are in a faraway district in a faraway province from Beijing or Shanghai in China. And the board could could argue that since the shares are still suspended, there was no need to upset shareholders with the bad news.
Let’s hope that SIAS has learnt that a nicely, nicely approach could be taken as a sign of weakness and impotence. More and louder growls, pls. If nec, howls pls. Wolves are feared: lap dogs and toothless mutts are not. As MM has said, S’poreans needed to be spurred.
Catalist-listed furniture and beauty products firm Novena Holdings sold off the last bit of their furniture business. Novena said they “will now focus on building a new core business in the offshore and marine sector”, and that they are “exploring strategic options to grow its business via synergetic merger and acquisitions.”
Novena weren’t that successful in the furniture business, nor in beauty products. So what makes the same managers think they can make it in the offshore and marine sector? Or grow “via synergetic merger and acquisitions”.
I’m reminded of what a Hongkie friend said when he heard that the ex-CEO of NTUC Income was trying to get 100,000 people to sign a petition asking the ex-CEO to stand for the presidency, “So easy to be S’pore president meh?”
“The property investment arm of Morgan Stanley is in final talks to sell a Chinese apartment complex to a unit of Singapore’s Keppel Land … The overall value of the luxury apartment property is estimated at about 900 million yuan (S$186 million) and Morgan Stanley has owned it for about five years,” from a BT report last week.
So KepLand are super bullish on China, just like fellow-TLC CapitaLand.
And DBS is ranked among the top three foreign banks, in terms of assets (2009 KPMG Research China Banking Industry), said DBS CEO Piyush Gupta. The bank expects to open 12 more branches over the next five years in China, he added. It currently has eight branches and seven sub-branches in eight cities across China.
One wonders if groupthink is at work in the Temasek group. In addition to the investments of these two property companies, and DBS, Temasek are big in China. They are big investors in several private equity funds and have big holdings in two Chinese banks: 4% of Bank of China and 6% of China Construction Bank.
Talk of a mega bet on China if all these are aggregated.
Or could there be a mastermind directing that investments be made in China? Temasek and the government have consistently denied that the government direct Temasek’s actions and that Temasek direct the actions of the companies where they have controlling interests.
Still the many S’poreans (I’m not one of them) who are conspiracy theorists or who practice the art of guessing what is going on behind the scenes — dietrologia in Italian, literally “behindologypoint” –would say, “They would say that, wouldn’t they?
And point to three pieces of “evidence” that there is a controlling brain that wants to bet big in China.
One is that in the late 1990s, when the government exhorted Singapore cos to go abroad, SingTel and DBS made very expensive acquisitions in Ozland and HK respectively.
Then there is MM Lee’s remark when asked why he intervened in an SIA dispute between its mgt and pilots. He is reported to have said,”We own it,” or words to that effect.
Finally, PM, SM, MM and other cabinet ministers are bullish on China.
Since https://atans1.wordpress.com/2010/01/10/sino-e-where-are-the-managers-doc/ there is no news on appointment of on-the-ground managers, or reassurance that the assets and business are being looked after properly by China-based managers.
Board, if you are helpless, say so leh? No shame telling shareholders that with you in S’pore and assets and business in a far away province in distant China. Even the Chinese emperors admitted that there were parts of China where they could do bugger-all.
“A possible major catalyst for SIAE [SIA Engg] is if parent company SIA decides to divest its substantial ownership in the company as it did Singapore Terminal Airport Services (SATS) earlier this year. SIA currently owns an overwhelming 80.6% stake in SIAE,” says Kin Eng Securities.
My tots in mid June 2009:
SIA does in specie share dividend of SIA Engg saying:
“Distributing shares through an in specie dividend will unlock shareholder value by giving SIA shareholders direct ownership of SIA Engg at no cost to them …The proposed distribution will allow SIA to concentrate on its airline business, something advised by MM Lee in 2004 … SIA Engg will be able to independently pursue opportunities to aircraft maintenance, repair and overhaul businesses. The Proposal will improve trading liquidity of SIA Engg shares, potentially enhancing value.”
Then after some time has passed
SIA Engg announces Acquisition of 100% of ST Aerospace from ST Engg
“Acquisition consistent with SIA Engg previously announced long-term strategic plan”
ST Aerospace is the “Largest aircraft MRO company by commercial airframe man-hours” and has “Strategic partnership with RSAF”
Rights issue with Temasek taking up its entitlement and prepared to subscribe for shares that other shareholders don’t want.
