First published in Business Times on December 23, 2015

ON Dec 15, The Business Times published a commentary highlighting my corporate governance concerns at Singapore Post (SingPost). That commentary focused mainly on its board composition (including size; independence; skills and experience; tenure of directors; and board renewal), clarity between the board’s and management’s roles, turnover of senior management, and transition plans.

As mentioned in the earlier commentary, I am a shareholder of SingPost. I have also followed with some interest its recent acquisitions and having now reviewed some of these acquisitions and the disclosures relating to them, I believe there are other issues that require clarification and explanation from SingPost.

On Jan 18, 2013, SingPost announced that it had entered into a share purchase agreement under which it will acquire 62.5 per cent of the total issued shares of Famous Holdings Pte Ltd (FHPL) with an option to purchase the remaining 37.5 per cent of the shares (the seller also has a put option on the remaining shares). FHPL is described as a “Singapore-based sea freight consolidator and freight forwarder . . . with offices in Singapore, Japan, Australia, China, Malaysia and the USA”. SingPost was to pay up to S$110 million for the initial shares and the shares under the option. The net asset value (NAV) of FHPL as at Dec 31, 2011 was S$12.3 million.

SingPost disclosed that none of its directors or controlling shareholders had any direct or indirect interest in the transaction, except for Keith Tay, who is the non-executive chairman and a shareholder of Stirling Coleman Capital Ltd (SCCL). SCCL was the arranger of the transaction.

At that time, Mr Tay was the lead independent director, chairman of the Audit Committee and the Nominations Committee, and a member of its Executive Committee. Currently, he retains those positions except that he is only a member, but not chairman, of the Audit Committee. Mr Tay has served on SingPost’s board as an independent director since 1998. He was also appointed a director of FHPL on Feb 20, 2013 upon the completion of the deal. SingPost disclosed that Mr Tay has “abstained from all votings by the Board . . . in relation to this transaction”. Perhaps SingPost can clarify if Mr Tay had recused himself from the discussions relating to this transaction.

In addition, since Mr Tay is a director and also owns more than 10 per cent of SCCL, perhaps SingPost can also clarify if it has made significant payments or received material services from SCCL based on Guideline 2.3(d) of the Code of Corporate Governance 2012 (the “Code”). Under this guideline, payments aggregated over any financial year in excess of S$200,000 should generally be deemed significant. Where there have been “significant payments” or “material services”, SingPost would need to disclose and explain if it still considers Mr Tay to be independent.

On July 18, 2014, SingPost announced that its subsidiary, FHPL, had entered into a sales and purchase agreement to acquire all the shares of FS MacKenzie Ltd (FSML) for a total consideration of up to £7 million (or S$14.8 million). FSML was described as a “United Kingdom-based freight forwarder/ Non Vessel Common Operating Carrier”. The NAV of FSML as at Dec 31, 2013 was £2.5 million (or S$5.4 million).

SingPost disclosed that none of its directors or controlling shareholders has any direct or indirect interest in this transaction. However, SCCL’s own website had listed its involvement as the financial adviser to the seller (FSML) in this transaction. Perhaps SingPost may wish to explain the non-disclosure of interest in its announcement for this transaction and whether Mr Tay had disclosed his interest to the Board, abstained from voting and recused himself from the discussions.

On Jan 14, 2015, SingPost announced that FHPL acquired 90 per cent of the total issued shares of Famous Pacific Shipping (NZ) Ltd (FPSNZ) for a total consideration of up to NZ$8 million (S$8.3 million). The NAV of FPSNZ as at March 31, 2014 was NZ$816,104 (S$847,279). Again, as disclosed on SCCL’s website, SCCL acted as the financial adviser to the seller (FPSNZ) for this transaction. However, this time, there was no disclosure of interest statement in SingPost’s announcement. SingPost may wish to explain why.

As a financial adviser to the seller, SCCL owes a duty to the seller to extract the best sale price possible. Directors of SingPost have to ensure that SingPost pays the lowest purchase price possible, or at least, gets full value from the transaction. Perception issues may arise where a director has an interest in a transaction even if the necessary disclosures are made and a particular director has made the necessary abstentions. While certain one-off transactions of immaterial amounts may not necessarily compromise a director’s independence, the fact that SCCL has been involved in several transactions involving quite substantial amounts – and as a financial adviser to the seller for two of these transactions – would, in my view, raise questions about independence.

SingPost has engaged an external consultant to assist in a “particularly rigorous review” of the independence of the long-tenure directors, including Mr Tay. Can SingPost clarify if the services provided by SCCL to SingPost and to the sellers of the businesses to SingPost were disclosed to the Nominations Committee and to the external consultant for the determination of Mr Tay’s independence? As Mr Tay is also the chairman of the Nominations Committee, can SingPost explain how the determination of his independence was handled?

It is also interesting to note that there were three different company secretaries assisting on the three transactions which occurred over the span of just two years. On July 24, 2015, SingPost announced yet another cessation of a company secretary, and on Aug 19, announced a replacement. However, that was not the end of it, as on Nov 25, SingPost announced yet another change in company secretary and the company secretary who was involved in the acquisition of FHPL is now back. In other words, over a span of less than three years, SingPost has changed company secretaries four times. This is rather unusual and requires explanation, especially as the company secretary has a major compliance role.

I look forward to a response from SingPost to the issues I have raised.

Mak Yuen Teen