Published September 23, 2009

Why SIC should break its silence on Chartered episode

By WONG WEI KONG

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DISCRETION is a good thing, but for the Securities Industry Council (SIC), silence does not always serve to further its cause.

Take the latest development in question: the SIC's decision to stay silent on the events surrounding the $2.5 billion bid for Temasek-linked wafer fab Chartered Semiconductor Manufacturing. 'The Securities Industry Council does not comment on specific cases or on its dealings with individual parties', the SIC, which administers the Takeover Code in Singapore, told BT last week. There are, however, several arguments that can be put forward to show why the SIC should comment in this case.

For one thing, this isn't just another takeover bid. The bid by Advanced Technology Investment Company (ATIC) for Chartered is the biggest acquisition in the local market since the takeover of Overseas Union Bank by United Overseas Bank at the start of the decade. It also involves two government-linked entities, Chartered and controlling shareholder Temasek, which is accepting the bid. And it touches on a sector of substantial economic importance. By any yardstick, it's a deal that holds huge market and public interest.

More than that, the deal has raised questions about the takeover regime that have remained unanswered. What makes the deal interesting, from the market conduct perspective, is that the market got wind of the bid in late May, almost four months before it happened. The rumours sent Chartered shares up by as much as 9 per cent, but Chartered said then, in response to a BT report on the potential sale, that it had not received any bid from ATIC. There was no statement from Temasek.

Asked to clarify its May statement when the deal was finally announced this month, Chartered reiterated that it had not, at that time in May, received a bid from ATIC, with the caveat that it holds discussions with bankers from time to time. It added that Singapore Technologies Semiconductors Pte Ltd (STS), the Temasek unit that holds the controlling 62.28 per cent in Chartered, has also confirmed that neither STS nor Temasek had received any bid from ATIC around that time.

Yes, so no bids were received, but have talks or discussions be- gun that could lead to such a bid and could explain the spike in the share price? Under the Takeover Code, the company must make an announcement once it becomes a subject of speculation. This is regardless of whether there is a firm offer as SIC only requires the company to say that talks are taking place, without naming the potential offerer. As for majority shareholders, the code requires them to comment if the company is a subject of rumour and there is reason to believe that the actions of the shareholder, such as a security lapse, contributed to the situation. So it could be argued that even without receiving a formal bid, both Chartered and Temasek should have, once the shares started moving, been more proactive in providing clarity back in May, or even issuing a holding statement to signal to the market that the stock was or wasn't in play.

BT asked the SIC whether the clarification given by Chartered was in accordance with the code, whether Temasek should have publicly commented if it was in talks with ATIC, and if Temasek had consulted SIC on whether it should have made an announcement. The non-reply by SIC means no one's the wiser.

To be fair, the SIC's position on refusing comment on specific cases isn't unique - it's also the default position of other market regulators here like the Monetary Authority of Singapore and the Singapore Exchange. While there are many good reasons to support such a stance, there are also occasions when the silence should be broken. The last time the SIC made a public comment on a specific company was in October 2008, when it censured several parties involved in the botched takeover of Jade Technologies. Yet, Jade is a far smaller company than Chartered, and the deal value pales in comparison. Chartered, for all the reasons listed, surely deserves more than a non-comment. It will be unfortunate if people come away with the impression that if you're big enough, you may escape censure.

As it is, the Chartered episode has left questions hanging over whether the Takeover Code is tight enough and whether it is administered vigorously enough. Such questions, if left unanswered, could undermine the SIC's objective of an orderly market for takeover and acquisitions. It may well be that nothing is amiss, but on occasions when doubts are raised, the SIC should show its hand and give more clarity. It won't be healthy for the market otherwise.