Published July 20, 2009

MALAYSIA INSIGHT
Tragedy to spark more politicking

MACC targeted over political aide's death

By PAULINE NG
KL CORRESPONDENT
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IF politicking has been a mainstay of the national scene over the past 16 months since last general election, the death of a political aide under mysterious circumstances on Thursday is likely to exacerbate matters.

'Sudden death' is what the local police have called it.

Sudden it was as Teoh Beng Hock, prior to being found dead on the rooftop of a building adjacent to the Malaysian Anti-Corruption Commission (MACC), had spent a marathon session with MACC officers on the 14th floor of the building, which lasted until 3.45am, nearly 11 hours in all.

The political secretary to Selangor exco member Ean Yong Hian Wah, Mr Teoh had been asked to present himself at the MACC where he was to assist as a witness on investigations into the improper use of state funds for local community projects.

The day before he was to register his marriage, the 30-year-old former journalist was found dead, face down, with early indications being that he fell to his death.

His boss, Mr Yong, is from the Democratic Action Party - one of three parties that make up the Pakatan Rakyat coalition, which succeeded in wresting the country's wealthiest state Selangor from the federal-led Barisan Nasional (BN) coalition.



Pakatan leaders are incensed over Mr Teoh's death, which comes on the heels of previous outcries over the high rate of custodial deaths in police lockups. A number of BN leaders have also expressed concern, and support a full investigation into the circumstances leading to his death.

But public outrage has never been so palpable.

Despite a revamp late last year which was to result in a beefed-up MACC - supposedly modelled after the well-regarded Hong Kong Independent Commission Against Corruption - to replace the former toothless Anti-Corruption Agency, the public has never warmed to the MACC.

While dragging its feet on more obvious cases where corruption is suspected, the anti-graft agency demonstrated a penchant for speedy follow-ups where allegations were made against Pakatan personalities.

'It sickens me to see that the Malaysian Anti-Corruption Commission is allowed to systematically harass and mentally torture opposition leaders and their aides while those in BN who had stolen billions of the Rakyat's money can sleep peacefully in cosy bungalows built with ill-gotten money,' said Distressed Ordinary Citizen in a comment to online news site Malaysiakini.

'How can we be calm when our public institutions like the MACC, police and the judiciary are being misused to prosecute the federal Opposition, in this case hounding the aide of a politician to death,' wrote another calling himself Patriot.

Even though Prime Minister Najib Razak managed to increase his popularity to 65 per cent from 46 per cent in May according to an independent poll conducted in the last two weeks of June, the same survey revealed confidence in the various institutions under him to be sorely wanting.

Scoring highest then was the Election Commission, but its 51 per cent mark was little to be proud of. Trust in the police was 46 per cent, 41 per cent for the MACC and 39 per cent for the judiciary.

Apolitical Malaysians - indeed even most who support a party - care little for the politicking. But they increasingly desire government institutions that are impartial, just and enduring, so that their interests and welfare are protected regardless of who leads.

Despite attempts at strengthening these institutions, most respondents doubt the working and impartiality of these institutions, and judging by the current disdain, expect public regard for these institutions to be further eroded.

In the eyes of many, whatever gains Mr Najib might have made in the past months have been negated by the tragedy, which unfortunately is also likely to result in more needless politicking.

In all this, there could well be a simple explanation. But when public institutions are imbued with so little capital to begin with, few are willing to give them the benefit of the doubt. Which is what happens when reforms are cosmetic and public buy-in so lacking.

Published July 20, 2009

SGX retains monopoly for now

By CHEW XIANG

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THE Singapore Exchange is probably one of the few monopolies listed on, well, the Singapore Exchange. (Another popularly regarded as one is Singapore Press Holdings, which owns this newspaper). If you want to list a company in Singapore, the only place is on the SGX. If you want to trade a stock listed on the SGX, you can do so only through one of the SGX's member firms, and the exchange charges 0.75 basis points for the privilege.

