MAS waivers for Sabana, Sias rebuke of Great Eastern could be heartening signs for minorities

THE topic of minority shareholder rights and protections grabbed a lot of attention in the local market this past week.

On Mar 6, Great Eastern said a request by minority shareholders to table resolutions at its coming annual general meeting (AGM) to address the poor market valuation of its shares did not satisfy all the necessary requirements.

The company said that although it will continue to strengthen its business and maintain a reasonable dividend payout, the market price of its shares depends on many other factors.

Great Eastern ended its statement with a warning that investors should tread carefully, saying: “There is no certainty that requests made to the company through the media before the company has been able to first review the requests and provide a formal response, will materialise.”

Ong Chin Woo – the minority shareholder who proposed the resolutions – has not given up, though.

He told me last week that the number of minority shareholders supporting his resolutions has been growing. He now plans to seek legal advice, and submit a fresh request to table his resolutions in time for the coming AGM.

Meanwhile, minority unitholders of Sabana Industrial Real Estate Investment Trust (Reit) demonstrated similar pluck in their quest to internalise the management function of the trust.

At an extraordinary general meeting held on Mar 8, eight out of 10 resolutions aimed at further directing Sabana Reit’s trustee on the internalisation process were passed.

Much still depends on whether internalising the manager function at Sabana Reit requires an amendment to its trust deed. This will require an extraordinary resolution with a 75 per cent approval threshold, which Sabana Reit’s sponsor group stands a good chance of blocking with its more than 21 per cent stake.

While Sabana Reit’s trustee holds the view that an amendment to the trust deed is necessary, activist investor Quarz Capital has insisted this is not the case. On Jan 9, the trustee filed an Order 32 application with the courts to clear up the matter.

Back at Great Eastern, the likelihood of minority investors getting their way seems similarly remote. Even if their resolutions are tabled at the coming AGM, the resolutions will not pass if OCBC votes against them.

OCBC – which holds 88.4 per cent of Great Eastern’s shares – has insisted for years that owning the insurer is crucial to its group strategy. Hence, it seems unlikely that OCBC would support any resolution that might hinder its ability to eventually fully acquire Great Eastern as cheaply as possible.

So, why do the recent minority investor actions at Great Eastern and Sabana Reit matter? Why should investors pay attention to these unfolding stories?

MAS, Sias support

For one thing, the effort by minority investors to internalise the management function of Sabana Reit has not been met by regulatory indifference.

Sabana Reit’s trustee revealed last week that the Monetary Authority of Singapore (MAS) has granted it certain exemptions to make an internalised-manager structure possible.

Specifically, MAS waived the rules that prohibit Reits from investing in shares of its manager – so long as the shares of the internal manager are held on trust for the benefit of all unitholders.

MAS also waived the rule requiring the trustee to be independent of the manager – subject to appropriate safeguards and governance structure being put in place to ensure that the trustee cannot exercise control over the internal manager’s Reit management activities.

On top of that, MAS clarified that while substantial shareholders of a Reit manager have to meet “fit and proper” criteria, substantial shareholders of a Reit with an internal manager would not be subjected to this criteria.

Unitholders who are “effective controllers” of an internalised-manager Reit – those with a 20 per cent stake or more – would, however, be subjected to the fit and proper criteria.

On the face of it, MAS seems to be anticipating some of Singapore’s externally-managed Reits transitioning to internally-managed Reits.

This could be a welcome development for the Reit sector, which has been battered by rising interest rates over the past year, and lay the foundations for its next phase of growth.

It was also heartening to see Great Eastern’s flat rejection of the proposed resolutions from minority investors last week immediately draw a rebuke from the Securities Investors Association (Singapore), or Sias.

Sias said in a letter to Great Eastern’s board on Mar 7 that its response to the request to table the resolutions was “somewhat legalistic” and “appears to sidestep the substantive concerns raised”.

Sias also said it sees “significant value” in tabling the three resolutions put forward by Great Eastern’s minorities. “Each of these resolutions seeks to strengthen the alignment of directors’ interests with those of all shareholders, a principle that lies at the heart of good governance practices.”

Sias went on to ask Great Eastern’s board a number of questions about its total shareholder return, and its remuneration policies – including its practice of rewarding its executives with OCBC shares instead of its own shares, under its various share-based remuneration schemes.

Noting a sharp divergence in performance of OCBC shares versus Great Eastern shares over the last three years, Sias asked: “Is the board actively exploring measures to strengthen the group’s remuneration and incentive practices, particularly regarding the allocation of OCBC shares to the group CEO, considering his role primarily focuses only on the overall strategic direction and business growth of the Great Eastern Group?”

Could this seemingly supportive response from MAS and Sias to the two minority-investor actions last week be a harbinger of change in the local market? Is it time to buy Singapore-listed stocks trading at big discounts to the value of their underlying assets?

Policies to drive market

The good news is: There seems to be a growing realisation that a lot can be done from a policy perspective to lift the market valuations of public-listed companies.

Japan’s Nikkei 225 index earlier this month breached the 40,000 level for the first time, reportedly following years of corporate governance reform efforts – including the Tokyo Stock Exchange last year deciding to push companies to come up with plans to boost their stock valuations.

Last month, South Korea took a leaf from Japan’s playbook and unveiled plans to support its own listed companies in boosting their market value. Among other things, Seoul plans to provide tax incentives to companies that increase shareholder returns; and create an index of companies with proven records of profitability and those expected to boost their value.

Some market watchers wonder, however, if such initiatives will be sufficient to change the attitude of controlling shareholders of South Korean companies – who are said to prefer keeping stock prices low in order to minimise inheritance tax.

Here in Singapore, it is also important to keep in mind that controlling shareholders hold most of the cards. While much could be gained if companies are incentivised to unlock value, it is probably just as important to figure out how the attitudes and motivations of controlling shareholders might be changed for the better.