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Taking on the big boys

Shareholder activism is firing up in Singapore, as investors become more aware, engaged and vocal.

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TAKING ON THE BIG BOYS: The rise of shareholder activism in Singapore.

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Investors at a Sabana Reit management meeting. A group of investors, unhappy over the under- performance of the trust and excessive fees, called for the ouster of the manager. The saga heralded a new era of activism never before seen in Singapore's generally staid and well-regarded real estate investment trust (Reit) space.

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Prof Mak says that companies will be more vigilant if shareholders took an active interest from the onset and on a sustained basis.

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More individual investors are doing their own homework and spotting shortfalls with less help from remisiers, says Mr Gerald.

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Mr Thio says: "The SGX has a tough job. When things go bad, the temptation to over-regulate, to thicken the rule book, is hard to resist."

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"We have been encouraging stakeholders to step up. Shareholders are now coming forward and saying their piece based on their review of circulars and other disclosures." - Tan Boon Gin, chief executive officer, SGX RegCo

AN ASSORTMENT of sandwiches and bite-sized Danish pastries have turned cold outside a small conference room in an office tower in Singapore, where the board of mainboard-listed Datapulse Technology is being grilled by irate shareholders on the company's doubtful moves over the past many months.

Three, maybe four, uniformed waiters shift restlessly in their spots, watching over the buffet spread and waiting for the shareholder meeting to be over to serve the hungry horde.

But the shareholders - mostly moms and pops - don't seem to care much for the food. "Forget about the time limit. Let us ask our questions!" cried one unhappy shareholder when the chairman of the company (also the man at the centre of the bruising confrontation), reminded them that time was running out.

It's a fresh phenomenon, particularly for Singapore, where the "eat and run" impulse during the annual general meeting season, even for under performing firms, far overshadowed the urge to engage boards and management about business practices and prospects.

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Minority shareholders or OPMI (outside passive minority investors) are becoming a tough lot and are no longer rubber stamping board decisions. Instead, they are demanding sweeter returns, robust disclosures and castigating boards for misdeeds.

Is shareholder activism in Singapore trending?

"There is definitely a rising tide. More rampant bad behaviour has stirred greater activism as investors have woken up and realised they need to get together and speak up," says Professor Mak Yuen Teen of NUS Business School, a man who has earned huge market cred as the go-to-person on governance in Singapore for his unflinching efforts to unearth breaches by companies.

This reflects a "maturing market with market discipline kicking in", says Tan Boon Gin, the chief executive officer of SGX RegCo on rising activism here.

"We have been encouraging stakeholders within the market ecosystem to step up. Shareholders, as you have seen and heard, are now coming forward and saying their piece based on their review of circulars and other disclosures," he adds.

The controversy involving countless S-chips or firms listed on the SGX with operations in China in the early 2010s is well documented, particularly those involving the textile, manufacturing, heavy industries, retail and chemical sectors. Puzzling changes in their financial positions, mismanagement and doubtful governance practices have turned investors wary of many mainland Chinese firms, not just in Singapore but in Hong Kong and the US as well.

These S-chips have got their comeuppance too from the frontline regulator, with many of the counters delisted or suspended such as China Hongxing Sports, Hongwei Technologies, Sino-Environmental Technology Group and Fibrechem Technologies, to name a few while a few more continue to unravel.

There are local miscreants too and their numbers may be on the rise. "I think it's fair to say that more local companies seem to be misbehaving," says Prof Mak.

Some of the disturbing events from a governance lens in recent months include Yuuzoo Corp, Midas Holdings and Trek 2000 International which are being investigated by Singapore's white-collar crime buster.

Companies like Datapulse Technology, Vard Holdings and DeClout have seen their boards excoriated by inflamed investors on issues ranging from directors' independence, disclosure voids and doubtful business actions.

Fired up

Boards too are being forced to adapt to the new reality. Two years ago, Singapore Airlines had to sweeten its offer to buy out Tiger Airways by 10 per cent after the Securities Investors Association of Singapore, a shareholder activist group, leaned on the airline to bid higher.

