Published March 19, 2009

NOL SAGA
Companies face tough decisions over question of disclosure

Reprimand of NOL spells challenge to template responses

By LYNETTE KHOO
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TO disclose or not to disclose? And when to disclose? These are some of the hard questions that companies and market players are asking themselves after the Singapore Exchange (SGX) handed Neptune Orient Lines a rare public reprimand for not doing enough to quell market rumours that it was planning a rights issue.

When to disclose? Observers argue that a premature corporate disclosure could also result in a false market

'It's a tough call,' said a banker who declined to be named. 'The board has to make a decision and this is a fine line to draw.'

While a company cannot remain passive if its share price is affected by market rumours, premature disclosure in situations such as a fund-raising exercise or a merger and acquisition (M&A) could compromise the planning and negotiation, said Elaine Lim, managing director of Citigate Dewe Rogerson, i.MAGE Pte Ltd.

That is why companies prefer to stick to a boilerplate disclosure - that they do not comment on market rumours or speculation - when plans are not firmed up yet. But the public reprimand handed to NOL on Tuesday has challenged this.

SGX said that NOL's initial response to the rumours on March 10 wasn't 'sufficiently frank and explicit' to deny or clarify market speculation that had caused unusual trading activity of its shares.

NOL shares had nosedived two straight days before the company clarified on March 13 that it was not undertaking a rights issue. SGX listing rules require companies to make an immediate disclosure on information that would be likely to materially affect its share price or create a false market.

Kim Eng analyst Ken Tai said he believes the regulators are wary that a leakage in material information may give dealers the chance to act - by taking up 'short' positions ahead of a potential rights issue - on a particular counter.

But market watchers argue that a premature disclosure could also result in a false market if the subsequent events turn out otherwise.

Some companies are also concerned that they may be held ransom by every market rumour or unconfirmed media reports.

Jeannie Ong, head of corporate communications and investor relations at StarHub, said the group believes in transparency but is 'concerned that if a listed company has to respond to every market rumour, this could encourage rumour creation simply to solicit a response from the listed company'.

When contacted, companies like SingTel and MobileOne stressed that they remain mindful of their obligations to observe listing rules but declined to specify their policy towards market rumours.

CapitaLand told BT that 'it is of the view that the reprimand of NOL does not set a precedent' as the rules are already laid out in SGX's listing manual.

Singapore Airlines' vice-president of public affairs Stephen Forshaw said the group has factored into its business planning the need for an 'open and transparent disclosure to the market on matters which may have a material impact'.

Meanwhile, investor relations firms say they will continue to advise their clients on a case-by-case basis.

'Providing a template response is not a solution and would be a disservice to investors,' said Terence Foo, managing partner at Kreab Gavin Anderson.

'Ultimately, companies will have to make a judgement call on whether to make an announcement, and if so, on what level of detail to provide,' he added.

Ms Lim said Citigate usually provides 'standby statements' for clients in case of a need for immediate disclosure.

There are four things she advises clients to do: 1) keep material information to a small group or on a need-to-know basis to minimise leakage; 2) monitor the company's share price and trading volume closely; 3) be prepared to make an announcement quickly when required; and 4) consider a trading halt.