Published March 18, 2009

SGX sets off ripples with rare NOL reprimand

Companies might now not be able to rely on the usual responses, but this could put some in a spot

By CHEW XIANG

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(SINGAPORE) The Singapore Exchange (SGX) yesterday handed down a rare public reprimand to Neptune Orient Lines (NOL), saying the shipping group had not done enough to quell market rumours last week that it was seeking to raise US$250 million from a rights issue.

'It's changing the landscape. It seems to say companies have to say either yes or no to any rumours, they cannot now stay on the sidelines.' - Ho Yew Kee, an associate professor at the NUS Business School

But market watchers say that of more concern to the market in general is the implication that companies may no longer just rely on the boilerplate excuse that they do not comment on market rumours or speculation.

'It's changing the landscape,' said Ho Yew Kee, an associate professor at the NUS Business School. 'It seems to say companies have to say either yes or no to any rumours, they cannot now stay on the sidelines,' he said.

Yesterday, SGX said that NOL's initial response on March 10, that it was the company's policy not to comment on market speculation, wasn't 'sufficiently frank and explicit' enough to pass muster under SGX listing rules and its corporate disclosure policy.

Dow Jones had reported that day that NOL might follow fellow Temasek-linked company Chartered Semiconductor in tapping shareholders for more cash. Other companies in the Temasek stable such as CapitaLand, CapitaMall Trust (CMT) and DBS Holdings have recently issued calls for cash at large discounts to the market price to bolster their balance sheets ahead of Singapore's worst recession to-date.

NOL stock fell 15 per cent in two days as nervous investors bailed out. It was only three days later, on March 13, that NOL issued a statement explicitly denying that it was undertaking a rights issue.

SGX said that if rumours indicate material information was leaked, a frank and explicit statement is required; and if the rumours are false or inaccurate, they should be 'promptly denied or clarified'.

While companies can rely on SGX listing rule 703(3) to temporarily withhold material information, 'the strictest confidentiality must be maintained', it noted. This suggests that once confidentiality is compromised, as, for instance, when rumours hit the market or are reported in the various media, the company is bound to either confirm or clarify them, if the information has or will have an effect on the price of its shares.

'Such statements are essential despite the business inconvenience which may result, even if the matter had yet to be presented to the issuer's board of directors for consideration,' SGX said.

Yesterday, NOL said it had issued the two statements 'after taking account of advice from professional financial and legal advisors'.

'NOL believes that the disclosures it made were appropriate, reflecting its best judgment under the circumstances,' it said, adding that it 'welcomes (yesterday's) move by the SGX to clarify its guidance to listed companies regarding the steps to be taken in the event of market rumours'.

Assoc Prof Ho noted that companies may be put in a spot if they are required to comment either positively or negatively on market speculation. 'It will place them in a very bad position as this may force them to reveal strategic information they would rather not let out,' he said. However, such rules will level the playing field, he noted, as those with privileged information may otherwise be able to unfairly benefit from it.

The day after NOL was hit by the rumours, SGX said in its occasional Regulator's Column, posted on its website, that 'it has come to our attention, through the Exchange's surveillance of trading activities, that material price sensitive information on recent fund raising exercises may have been leaked prior to announcement by the issuers'.

SGX said it will investigate all suspect cases, and that where breaches of the law are possible, they will be referred to the Monetary Authority of Singapore or the Commercial Affairs Department, the white-collar-crime arm of the police.

At least a month before rights issues were officially announced in early February, CapitaLand and CMT were beset by rumours that the rights issues were imminent. On Jan 7, CapitaLand had to issue a statement that while it 'regularly receives and reviews various proposals of a business, financing or other nature', it does not comment on market rumour or speculation.

Last week, analysts from UOB-Kay Hian said other Temasek-linked companies such as Keppel Land, NOL, CitySpring Infrastructure Trust and Mapletree Logistics could make cash calls. Mapletree and NOL have now both denied plans for fund-raising.