Remember you first heard it here. But based on the companies’ past performance, SIA Engg should only buy ST Aerospace, if the price paid reflected Aeo’s lower margins. SIA Engg’s margins are consistently better than those of Aero. EG In financial yr ending Dec 2008, Aero’s turnover was S$1.9b with PBIT of S$272m, while SIA Engg turnover was S$1.1b but PBIT of S$301m.
But what price another national champion? And financial engineering by Temasek?”
If I were a small shareholder, I’d need some more information on what is happening.
Following last Sunday’s announcement that the three executive directors (EDs) had resigned, the independent directors (IDs), by then the only remaining directors, said mid-week they had made three new board appointments and re-appointed the former financial controller. Two were IDs and one was a non-executive.
But till time of this post, nothing has been heard about who is managing the company in the absence of the CEO or any ED in China. And if no one is managing, who will manage it and when? Waz the point of all these directors based here? Everything of value is in China.
The IDs should be telling shareholders what they are doing to ensure that the assets of the company are not plundered or the business is not misrun in the absence of the EDs. If there are already gd managers on the ground, shareholders should be told. If there are none, why were there no plans for managers to replace the EDs? After all the IDs were seeking to remove the then EDs. And when will the new managers are expected to be in place? Shareholders need this information.
- SIAS not publicly commented on this;
- SGX not publicly querying company; or
- none of the usual corporate governance pundits are even raising this issue.
But who knows, maybe behind the scenes? Somehow I doubt it.
Is all this corporate governance activity by the two IDs and talk by others, Wayang or shadow puppetry in its most sophisticated form?
A small shareholder might very well think that. I couldn’t possibly comment
After the Chinese police refused to proceed against the chairman as requested by the independent directors, the three executive directors resigned, leaving no-one to run the company. This mass resignations seems to be taunting the IDs as they are resigning after a favourable police decision. They had refused to resign for months and the IDs had to get a court order to call for an EGM to remove the EDs.
Adding insult to injury, the company said IDs “will continue to keep shareholders updated of all material developments”.
Err … But when BT asked the IDs for comments, they said that they are seeking to clarify the situation before issuing any response. As at the time of this posting, no annc has been made by the IDs.
They must be confused and worried because with the EDs resignation, no-one is managing the company. And some workers are threatening to strike over the IDs actions. And they could be sued by the chairman and shareholders.
Great way to start 2010.
They have the responsibilities and powers of directors but are powerless in reality. The co’s assets are in a far away province of a far away China. Taz the reality.
Recently I had pointed out that the independent directors, despite getting a court order, had done nothing to call the EGM to sack the executive directors. I speculated that maybe they had found out that the EDs had the votes https://atans1.wordpress.com/2009/12/31/sino-enviro-waz-up-doc/ .
Well there is now an annc on company’s site saying that that the chairman had been cleared by the Chinese police of allegations made against him by the IDs.
Ouch! This is not good news for the IDs. It undermines the allegations that they are making against the EDs. As the Chinese docs are dated 25 Dec, maybe they knew about it and hence did not call EGM.
If I were an ID, I’d be concerned about the chairman suing, whether I have the appropriate insurance policy, and whether PwC can be sued. I”m sure PwC are consulting their lawyers and checking their insurance policies.
Wonder what SIAS will now say? They have been supportive of the IDs actions.
All goes to show: Taking an IDship in a company listed in one country, domiciled in another with assets in a third where there are problems with the rule of law is not to be taken lightly. It, like investing, in such a company can be the stuff of nightmares.
When is the EGM to remove the executive directors going to be called?
On 17 December 2009, the independent directors announced, inter alia :”At the conclusion of the hearing on Thursday, 17 December 2009, Chong JC granted, amongst others, the following orders:
a. That pursuant to section 182 of the Companies Act (Chapter 50), an
Extra-Ordinary General Meeting of the members of the Company (the
“Meeting”) be called and conducted within 21 days from the date of
i. To remove the Executive Directors from the Company’s Board of Directors”.
It’s now 31 Dec, and there is no EGM annc. Why not?
One wonders if the IDs have found out that the EDs have the votes to prevent them from being removed? https://atans1.wordpress.com/2009/12/26/spare-a-tot-or-more-on-sino-environment/
But having gone to court, this silence from the IDs is deafening, and should worry the punters (sorry investors) in this stock. But then it seems the retail shareholders of this company are extremely passive. It took the IDs to get an order of court to hold an EGM, while the efforts of some shareholders (I salute them) to organise an EGM came to nothing.
They should realise passivity has its price. Ask those investors in minibonds, and HN5, Jubilee and Pinnacle notes.
It’s party time, but spare a tot for the independent directors of Sino-Environment.
