Nam Cheong defends board composition as SGX-ST queries Code non-compliance

MALAYSIAN offshore support vessel builder Nam Cheong defended its board composition on Wednesday (May 25) when asked why it had not ensured that its independent directors (IDs) make up a majority of the Board where its chairman is not independent.

In response to the Singapore Exchange Securities Trading’s (SGX-ST) query, the company said it is of the view that a board’s size “should not be determined solely and arbitrarily” on the basis stated under Provision 2.2 of the Code of Corporate Governance.

The Code comes under the purview of the Monetary Authority of Singapore and the Singapore Exchange, and is applicable to listed companies in Singapore on a comply-or-explain basis.

Currently, 3 out of Nam Cheong’s 6 directors are independent and non-executive.

As part of its justifications, Nam Cheong said continued services of the current size of the Board are “crucial and critical” as its members’ “valuable experience and expertise” contribute to the group’s decision-making process. 

“The directors have contributed significantly in terms of experience, expertise, professionalism, integrity, objectivity and independent judgment in engaging and challenging management to the best interest of the group as it performs its duties in good faith, which by means are more prudent measures than ascertaining majority independence of the Board size,” it added.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Nam Cheong also said preserving its current board would avoid “undue disruption” given the “dynamic” nature of its business, and help “maintain institutional knowledge and continuity”.

These are “more important” than reconstituting the board to comply with the Code, it reiterated.

The company, meanwhile, stressed that the roles of the executive chairman, executive vice-chairman cum finance director and the company’s chief executive are assumed by different individuals – Tiong Su Kouk, his son Tiong Chiong Hiiung and son-in-law Leong Seng Keat.

The Code states that its set of board composition and guidance provisions is to ensure an appropriate level of independence and diversity of thought and background in its composition to enable it to make decisions in the best interests of the company.

But Nam Cheong said it believes that the current composition “encompasses an appropriate balance and diversity of skills, experience, knowledge and competencies”. These aspects are “adequate to avoid groupthink and foster constructive debate”, it added.

SGX-ST also asked Nam Cheong to provide an explanation as to why it had reached an understanding with Non-Fujian Group Shipyards to suspend construction or delivery of vessels without a written agreement.

Without directly addressing the question, Nam Cheong said it reached an understanding with the company with a view to extending the delivery period and/or terminating the contracts to minimise the group’s financial exposure.

Nam Cheong’s outstanding exposure to Non-Fujian Group Shipyards stands at about US$104.8 million, of which US$80.1 million has not been recognised as liabilities in its financial statements as the contractual milestones have yet to be achieved, it noted.

As for whether it has any plans to obtain a written agreement, it only said the company “will continue to engage Non-Fujian Group Shipyards to work towards achieving an amicable and formal settlement”.

Of greater priority, however, is dealing with “key creditors” relating to its groupwide financial restructuring, it stated.

The company has been restructuring its trade payables since 2017, and its total trade payables had decreased from RM1.074 billion to RM184.3 million as of Dec 31, 2021, mainly due to “amicable negotiations and settlement agreements”, it said.

Trading of Nam Cheong shares has been suspended since April 2020.