In most other developed financial markets, that kind of monopoly power, once wielded so profitably, has vanished. In Europe, traditional exchanges have been hurting since the Markets in Financial Instruments Directive (MiFID) was passed in late 2007. MiFID allowed firms to send their orders to brokers and exchanges that offered the best terms. In doing so it created a market for so-called multilateral trading facilities (MTF), essentially computerised exchanges that boast much cheaper and faster trading of listed stocks between their members. In the first four months of this year, about 15 per cent of all European equity orders were traded on MTFs, and that will increase to 20 per cent by the end of this year, according to a report from Aite Group.

In the US, the NYSE Euronext executed just 30 per cent of trades in May. Nasdaq has just a 20 per cent share of the trading of stocks it lists. Both have been fighting - and losing - a decade-long war against upstart electronic exchanges such as BATS Exchange and Direct Edge.

SGX's shareholders should not panic - yet. These innovations have to a large extent been kept at bay. For now, 'existing and disparate regulations across the different major Asian financial centres continue to be a major barrier to entry,' said a June report by Aite.

So far in Singapore, only so-called dark pools have been allowed in. These are a sort of limited and specialised version of the electronic exchanges wreaking such havoc in the West. They facilitate quick and anonymous trades of blocks of shares so big that if placed in the normal way would certainly move markets and cause leakage of information. Two dark pools, Liquidnet and BlocSec, began operations last year and both are reporting healthy growth. In fact, June was a record month for Liquidnet in Singapore, said its Asia chief executive officer Lee Porter in a recent interview with BT.

Likewise, BlocSec has signed up over 80 clients here and liquidity in its system is growing steadily, according to Phillip Van Dine, its head of sales. UBS launched a dark pool to match orders among its clients in Hong Kong in May, and is keen to bring the system to Singapore.

Even then, trades executed through dark pools have to be reported to the SGX, which will take its cut of trading and clearing fees. That means that the exchange does not lose out, not financially at least, though it does lost market share and visibility of trades.

That could be why it has moved to curb such off-exchange trades, or direct business trades, as it calls them. In January, it invited public consultation over revised requirements for direct business trades that if carried through would hurt such off-exchange trading venues. In effect, the proposed rules meant that only trades of at least 500,000 units, or worth at least $500,000, could be taken off-exchange. (The previous limits were 50,000 units and $150,000.)

The SGX's official stance is that the initiative 'would enhance the transparency of trades, as well as improve exchange regulation over trades'. 'This, in turn, would provide investors with more confidence regarding the integrity of the marketplace.' With the reduction of minimum bid sizes in December 2007 and a new trading engine introduced last July, the increased efficiency of trading on-exchange should mean less need for direct business trades, the SGX said.

Yet average spreads - one measure of efficiency - are at 37 basis points in Singapore among the highest in the region, according to reports. Japan, Korea, and Hong Kong boast spreads of between 22 and 25 basis points. In Australia, spreads are just 16 basis points. Dark pool operators say that they can improve this by more efficiently matching big orders. Yet the new regulations would drive order flow away from dark pools. BlocSec, for instance, has minimum trade sizes of either US$250,000 or 20 per cent of average daily volume.

The new regulations, if passed, may or may not have anything to do with the fact that SGX is, according to one report, considering whether to set up its own dark pool. That is a route that embattled exchanges overseas have taken. The London Stock Exchange for instance has won regulatory approval for Baikal, its own dark pool which is being launched in phases.

But as long as trades have to be reported to SGX, and it retains a monopoly on trading fees, it will not be financially hurt. But its role as a regulator will come under pressure. It will have to ensure that the new trading systems benefit all, not just big players with big pockets. It will have to find a way to retain oversight of the anonymous trades conducted within the dark pools. Regulators in the US and Europe are already taking alarm. 'Given the emerging risks posed by dark pools, the commission will be taking a serious look at what regulatory actions may be warranted in order to respond to the potential investor protection and market integrity concerns raised by dark pools,' US Securities and Exchange Commission chairman Mary Schapiro said in a speech in June.

