SGX should identify overseas firms and risks of investing in them

Published August 10, 2015

Letter to the Editor

First published in Business Times on July 16, 2015

I REFER to the announcement by Noble Group on July 14 that it has appointed David Yeow, a lawyer who is resident in Singapore, as a new independent director. On June 20, I wrote to the Singapore Exchange (SGX) asking if Noble was granted a waiver from rule 221 of the Mainboard Rulebook. Rule 221 states: “A foreign issuer must have at least two independent directors, resident in Singapore.” As I pointed out in my commentary (“Noble should pay heed to its corporate governance”, BT, June 24), all the independent directors of Noble appear to be based in, or closely connected to, Hong Kong. I could not find any Singapore-resident independent directors. According to the appointment templates for Noble available on SGXNET from 2010 onwards, all the independent directors who were appointed prior to David Yeow have Hong Kong as the country of principal residence. The lack of Singapore-resident independent directors may partly explain why Noble pays lip service to the Singapore Code of Corporate Governance.

In its reply to me, SGX mentioned that Noble was listed in 1997 while rule 221 was introduced in 2006. However, SGX did not say that Noble was granted a waiver.In the interest of providing greater clarity to the market on the application of its rules, I would urge SGX to answer the following questions:

(a) Prior to the appointment of David Yeow, did Noble have two Singapore-resident independent directors as required under rule 221?

(b) If Noble did not have two Singapore-resident independent directors, was rule 221 not applicable to it, and if so, why?

(c) Was Noble granted a waiver from rule 221, and, if so, what is the basis for the waiver?

Noble is just one of the many overseas companies listed here that have run into problems, raising questions about the SGX’s aggressive pursuit of such listings and the effectiveness of its regulation of such companies.

SGX should emulate the approach taken by Hong Kong Exchange (HKEx) in relation to overseas companies. First, HKEx highlights on its website the different risks of investing in overseas companies. These risks include differences in corporate laws; enforcement of shareholder rights; regulatory enforcement; and laws, standards, restrictions and risks when a company’s principal operations and assets are outside its place of incorporation or Hong Kong. We have seen these risks crystallising in scandals involving overseas companies listed here.

Second, HKEx enables investors to identify if a company is an overseas company. In contrast, while the SGX website clearly identifies secondary listings, it does not identify overseas companies that have a primary listing here. SGX should include a link identifying all overseas companies and the type of listing, or at least provide an easy means for investors to identify them.

Third, HKEx requires all overseas companies, regardless of type of listing, to publish a Company Information Sheet on HKEx website. Some of the information to be included in the information sheet include:

“(a) a summary of the waivers and exemptions that it has been granted;

(b) a summary of the provisions in the laws and regulations in its home jurisdiction and primary market that are different to those required by Hong Kong law regarding:

(i) the rights of its holders of its securities and how they can exercise their rights;

(ii) directors’ powers and investor protection; and

(iii) the circumstances under which its minority shareholders may be bought out or may be required to be bought out after a successful takeover or share repurchase”

Admittedly, the number of companies from outside Hong Kong and mainland China that are listed on HKEx is small. In contrast, SGX has the highest percentage of overseas companies among all the major exchanges around the world, with such companies currently comprising 37 per cent of all listings. However, this makes it even more important for investors to know whether a company is an overseas company and to understand the risks involved in investing in such companies.

If SGX does not shed its regulatory function as it arguably should, it needs to be more transparent and robust in discharging it.

Mak Yuen Teen


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