Wednesday, May 13, 2009

'Time to open up'

May 13, 2009

Investors say their interests are at risk when key stakes are force-sold
By Yang Huiwen
INDUSTRY players are fighting calls by investors to force chief executives and controlling shareholders to be more transparent about the shares they have pledged.

Investors say their interests are at risk because they are not told when a chief executive pledges his company holdings for a personal loan.

They find out only when the shares are sold to meet margin calls - a step that often leads to uncertainty surrounding the company's business.

But some corporate leaders claim that more regulation by the Singapore Exchange will stifle the market and discourage companies from listing here.

They also point out that pledging shares as collateral for loans is a common practice and forcing more disclosure would be an invasion of privacy. The issue flared up in recent months after the major shareholders of Beauty China and Sino-Environment pledged their entire stakes in the firms to get personal loans.

When the founders were unable to pay up, the banks force-sold their shares, which led to these founders losing control of their companies and sparking a crisis at both firms.

Last year, the botched takeover of Jade Technologies by Dr Anthony Soh was scuppered by a forced sale of his pledged shares.

The way these private deals can contribute to major disruptions at the company level has sparked calls for reform. It is common practice for banks to make loans to companies on condition that the key people running the company remain in control.

Mr Robson Lee, partner at Shook Lin & Bok LLP, said the rules on disclosure of share trades of directors or substantial shareholders should include substantial share pledging and mortgaging of shares.

He said that when a CEO or controlling shareholder pledges his shares, there is a risk that there could be a change of control at the company.

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