Several factors have lit the fire and energised the campaign by shareholders pressing for more give and take from company boards, many of them involving a keen activist strain.

Foreign capital from more developed markets into Singapore - an international financial centre - is one. Most of them not only have the financial muscle but also the wherewithal in terms of skills and sophistication to better challenge companies.

"Overseas investors take large positions, and have both the will and ability to defend their investments. They have a level of sophistication and maturity in using formal or informal dispute resolution processes as part of their arsenal to manage risk and return. So we shouldn't be surprised at the rising tide of activism," says Thio Shen Yi, joint managing partner of TSMP Law Corporation.

One need not look too far back for proof.

When troubled Noble Group, in the brink of despair, finally revealed its hard-fought for rescue plan to restructure some US$3.5 billion debt, a major shareholder, Abu Dhabi-based investment firm Goldilocks Investment, baulked over the inequitability of the plan and took the company to court.

The plan disenfranchised equity investors while it offered a sweet deal for senior creditors and Noble's management, said Goldilocks, slamming the deal as "highly prejudicial and coercive" and likening the debt deal to a "wolf in sheep's clothing".

But the hardline approach could present challenges in the domestic context - it could antagonise the boards or management and get in the way of a more constructive engagement.

"Foreign capital may not appreciate the Asian culture. The boards generally do not respond well to contentious approaches and prefer to settle in the boardroom and not the courtroom," says David Gerald, founder and chief of shareholder advocacy group, Securities Investors Association of Singapore (SIAS).

"However, where companies are not willing to come to party then the matter has to be settled in the courts," he adds.

The changing demographics of shareholders - more young ones - who pore over company reports and financials and care to attend shareholder meetings could well be another.

"They are more educated and do plough through the annual reports and are aware of the happenings in the company," says Mr Gerald. "Increasingly, more individual investors are doing their own homework and spotting shortfalls with less help from remisiers," he adds.

Mobilising change

These days, anyone can be an activist - thanks to social media that has made mobilising activism a great deal easier for minority investors eager to build a following.

Retired stockbroker Jerry Low set up a Facebook page last year as disgruntlement set in with the manager of Sabana Shari'ah Compliant Industrial Real Estate Investment Trust (Sabana Reit) over the under-performance of the trust and the excessive fees fetched by the manager.

The Facebook page "Vote out Sabana Manager" kept minority investors abreast of the latest developments in the trust while some financially savvy investors crunched numbers and posted their reports to drum home the point on the trust's waning performance over the years.

They managed to galvanise support from other investors agitating for change at the trust and with a band of 60, Mr Low called for a special unitholder meeting to depose the manager. The saga heralded a new era of activism never before seen in Singapore's generally staid and well-regarded real estate investment trust (Reit) space.

"We felt helpless at first. (But) With social media, it was easier to gather like-minded investors to confront the management on a collective basis," says Mr Low.

Still, they were outnumbered by apathetic shareholders - 60 per cent of them failed to show - and failed to oust the manager.

The revolting unitholders won in other ways. "The Manager made changes that were, in essence, more than what we asked for. They waived part of the management fees and got a new guy to head the operation.

"We were lucky," says Mr Low.

"Get short and get loud"

The drumroll of activism in Singapore has also come from a remote corner of the market - short sellers. They disseminate crushing reports alleging misconduct by their targeted companies, reports thatare chiefly designed to bring the stock down. Their high-profile bitter recipients so far include Noble Group and Olam International.

Is this kind of activism useful? The views are mixed.

"Short sellers have a role to play. I consider it a form of activism. The market needs more than analysts who make mostly buy recommendations and hardly any sell," says Prof Mak.

"At the end of the day, it is the message, not the messenger. If there is proper research and a sound basis for criticism, it is good for the market," says the fierce governance advocate.

