By Mak Yuen Teen

Late last night (March 29, 2020), ASTI Holdings announced that after a nearly one-year search for a replacement for its executive chairman and CEO, Dato’ Michael Loh Soon Gnee – who was supposed to leave the company by April 7, 2020 – it “has not been able to find a suitable replacement with the right credentials and varied skill sets to meet the challenges of the Company’s diverse technological businesses and organisational complexity.”

Someone who is unfamiliar with the company may have thought that Dato’ Loh has steered the company to great heights and is irreplaceable.

On December 19,  2019, I had published an article in the Business Times titled “Tis the Season to be Wary for Minority Shareholders at Three Companies” in which I had raised various issues at three companies where Dato’ Loh was executive chairman and CEO – ASTI, Advanced Systems Automation (ASA) and Dragon Group International (DGI).

Here are extracts of what I had written:

“…all three companies are in, or at risk of ending up in, the ICU of the Singapore Exchange (SGX).” [not because of COVID-19 I might add]

“Over the five financial years from 2014 to 2018, each company has racked up five successive years of losses from continuing operations, with only ASTI reporting a S$19.7 million net profit in FY2018, due to profit from discontinued operations of S$42.7 million.”

“ASTI reported cumulative losses from continuing operations of S$98.4 million from FY2014 to FY2018, with accumulated losses on its balance sheet amounting to S$50 million in its latest audited accounts. Listed on the main board, it closed at 2.8 Singapore cents on Dec 13, 2019. It was placed on the Minimum Trading Price (MTP) Watch-list on June 5, 2017 and the Financial Watch-list on June 6, 2019.”

“ASA had cumulative net losses of S$33.5 million from FY2014 to FY2018. Its last traded price was 0.1 Singapore cent, only because it is the lowest price possible on SGX. There has been minimal trading at that price, its latest net asset per share is 0.01 Singapore cent, and its June 2017 rights issue was priced at 0.09 Singapore cent. The fact that it is listed on Catalist saves it from being placed on any Watch-list.”

“DGI, listed on the main board, is not quite so lucky. On April 11, 2018, SGX rejected its application for more time to exit from the Financial Watch-list, and it was to be delisted. It had been on the Financial Watch-list since March 4, 2015 and on the MTP Watch-list since June 5, 2017. Its shares have been suspended from trading, and the company or its controlling shareholder was required to make a reasonable exit offer. One-and-a-half years later, there is still no sign of such an offer. It has accumulated losses of nearly US$70 million in its latest balance sheet, with negative equity of US$6.9 million.”

“As EC and CEO of the three companies, Mr Loh received remuneration from all of them. His remuneration also included fees for serving as a director in each of these companies. …Based on the companies’ remuneration reports, I estimated that he was paid a total of about S$23 million from FY2014 to FY2018 for the three companies (although….part of it was subsequently returned).”

“Mr Loh also has a 31-year-old son whose remuneration was disclosed for the first time in ASTI’s FY2018 annual report, only issued seven months after the year-end. The disclosure stated that his remuneration exceeded S$50,000 rather than in a band – which is not in accordance with the Code of Corporate Governance…I could not find any announcement of his son’s appointment (or promotion) under rule 704(7), which requires “any appointment of a person who is a relative of a director or chief executive officer or substantial shareholder of the issuer to a managerial position in the issuer or any of its principal subsidiaries” to be announced.Rule 704(13) also requires the full-year results announcement to disclose such appointments. In its last (delayed) full-year announcement issued on March 31, 2019,…but there was no mention of his son. It was only in a April 12, 2019 response to SGX queries that his son’s promotion to “manager, admin/HR/IT” was disclosed.”

“Included in the abovementioned total remuneration paid to Mr Loh from FY2014 to FY2018 for the three companies was a S$8 million “bonus and management incentive” paid by ASTI for FY 2018. This made up 81 per cent of his total remuneration of S$9.911 million that year….According to ASTI’s annual report, on March 31, 2019, ASTI’s RC deliberated on the S$8 million bonus that was approved and paid out to Mr Loh following his decision to resign, and revised the figure to S$2.182 million. This was curious for at least two reasons. First, the bonus was for FY2018 so it is unclear why Mr Loh’s decision to resign in 2019, with an effective cessation date as late as April 7, 2020, would affect his bonus for FY2018….If Mr Loh was not entitled to it, why did the RC and board approve and pay out the S$8 million? How was the S$8 million arrived at in the first place? What is the basis for determining the S$2.182 million? Can the board seriously consider Mr Loh to have made significant contributions, given the huge losses and the entry into the Watch-lists? Haven’t whatever contributions he has made been amply rewarded already through his remuneration over the past years?”

While SGX has little leverage on companies when it comes to remuneration – and this is why minority shareholders are particularly vulnerable to excessive remuneration in companies listed on SGX – there are other issues which I had raised above that SGX should look into and take action if warranted.

SGX should also be asking the ASTI board to provide details of the search that it has done to find a replacement for Dato’ Loh, which has yielded no success after nearly one year. It would help if SGX does not just accept responses to queries, but ask for supporting documentary evidence such as minutes of board and committee meetings, and terms of engagement of any third parties to assist with the search for a replacement.