They are not having a good time. They have gone to court to get orders to hold an EGM to remove the executive directors, and to restrict the EDs’ actions.
If at the EGM the EDs are not removed, the two IDs could find themselves personally liable for a lot of legal bills, including the cost of getting the court orders. And looking really dumb. But if they didn’t do anything, they might be sued by some investors or troubled by the authorities.
Already the EDs have complained, “The Independent Directors have apart from legal advice rendered to them by the solicitors to the Company, sought and obtained separate legal advice for themselves in their personal capacities, at the expense of the Company. We have informed them that they should do the right thing by not using Company’s funds to pay their own legal fees.”
“The fees charged by WP to the Company for acting for the IDs from April to date amount to the sum of S$268,946.00.”
And “The IDs had appointed PwC to carry out the “special audit” before they informed the EDs about the appointment … The EDs have never agreed to any fee structure or fee of PwC as alleged …The EDs strongly object to the unjustifiable fees that PwC charged to the Company to date, amounting to the sum of S$952,874.00. ”
Come the start of the Lunar new year in February, will the nightmare continue for the IDs? It could, as it is difficult to think the EDs would take what is happening lying down. They said, “The EDs’ reasons and explanation as to why they have not acceded to the IDs’ calls to step down have already been fully explained.”
They wouldn’t say this would they, if they didn’t think they have the votes? IDs could find that despite an open share register (Remember, SIAS said that the share register of Sino-Environment is open, with no controlling shareholder), the EDs have the votes.
As lawyers who are fans of MU should know,when MU (when it was a listed company) became the target of a highly leveraged buy-out offer by the Glazers, the directors sought legal advice on their duties towards shareholders and MU.
They were advised that directors owe a duty to the company and not its individual shareholders. In many instances, the distinction is not significant, since what is good for the corporation will also benefit its shareholders. Maximising the return to shareholders (or creating “shareholder value”), in many cases, does not conflict with the interests of the company.
But there may be situations where the interests of the company and shareholders may conflict.
The interests of shareholders may lie in realizing a short-term gain on their investment, something which the directors may decide is not the in the interest of the company in the long term. For example, the debts that MU incurred in going private, might have prevented the club from buying the players MU needed to win trophies. It didn’t happen at MU; despite its debts MU has the wagga (dosh) to buy players. But the example of Liverpool FC shows that this fear was reasonable and legitimate.
The interests of majority shareholders may not also be the same as the interests of the company. Controlling shareholders may want the corporation to take certain action that may be in its interest, but not necessarily in the best interests of the corporation. Hedge funds, with a controlling stake, may want the company to pay a high dividend because they (the controlling shareholders) want to maximise the returns to their investors. But the company may need the cash to expand its production lines.
The correct answers to these kinds of issues depend very much on the facts of each situation: something the independent directors of Sin0-Environment are finding out the hard way.
SIAS has said that the share register of Sino-Environment is open, with no controlling shareholder; correcting my presumption that the EDs and connections could still control the company.
SIAS goes on to urge “minority shareholders to turn up in force at the EGM to support the Independent Directors (IDs) as their combined votes are important to ensure that the proposal to remove the EDs wins shareholder approval.” (A quibble here: If there is no-one or group with a controlling interest, how can there be “minority shareholders”? SIAS must mean “small shareholders”. Sorry it’s the lawyer in me.)
On a very serious note: What are the implications, if at the EGM, there is a majority who vote against the removal of the EDs?
What happens when shareholder democracy clashes with possible corporate misdeeds? Remember, unlike directors (who have to act in the best interests of the company), shareholders can act in their selfish interests. Shareholders who find themselves “at the wrong end of the stick” as the English expression goes, have to go to court to protect their interests. How will everything then play out?
When general Cornwallis surrendered to George Washington in 1781 (effectively ending the American Revolution), the surrendering British army’s band is reputed to have played “World Turned Upset Down”. If the EDS remain in office after the EGM, some assumptions of company law and the listing manual, may be founding wanting.
As someone interested in the intricacies of company law and the listing manual and how they interact, I selfishly hope that the EDs win.
I know, I know. No a charitable tot at Christmas, especially towards many of the shareholders of the company. But they have to live with the consequences of their actions or inactions. No-one forced them to buy this particular S-Chip.
So the court has ordered the executive directors of Sino-Environment Technology Group to call for an EGM to remove the EDs (bit like asking piglets to vote for Chinese New Year) from the company’s board.
As the public only has 43% of the vote, presumably the EDs and their connections control the balance. What if the EDs use these shares to block their removal? They have their rights too.
Possible moral of the story: be very careful in investing when the EDs and their connections have more than 51% of the votes.