HONG KONG: ‘Zero Tolerance’ For Listco Irregularities

[Temperament]

IMHO David Webb was justified in criticizing the Rusal offering as it was clear that HKEx was bending/amending its own rules.

As for the issue of Manchester United trying to use a structure that would have left the Glazers in control, it is a free market. I agree with Chen Show Mao's view that if you don't like it, don't buy it. Nobody forced you to invest.

Regarding the furore over unequal voting rights, people seem to forget that SPH has a dual-class share structure too. There are ordinary shares, held by regular shareholders, and there are management shares, held by various entities such as Great Eastern, OCBC, NTUC Income, SingTel, DBS, UOB, NUS and F&N.

The management shares outstanding are equal to only 1% of the ordinary shares in issue, but they have 200x voting power when it comes to "any resolution relating to the appointment or dismissal of a director or any member of the staff of the Company". In other words, the holders of the management shares wield unlimited power since they can appoint or dismiss anyone at the company, from the cleaning lady all the way up to the chairman of the board.

Clearly, the holders of ordinary shares have no say at all over the affairs of the company. The ordinary shares are effectively non-voting shares; you can vote, but it's meaningless since you will always be outvoted on the really important matters. Yet, there are plenty of people who own ordinary shares in SPH. Either they are all completely deluded about their voting rights, or they don't care about their lack of voting power.

As to who can own management shares, that is stated in the Newspaper and Printing Presses Act. I will leave interested readers to enlighten themselves at the Attorney-General's Chambers:

http://statutes.agc.gov.sg/

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Do we want Sub-prime loans being offered to the investing public?
Seriously, do we really want that?

Whether we want it or not, we already have it.

1. Babcock and Brown Global Investments (now Global Investments) was a fund whose investments included sub-prime loans. It listed without any objections from SGX or MAS. Investors took severe losses during the 2008-2009 crisis, and it still trades at less than 20% of its IPO price today. I wrote on Wallstraits about BBGI when it went IPO and pointed out the awful things it owned. Didn't seem to stop people from buying it and losing money.

2. The Lehman Minibonds were far worse than sub-prime loans. Investors who bought them did not become sub-prime lenders, they became sub-prime insurers. Needless to say the losses suffered were horrendous. MAS was happy to let the financial institutions sell them, and when the Minibonds blew up the punishment was that the financial institutions couldn't sell these things for 6 months, which was no punishment at all since the bad PR meant nobody could move these things anyway.

The reality right now is that we have a disclosure based regime, which essentially means you can do anything you want, within the law, as long as you disclose it. Whether it is ethical or not is not the concern of the authorities, they are only concerned with legal matters, not moral matters.

Investors have to learn to think for themselves and not depend on the government to spoonfeed them. Kind of like how children have to be allowed to fall down and fail sometimes, otherwise they will never learn to get up and fend for themselves.

Hi Dog,
Don't be mistaken or even discouraged about your "super" educational articles from time to time. Just remember there are none so blind who cannot see. For me there are none so stupid who don't want to learn. For people like us(no financial education at all), we are ever thankful for people like you, giving priceless "financial education'. It's up to us to interpret information correctly and act accordingly.

i was "lucky" enough to read public articles about very hot "CDO" "guaranteed" structured products at that time sold by our banks; and thank GOD i gave them a wide berth.

And it's true, many times i am tempted to invest in something push by bank's RM, products which i can't understand fully.
Now, i won't touch/buy anything with the word "guaranteed" unless i understand fully what guaranteed means. Never presume.

You see i know i am an ignorant and i consider very fortunate to be able to blog here learning from knowledgeable people like you.
Cheers!
(And thanks to people like you).
Caveat Emptor is always applicable no matter what comes after.

[Qiaofeng]

1) IMHO David Webb was justified in criticizing the Rusal offering as it was clear that HKEx was bending/amending its own rules.

2) The management shares outstanding are equal to only 1% of the ordinary shares in issue, but they have 200x voting power...

3) i) Whether it is ethical or not is not the concern of the authorities, they are only concerned with legal matters, not moral matters.

3 ii) Kind of like how children have to be allowed to fall down and fail sometimes, otherwise they will never learn to get up and fend for themselves.

