Protecting investor interests in the Singapore stock market

I REFER to the letter by the president of The Society of Remisiers (Singapore), "Protecting investor interests critical to rebuilding investor confidence in Singapore stock market" (BT, Mar 24).

Besides the suggestion of class action suits, I think there is the greater need for Singapore to seriously consider setting up a separate regulatory body independent of the Singapore Exchange (SGX), to eliminate the conflict of interests of being a dual profit-seeking entity and as a regulatory body.

Let me cite this sad episode of several years ago involving the then-listed stock China Paper, a company involved in making paper from wood pulp in China.

For the first 3 years, the company was doing fairly well and rewarded shareholders with decent dividends, so many investors including myself thought it was a good basic industry business and bought into it.

However, in the fourth year, the company started its ploy and announced its first rights issue, saying that the business needed to grow bigger to achieve better economies of scale to survive; of course the share price fell.

Just a little over a year later, it called for a second rights issue with the excuse that the company needed more money to buy a small power station to ensure a more regular supply of electricity to run its log mills.

As I smelled a rat, I wrote to SGX to urge it not to approve the rights issue without a thorough investigation on the proposal.

SGX's assurance was that the second rights subscription money would have to be kept under a separate account by China Paper and with that, this second rights issue was also approved almost immediately.

In the following year, news broke that the company's factory caught fire and all its financial records were destroyed.

The management firstly requested for a 1-year postponement of the AGM and financial reporting, and thereafter no more news about the company was forthcoming.

Eventually the name of the share also disappeared from the local newspapers' stock listings.

Sadly, so many shareholders lost everything including the 2 tranches of rights money.