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KLW needs independent directors on board

Minority shareholders need assurance as a looming capital-raising opportunity is set to test the board's true independence

KLW Holdings.jpg
With a key capital-raising opportunity looming, shareholders of KLW Holdings need to consider the history of its new directors and determine if they are truly independent.

WITH a key capital-raising opportunity looming, shareholders of KLW Holdings need to consider the history of its new directors and determine if they are truly independent.

A boardroom battle at the listed door maker this week highlighted the return of businessman Quek Chek Lan, who was notably a substantial shareholder for only a few months in 2002.

Mr Quek acquired the bulk of his current 19.4 per cent stake in KLW on Aug 26 from then-managing director Lee Boon Teck, who is alleged to have agreed to unauthorised transactions that led the company to pay out S$16.2 million in commitment fees without the directors' knowledge.

Shortly after acquiring those shares, Mr Quek sought to remove Mr Lee and independent directors Teo Hing Guan and Low Hai Lee from the board. He also wanted to place himself, lawyer Nicholas Narayanan, corporate adviser Wong Joo Wan and former Teledata (Singapore) director Lim Jit Siew on the new board.

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Mr Quek withdrew his own nomination because of an age-related technicality, but shareholders at an extraordinary general meeting on Monday approved all the other resolutions sought by Mr Quek.

Following Tuesday's resignation of KLW's lead independent director Ho Pong Chong, KLW's board now comprises chairman Abdul Qawi, Mr Narayanan, Mr Wong and Mr Lim.

Questions have been raised about the independence of Mr Quek's nominees, all of whom have worked with Mr Quek before in some capacity.

KLW's board has not declared whether the three new directors are independent, but in an interview with The Business Times, Mr Narayanan and Mr Wong were adamant that they were.

Mr Quek became a major shareholder of Teledata in 2004, and then became its chairman and managing director after staging and winning a boardroom coup. Shortly after he ousted Teledata's previous directors, he got Mr Wong and Mr Narayanan appointed as independent directors. In 2007, Mr Lim was hired as chief financial officer of Teledata, eventually becoming executive director in 2010.

Mr Narayanan, in particular, has been involved in boardroom fights before with Mr Quek and with Mr Wong. Mr Narayanan acted for Startech Systems in 2003 shortly after Mr Quek gained control of its board, helping the company to sue its former chief executive and chairman.

And in 2006, Mr Narayanan acted for a group of shareholders, led by then-Ipco International director Lim Meng Check, in ousting the previous directors of integra2000. Mr Wong was one of the nominees to the new board tabbed by the disgruntled shareholders.

Considering the directors' past associations with each other, either through Teledata or through some other boardroom tussle, one could legitimately raise questions about their independence.

As the Code of Corporate Governance states, an independent director "is one who has no relationship with the company, its related corporations, its 10 per cent shareholders or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director's independent business judgement with a view to the best interests of the company".

Mr Narayanan and Mr Wong have rejected any suggestions that they may not be independent, noting that there is no mandate for them to vote with Mr Quek and that they "worked well" with shareholders and management while at Teledata.

But KLW's minority shareholders may need stronger assurance. The issue is not simply academic as KLW has a significant capital-raising opportunity opening in 2016.

The company is sitting on a series of put options that, if exercised mid-2016, will require chairman Abdul Qawi to buy up to two billion new shares at two Singapore cents apiece for S$40 million in total if he does not use a corresponding call option to buy the same number of shares at that price. With KLW's shares currently at 0.9 Singapore cent and less than a year to go before the options kick in, those puts look very attractive right now for the company.

The problem is that the two most powerful people at KLW may not want those puts to be exercised.

Mr Abdul Qawi would presumably not want to be forced to buy KLW shares at a sharp premium. And Mr Quek stands to lose his position as the company's largest single shareholder to Mr Abdul Qawi if either the puts or the calls are exercised.

This is where the true independence of the board will be tested.

KLW's minority shareholders need to be sure that they have effective counterweights to Mr Abdul Qawi and Mr Quek, whose personal interests may not be aligned with the company's next year.