Thks for your comments d.o.g.
For 1)
It must be pointed out that it was the SFC NOT the HKEx, that imposed restrictions on the IPO, ostensibly, raising the stakes beyond the reach of smaller retail investors. But, they left a huge gap in NOT doing the same for regular trades which Webb rightly pointed out for inconsistency. So the quibble is one of implementation NOT motivation.
There is resulting tension between SFC and HKEx, which is, as it should be, there is a system of check N balances, by 2 seperate entities operating upon differing motivations.

For 2)
In other words, SPH is a monopoly, monopolised by a selected few.
A great biz proposition for those selected few!!
Partly, for this and mainly, for the fact that the print media biz is a biz facing obsolescence in the long run; if SPH cannot find new, sustainable alternative growth areas equal to the monopolistic dominance it commands, I divested my SPH holdings.


For 3)i)
The usual rule of the law argument, perhaps; but, when the rule of the law falls behind and hurts the citizens beyond threshold there can be a backlash, a political cost.

For 3ii)
I have no disagreement with letting children fall. Most times, those are the most memorable & lasting lessons and at times, may be the only way to learn.
But, to let 60-70 yr old, illiterate retirees fall and never be able to get up (those savings comes from decades of hard work) just becos some bank RMs were amiss in their prudential duties ?
Some of the small print, were purposely designed for those with presbyopia!! I think that they deserve protection.

[yeokiwi]

For 2)
In other words, SPH is a monopoly, monopolised by a selected few.
A great biz proposition for those selected few!!
Partly, for this and mainly, for the fact that the print media biz is a biz facing obsolescence in the long run; if SPH cannot find new, sustainable alternative growth areas equal to the monopolistic dominance it commands, I divested my SPH holdings.

The regulatory measures on SPH are making it weak. The measures grant SPH a monopoly in Singapore but at the same time, they restrict the investment opportunities that have synergy with its core business.
Unlike Singtel, SPH cannot go around the world to buy print media or mass media companies. Therefore, the choices they have are limited to local media companies, properties and services.

The same situation is faced by Mediacorps. Their own local productions are dwindling and are unable to keep up with the overseas standard.

[karlmarx]

the primary purpose of the newspaper and printing presses act was to secure straits times' position as the only daily circulated, for 'nation building' purposes. the government appoints the board members, who in turn, hire editors with aligned interests. most of straits times' (past and present) editors were isd directors.

as a business, sph is one of the more profitable newspapers in the world. but as the general populace becomes more educated, readers tend to be more demanding in terms of journalistic quality. socio-political websites flourish because sph didn't (want to) capture the 'alternative news' market. thankfully, net migration into this sunny island has allowed sph to maintain its bottom line with higher volumes.

property is likely to become the largest slice of sph's income in the future. my last subscription to the straits times was almost 10 years ago, and i read business times online during its free period between 6pm to 6am. almost all newsworthy articles can be found online.

sorry to off-topic!

[brattzz]

sph just announced 17 cts final dividends today..

think they are moving into retail malls for steady rental yields..

[pianist]

The regulatory measures on SPH are making it weak. The measures grant SPH a monopoly in Singapore but at the same time, they restrict the investment opportunities that have synergy with its core business.
Unlike Singtel, SPH cannot go around the world to buy print media or mass media companies. Therefore, the choices they have are limited to local media companies, properties and services.
The same situation is faced by Mediacorps. Their own local productions are dwindling and are unable to keep up with the overseas standard.

hmm i didn't know media giant monopoly SPH faced such regulatory restriction. May I ask and know more about the origin of this regulatory measures? But by allowing a monopoly to eat into the local market share of properties and services it doesn't sound very fair to me.

coming back to the freezing of capital of hontex by SFC, i though such measure will be very nice to have especially dealing with fraudsters S-shares listcos because even in a full-disclosure based regime like our, when someone want to commit a fraud, it is very hard for retail investors to smell it.

[yeokiwi]

hmm i didn't know media giant monopoly SPH faced such regulatory restriction. May I ask and know more about the origin of this regulatory measures? But by allowing a monopoly to eat into the local market share of properties and services it doesn't sound very fair to me.