It's not clear how serious a threat dark pools are here. The SGX refused to provide details of the volume and value of direct business trades here. But there are bigger worries. MTFs are coming to Asia.

Unlike dark pools, MTFs don't limit themselves to big market moving orders; they compete with traditional exchanges directly. Three of them have applied for exchange licenses in nearby Australia (though their applications have so far stalled as the government dithers over whether it should allow the competition). One of the applicants, Chi-X, is also keen on running its own exchange in Singapore. If the Monetary Authority of Singapore opens the door, funds and money managers here will celebrate. SGX's shareholders will not.

Published July 20, 2009

Quitting for 'personal reasons' under scrutiny

Study asks if these reasons are really linked to personal circumstances of IDs

By LYNETTE KHOO

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(SINGAPORE) Boilerplate disclosures on resigning directors are still prevalent, while early retirements by directors with very short tenures do warrant a closer look.

These are some of the key issues raised in the latest study by the Corporate Governance and Financial Reporting Centre (CGFRC) at the National University of Singapore.

The CGFRC collected information from company filings on SGXNET on cessation or resignation of directors and key officers from Oct 1, 2007 to May 31, 2009. It found 163 cases of resignation of independent directors (IDs).

The study found that a majority of directors - 69 per cent - tend to attribute their resignations to personal-related reasons while 14 per cent of them cite corporate governance-related reasons.

This raises the question of whether 'personal-related' reasons are really connected to the personal circumstances of the IDs, say the co-authors of the report, CGFRC co-director Mak Yuen Teen and research analyst Cynthia Hu.

One way to assess is to see whether the director also resigns as ID from other boards, they said.

The study therefore zoomed in on the IDs who resigned for 'personal reasons' before March and sit on at least one other board as IDs. Of the 30 IDs who resigned before March, only four resigned from other boards within three months from their resignations.

Five out of 28 IDs who resigned before December 2008 also resigned from other boards within the next six months. But the five IDs still remained on other board(s) as IDs.

When an ID resigns from one board but not the other, it doesn't necessarily reflect badly on the board he is leaving. For instance, the ID may resign only from some boards because he has become more aware of taking on too many directorships. The co-authors believe that in such a case, the company should state the reason clearly as such.

While resignations of IDs half-way through their terms may not always mean that something is amiss, they could be an indicator of corporate governance issues, they add.

The authors cited the case of Oriental Century, where three IDs resigned in April 2007, including two IDs who served less than one-two years. Two years later in March this year, fraud was uncovered at Oriental Century's Chinese subsidiaries.

On a positive note, SGX's change in template for cessation of directors on Oct 1, 2007 has led to improvement in disclosures. Before the change, an earlier study by NUS Business School found that most director resignations were included under 'Miscellaneous' announcements or buried under other news announcements.

It is also more common now for IDs to flag corporate governance issues when resigning, which was virtually unheard of before SGX's change of the announcement template, the report says.

'Multiple resignations from the same board citing disagreement with management or controlling shareholders would be of particular concern,' the co-authors say.

A case in point was Advance SCT, which saw a spate of departures of its IDs, who cited difficulties in discharging their duties because of the lack of timely information and regular updates from management. A special audit subsequently found a lack of veracity in certain transactions by the group's Malaysian subsidiaries.

The CGFRC study also found 63 cases of directors retiring and not seeking re-election. It would not have captured all retirements because prior to June 9, 2008, SGX's announcement template was named 'resignation' instead of 'cessation'.

Some 33 per cent of these directors had served for three years or less. There were eight IDs who served for one year or less. These cases may indicate that the director himself, the board or controlling shareholders had a change of heart.

