Published March 12, 2009

Alarm bells as SGX says it will probe leaks

Recent fund-raisings come under the spotlight as info may have been leaked

By LYNETTE KHOO

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(SINGAPORE) Material price-sensitive information on recent fund-raising exercises may have been leaked before it was announced by the issuers, the Singapore Exchange (SGX) said.

The exchange warned that it would investigate all suspicious cases and follow up with disciplinary action if SGX rules were flouted. Where investigations indicate possible insider trading or other breaches of the law, it will refer these cases to the Monetary Authority of Singapore and Commercial Affairs Department.

This newsflash on SGX's website yesterday came amid a recent spate of rights issues as tough credit conditions made companies turn to shareholders for cash.

DBS Group, CapitaLand, CapitaMall Trust and Chartered Semiconductor Manufacturing are among the companies that have announced rights issues.

The market reaction to such issues has been largely negative with counters falling sharply - on announcement or rumours of rights issues.

SGX's surveillance of trading activities points to possible leaks. 'The Exchange takes a serious view of breaches of the listing rules and market misconduct,' it said.

In the regulatory note, SGX reminded issuers and professionals engaging in transactions involving price-sensitive information 'to maintain the strictest confidence'. If such confidence cannot be kept, they should make an immediate announcement.

Access to confidential information should be restricted to the highest possible levels of management and other professionals on a need-to-know basis, SGX said. 'The issuer is also required to monitor closely the trading activity of its securities and make a public announcement immediately if trading activities suggest a leakage.'

Unusual trading patterns before a fund-raising exercise is usually the first sign of a leak, industry players said.

Stamford Law director Ng Joo Khin noted that it is difficult to totally plug leaks since there is usually a time lag between making a submission to the SGX and the announcement of a rights exercise.

'The involvement of multiple parties in the entire exercise adds to that risk,' he said.

For share placements, however, an issuer can wait till the very day of the announcement to confirm the placement. But, in a rare move, Saizen REIT disclosed its plans for a rights-cum-warrants issue last month while its documentation of the issue was underway and regulatory clearance was being obtained.

Mr Ng noted that the problem of leakage is addressed in such an early disclosure. But most companies want to maintain confidentiality until everything is firmed up and underwriters are not willing to expose themselves too early.

'We are in a situation where we are increasingly seeing a lot of rights issues, so coffeeshop talk and speculation on rights issues are not surprising,' said Mr Ng.

Robson Lee, partner at Shook Lin & Bok LLP, said leakage could come in many ways but it is early days to point fingers.