By Mak Yuen Teen

When AMTD International listed on SGX in April through a secondary listing, I was far from excited.

On the surface, it looked promising since it describes itself as the “No. 1 Independent Investment Banking Firm in Asia” and according to its introductory document for the secondary listing dated March 31, 2020, has a primary listing on NYSE. I tweeted about some of my concerns.

It is incorporated in Cayman Islands, headquartered in Hong Kong, and will now be listed in NYSE and SGX. One question in my mind is why not Hong Kong, where it is headquartered?

Perhaps it was because it would not have qualified with its dual class share structure. While Hong Kong has since 2018 allowed dual class shares, it has strict requirements, including a combination of minimum market capitalisation or minimum revenue plus “innovative company” requirements, that AMTD may not have been able to meet.

I have been a vocal critic of dual class shares, and although a secondary listing here with a primary listing on a major exchange like NYSE would cause me less concern than a primary listing with such a share structure, I was concerned that what is essentially a financial institution has such a share structure. Furthermore, its Class B shares has 20 votes per share, which is very high relative to Class A shares, which are what are listed on NYSE (through American Depositary Shares) and on SGX.

AMTD started trading here on April 8 and closed at S$16 that day.  It closed yesterday (August 17) at S$17.80.  Rather oddly, on NYSE, where it trades under the ticker “HKIB”, it closed at US$9 on April 8 and last closed at US$6.60 on  August 17. The different trajectories seem odd as both ADS and the shares traded here are Class A shares.

I had expected AMTD shares to be buffeted by the rapidly worsening relationship between U.S. and China/HK because most of AMTD’s clients are from China and HK, including PRC banks. Therefore, what is happening to its shares on NYSE doesn’t surprise me at all, but its good performance on SGX certainly does.

At 4.34 this morning (August 18), AMTD announced changes to the composition of its audit committee (AC). It said it was to “embrace international best practices and enhance the diversity of its board committees”.  It said that its board chairman/CEO has retired from the AC and it was appointing a new female member to the AC. I was surprised that this was deemed international best practice as not having the CEO on the AC and having a female member is no more than minimum standards in most developed markets now.

The fact that the CEO was on the AC all this time was a complete surprise to me given that it had been listed on NYSE since August last year, and NYSE listing requirements require the AC to be made up only of independent directors.  This also applies to foreign private issuers listing ADRs/ADSs under a level 2 program in US. It would appear that AMTD listed on NYSE through this.

Both NYSE and NASDAQ rules require such issuers to have an audit committee whose members meet the requirements of Exchange Act Rule 10A-3. This rule requires all members of the AC to be independent. Therefore, it is puzzling why AMTD had the CEO on its AC until recently. For such foreign private issuers, the rules also say that the “foreign private issuer must also disclose in its public filings if it follows its home country practice in lieu of other standards related to its audit committee and describe the significant differences between its home country practice and the applicable general standard”. However, my reading of the rules is that the requirement for each member of the AC to be independent is mandatory.

Earlier, on August 5, AMTD had made a SEC filing regarding its CEO retiring from the AC. At that time, it said it only had two members after the CEO had stepped down. It said: “As the audit committee currently consists of two members, the Company relies on home country practice to be exempted from the requirement of NYSE Listed Company Manual that the audit committee must have a minimum of three members.” It seems the company was relying on the rules in Cayman Islands  even though its listings are on NYSE and SGX, which both require a three-member AC.

I was also surprised that the August 5 announcement was not posted on SGXNET. As a secondary listing on SGX, it must comply with rule 217 which says, inter alia, that it must release all information and documents in English to the SGX at the same time as they are released to the home exchange. Indeed, the introductory document spells that out as one of the conditions for its secondary listing.

When I compared the company’s SEC filings with announcements on SGX, I found that most filings match, but there were cases other than the above where an SEC filing was made, but the same announcement was not made on SGX. There were also cases where it was vice versa.

I think the company should explain the issues raised above.