The co-authors felt that 'fair weather' directors who resign at the first sign of difficulty for a company are arguably breaching their duties to the company.

IDs that BT spoke to appear to understand this principle pretty well.

Robson Lee, an ID on several listed companies, noted that IDs should not opt out at the first sign of trouble by resigning but ensure that problems detected under their watch are properly resolved and accounted for before they step down.

'From my experience and observations, the SGX gives enormous support to IDs when red flags are detected,' he added. It is available for consultations by the IDs and provides suggestions and guidance under such circumstances.

Lim Jit Poh, chairman of ComfortDelGro and ID of some listed firms, felt that it is not true that IDs step down the moment problems crop up. 'Most face the problems and discharge their responsibilities,' he said. Mr Lim remains as chairman of China Printing & Dyeing, after its parent firm went broke and its CEO and deputy CEO absconded.

Ng Joo Khin, a lawyer at Stamford Law and ID of a Chinese firm, said he believes that 'an ID who resigns citing difficulties in discharging his duties would most likely have already spent months reaching out to the company's management to resolve any such difficulties or differences before quitting'.

Published July 18, 2009

Bid to delist CK Tang hits another road block

EGM adjourned; board urged to get new valuation of flagship store

By JAMIE LEE

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IT'S not victory yet for the Tang brothers looking to delist CK Tang in their third attempt.

STRONG EMOTIONS Shareholder Alan Goei was overcome after the resolution for the adjournment of the EGM was passed

Minority shareholders snatched a rare adjournment of the extraordinary general meeting (EGM) half-way through it yesterday and pressed the board to get another valuation of the flagship store based on its redevelopment potential.

Following the adjournment of the EGM to July 31, the closing date of the offer at 83 cents a share has also been extended to Aug 14.

'We have to go back and deliberate,' said chief executive Foo Tiang Sooi when asked if the directors would commission another valuation report, adding that they would seek advice from the Singapore Exchange.

Shareholder Alan Goei, who shed tears after the resolution for the adjournment was passed, said he may commission his own valuation report for the board's review before the next meeting.

During the EGM, some among the 100-odd crowd hit out at the valuation based on the property's existing use that resulted in its $340 million price tag.

Mr Goei - a director at real estate firm Goldhill Developer - said that in 2007 the board valued the property based on redevelopment scenarios and he asked the directors to do so again. Based on his own valuation feedback, Mr Goei said CK Tang could be worth $80 million more if a residential block is built on the site.

He also threw out a $450 million counter-offer on the spot and told BT that he would be meeting a consortium of private investors to try to get funding.

But Mr Foo said that from the 2007 report, values from making some redevelopment assumptions were 'similar or lower' than values based on existing use.

The board felt that valuing the property based on redevelopment potential would be 'academic', said Mr Foo. 'Since (existing use) has been the thinking all along, and sincerely so, we valued the company on that basis.'

He also noted that because the store is situated in a 'hotel zone', plans for residential apartments may not work.

The Tangs - who were absent from the EGM - have maintained as part of their privatisation attempts that there are no plans to redevelop the property.

Shareholders criticised the directors for not clarifying with the Tang brothers if they would redevelop the property once the firm is privatised, with some crying out 'shame, shame'.

'Assuming the Tang brothers succeed, they would be able to develop the site at their own time and whim,' said one shareholder who declined to be named. 'We expected all the independent directors to analyse (this) deeply.'

'You disappointed all the loyal shareholders,' said another investor, a Mr Toh, before waving a stack of annual reports bundled with raffia string.

But the directors said that the recommendation to shareholders to accept the offer came after an evaluation from the independent financial adviser.

They said they had asked for a clarification from the Tangs but were referred back to their earlier statements. The brothers also declined to attend the EGM, despite calls from the directors to do so.

As at yesterday, the total stake held by the Tangs - including the number of accepted offers - stood at 89.51 per cent. The delisting will go through if votes against it total less than 10 per cent of the issued shares.