There is no regulatory restriction restricting SPH from buying foreign media companies but.. which respectable media companies will want to be taken over by SPH or even has SPH as substantial shareholder?
I can't imagine The Economist or Time Magazine having SPH as substantial shareholder.haha..

[Qiaofeng]

property is likely to become the largest slice of sph's income in the future.
sorry to off-topic!

Food for thots ...
Can SPH ever become successful as a REIT or as a developer or a convention organiser? i.e. to the point where it replaces the print media as a core biz?
If they do, other developers/REITs etc will cry afoul becos the special super management voting rights confer access to a monopoly; a source of unfair competitive edge; the access to free cashflow from a high margin biz. So to avoid complications, these bizs will always be non-core side-bizs.
Yet, as shown in the US or UK and much of the developed world, the print media is on an inevitable decline; even for the No1s and No 2s.
So the diversification process to find other alternative core bizs is essential, yet is hampered by the ownership of the "management shares".

For the present, SPH core biz of print media is still a very profitable biz, giving FCF and high divd yields, so these are non issues.

But be wary of the changing landscapes....

My 1c Gibberish.
and I hope not too out-of-topic.

[karlmarx]

If they do, other developers/REITs etc will cry afoul becos the special super management voting rights confer access to a monopoly; a source of unfair competitive edge; the access to free cashflow from a high margin biz. So to avoid complications, these bizs will always be non-core side-bizs.

My 1c Gibberish.
and I hope not too out-of-topic.

sph's management shares do not confer access to a monopoly; it is the newspaper and printing presses act that does so. having a stable income stream does not necessarily give sph an unfair competitive edge in the property business. of course, having more resources is certainly helpful, which in such a case, there are companies with even more resources than sph.

a property developer that has unfair competitive advantage will have access to restricted information that peers don't. chua thiam poh during the development of sentosa cove comes to mind.

[Qiaofeng]

sph's management shares do not confer access to a monopoly; it is the newspaper and printing presses act that does so. having a stable income stream does not necessarily give sph an unfair competitive edge in the property business. of course, having more resources is certainly helpful, which in such a case, there are companies with even more resources than sph.

Let's assume this fictitious scenario.
In its effort to diversify. Say SPH sets up SPHLand and SPH Conventions and becomes a conglo with 3 arms : SPH Press, SPHLand & SPH Conventions.
Now, lets focus on SPHLand, say in the next few tenders for land, SPH Land tenders many bids, way above others to land prime locations such as in Clementi Mall.
What happens then is that U have suddenly another strong competitor taking on the likes of Capland, Kepland, CDL, UOL.
How would the likes of these companies react when SPHLand starts dominating the markets with high bids and in the process muscle into their domains?

SPH has a dual-class share structure, the management shares, held by various entities such as Great Eastern, OCBC, NTUC Income, SingTel, DBS, UOB, NUS and F&N; make it possible for IPTs such as between SPH and NTUC Income for Clementi Mall.
So such special voting powers confer certain privileges to these select group of people!! Banking regulations forbid the banks from profiting and NUS probably dun have such ambitions. But if NTUC Income or say FNN continues to partner SPHLand and dominate bidding, say; then other developers will surely not be happy.

The amended Press Act gives SPH the monopoly status in the Printed press media biz. The management shares allow certain select few to control the decision making process; if they choose to i.e. management control of the monopoly.
see pg 169
http://www.sph.com.sg/pdf/annualreport/2...R_2010.pdf

The point is not about a stable income stream. It is that the Press Act has been made use of as an enabler to dominate another biz which it was not legislated for; tantamount to a possible "misuse".

So in essence the Press Act allows SPHLand (a proxy of certain parties) to get access to funds generated by SPHPress to outbid other developers.

This is all fictitious.....but if fits well into the discussion topic of Listco. U could have a non listedco, by proxy making use of a listco to dominate certain bizs.

Legislation (well intended or not) can have loopholes and unintended effects.

In this fictitious fairyland, I have created; I will leave U to read pg 169, to see who are the possible beneficiaries; one of whom is Ur friendly supermarket chain, sprouting up over Sg located at all the pivotal Bus-MRT connected covered interchanges.

My 1c Gibberish