Quarz, Black Crane object to Sabana Reit manager's appointment of Chan Wai Kheong as independent non-exec director

HEDGE fund founder Chan Wai Kheong's appointment by the manager of Sabana Shari'ah Compliant Reit (Sabana Reit) to be its independent non-executive director has met with objections from Quarz Capital and Black Crane Capital - who have proposed that their own chief investment officers (CIOs) be appointed non-independent, non-executive directors, instead.

The two firms sent a requisition letter to Sabana Reit's manager on Friday, asking to convene an extraordinary general meeting (EGM), for the Reit's independent unitholders to vote on Mr Chan's appointment, as well as that of their CIOs.

But Sabana Reit's manager rejected the request on Monday, and said it will not be convening the requisitioned EGM as it felt the reasons put forth by Quarz and Black Crane lacked grounds.

Mr Chan's appointment, announced by Sabana Reit's manager on June 2, is subject to the endorsement of the Reit's independent unitholders at or before the Reit's annual general meeting (AGM).

But Quarz and Black Crane, holding more than 10 per cent of the total units of Sabana Reit, asked for an EGM to be held, "to give due effect to the endorsement requirements imposed by MAS (Monetary Authority of Singapore) in a timely manner, instead of at the next AGM which is more than 10 months away".

They have asked for Mr Chan's removal as a director, should he fail to receive the needed endorsement at the EGM. They cited, as reasons for his "potential unsuitability", Mr Chan's substantial holdings in Aims Apac Reit, which they named as "a key competitor of Sabana Reit, with both being two of only four Singapore Exchange-listed Reits which primarily invest in industrial assets in Singapore".

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They also said that Mr Chan had sold his stake in ESR Reit, previously known as Cambridge Industrial Trust, to ESR Cayman, in 2017, for a "substantial premium", and claimed that his appointment to the board of Sabana Reit's manager "further complicates the substantial potential conflict of interest issues that already exist with ESR Cayman being the controlling shareholder of both ESR Reit's manager and Sabana Reit's manager".

"In view of the critical issues highlighted above, Quarz and Black Crane believe that Mr Chan is unsuitable to serve as a director of Sabana Reit and we have communicated to the board and manager to remove Mr Chan from the board of Sabana Reit's manager," they said.

Sabana Reit's manager, in its response, stated its "total surprise" to the objections raised by Quarz and Black Crane "since Mr Chan Wai Kheong was one of the nominees for independent director that Quarz Capital had proposed to the manager".

As for Mr Chan's substantial holding in Aims Apac Reit, Sabana Reit's manager said "the regulations and listing rules do not regard a director to be non-independent by virtue only of his investment in another Reit even if that other Reit is a competitor". It pointed out that Mr Chan is neither on the board nor involved in the management of Aims Apac Reit.

"It is not uncommon for listed companies to appoint substantial shareholders of other companies (even if they are competitors) as independent directors, given the experience and expertise that these independent shareholders would bring to the table," Sabana Reit's manager said. "As a director, Mr Chan will be subject to strict fiduciary duty under the Securities and Futures Act to prioritise the interests of Sabana Reit and its unitholders."

As for Mr Chan's dealings with ESR Cayman, Sabana Reit's manager pointed out that this took place more than four years before his appointment as its independent director, and hence outside the relevant period. "Mr Chan's business dealings do not fall within the prescribed categories of non-independence. Further, we wish to reiterate that in this case, Mr Chan was proposed by the requisitionists and not ESR Cayman," it added.

Quarz and Black Crane asked in their requisition letter for their CIOs, Jan Frederic Moermann and Peter Kennan, respectively, to be appointed to the board instead.

"We believe that the only way to fully and permanently resolve the potential corporate governance and conflict of interest issues is for Sabana Reit's manager to have a board of directors who are fully aligned with the independent unitholders."

They said that both Mr Moermann and Mr Kennan have "more than 15 years of diverse and extensive experience in investment banking, strategy, wealth and asset management" and that they "have strongly and successfully campaigned against the value-destructive merger of Sabana Reit and ESR Reit proposed by the board of Sabana Reit's manager, which would have otherwise cost Sabana unitholders potentially more than 20 per cent permanent loss and destruction of their capital".

They noted that the board of Sabana Reit's manager "has put forward the argument that Quarz and Black Crane cannot propose their own directors due to their significant deemed interest in Sabana Reit", but that they considered this argument to be "both baseless and illogical".

"Quarz and Black Crane's deemed interest of more than 10 per cent ensures the alignment of interest with all unitholders (unlike the board and CEO who hold few units in Sabana Reit)," they said.

Sabana Reit's manager said: "This is somewhat contradictory to their stated concern over the lack of independence of the board ... By putting forward these two individuals who are each CEO and CIO of each requisitionist, one of whom is also a substantial unitholder, this will in fact dilute the overall independence of the board of directors of (Sabana Reit's) manager."

Mr Chan is the chief executive and founder of Charlie Chan Capital Partners. He has over 35 years of management and operational experience in the financial sector, and was previously a trader at Credit Suisse before starting his own business.