For others, the chief pursuit of profits by pushing stock prices down mars their activist streak.

"With short sellers, the equation becomes more asymmetrical. Altruism and profiteering seldom mix," says Mr Thio. "It appears more like market sentiment manipulation than genuine activism," he adds.

It's even more clear cut for Mr Gerald.

"Short sellers are to be discounted altogether because they are self-serving. They don't identify themselves and cannot be reached and cannot be taken to task for misleading the investors.

"That's not activism - that's front running", Mr Gerald retorts.

Watchdog's role

There is general consensus that the SGX's listing and trading rules and regulatory tools such as disclosure queries, market alerts and compliance notices provide good cover to curb misconduct in the marketplace. Even so, some are eager to see the regulator - it polices nearly 750 companies on its exchange with a combined value of some S$1 trillion - move more swiftly when it truly counts (clear breaches).

"The SGX has a tough job. It's navigating between Scylla and Charybdis. When things go bad, the temptation to over-regulate, to thicken the rule book, is hard to resist," remarks Mr Thio.

There has been headway. Since the initiative to tighten the screws on companies was rolled out in October 2015, SGX has issued nine notices of compliance (as at mid April 2018) to troubled companies in the spotlight.

These notices - a reminder that the regulator is watching the firms - were shot out to several firms including Datapulse Technology, as it was rocked by a shareholder revolt and misgivings over a hurried buyout, YuuZoo Corp (related to disclosure gaps), Noble Group (to appoint an independent financial advisor for its proposed restructuring) and Midas Holdings (demanding immediate exit of two key executives).

While SGX's pre-emptive moves are laudable, in some other instances, it's been too slow to act.

"Corporate shenanigans often unravel quickly in real time faster than the speed with which SGX Regco can act. Having said this, I think SGX Regco is raising its game in terms of speed and breadth of response," says Prof Mak, adding that enforcement may need to be "recalibrated" to show a "lower tolerance" for breaches, including disclosure voids. The SGX, suggests Prof Mak, could be more involved in the reviews and audits that are carried out by third parties on firms. By this, he means get the parties conducting the reviews to report directly to the SGX Regco or have their work supervised by the regulator.

"These reviews and audits are often hijacked by companies due to the control they have over the scope and choice of the reviewer. It's like the police asking the alleged culprit to appoint his own investigator to investigate his own deeds and to report to the alleged culprit," he says.

Home truths

Activism, a predominantly US phenomenon, has begun to resonate among a wider shareholder base in Singapore and in many cases, it no longer appears to be the preserve of hedge funds or sophisticated investors.

But investors generally tend to act when the misdeed has already happened, says Prof Mak, adding that companies will be more vigilant if shareholders took an active interest from the onset and on a sustained basis.

Retiree Chew Ah Kong, a minority shareholder of mainboard-listed Datapulse who had misgivings over the firm's buyout of a Malaysian hair care company - he also backed a substantial shareholder to give the board the boot at a special meeting in April - had spent weeks tirelessly attending shareholder meetings of other companies to "reach out to uncles and aunties" who may be Datapulse investors.

He and two other comrades - one is a retiree and another, a younger individual savvier than them in social media - were eager to rally more troops to join their campaign.

"If the company can't come up with anything sensible or workable, then give us our money back. Don't throw good money after bad," said a visibly-crossed Mr Chew. He and those of like minds failed in their bid at the EGM but there was one positive takeaway - the saga put the company in the spotlight, which meant it would be harder to behave badly.

Some boards may view shareholders like Mr Chew and Mr Low as meddlesome outsiders. But they are in fact part of a rising fixture of engaged investors that call for a mindshift among Singapore corporates.

Mr Gerald agrees: "Companies must now pay attention to the fact that they cannot ignore shareholder activism and must have processes and policies in place to respond to shareholder issues effectively".

It's a good thing for the Singapore market too. "It's healthy," says Mr Thio. "It means that the listco eco-system has a functioning check and balance mechanism."

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