Tuesday, May 24, 2016

Key officials delayed their announcements on dealings in securities

Key officials of other companies have also delayed their announcements on dealings in securities
HIGH profile investor Koon Yew Yin has been creating headlines for all the wrong reasons recently.
The 83-year-old, who has amassed a huge following among the investing fraternity, is in the hot seat for his late disclosures of the disposal of his shares in a number of companies namely V.S. Industry Bhd, Latitude Tree Bhd and most recently plywood firm Focus Lumber Bhd.
To be fair, Koon who is the founder of construction groups IJM Corp Bhd, Gamuda Bhd, and Mudajaya Group Bhd, is not the only one.
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While the rules state that substantial shareholders must notify a company within seven days of the date of change in his or her shareholdings, there have been cases in which this has not happened.
Koon and his trades aside, one case in point is Chinese edible oil company XingHe Holdings Bhd.
Recent filings to Bursa Malaysia show that disclosures by the company’s controlling shareholders and directors were made way after the stipulated seven-day requirement.
Last month, XingHe said its director Ng Min Lin had disposed a total of 21.4 million warrants on April 1, 2015, but notice on this was given to the company on Apr 29 this year - a year after the selling was done.
The stock had shed over 30% over the one-year period.
Another two directors of the company, Ma Guoliang and Li Hui Jun, also traded in the firm’s warrants between the period of April 1, 2015 to June 8 2015, but only gave notice of the trades recently.
It remains to be seen what action will be taken.
It is understood that the Companies Commission of Malaysia (CCM) is the authority on this, given that the obligation of a substantial shareholder to notify the company of the changes in his shareholdings within seven days is set out under sections 69E, 69F and 69G of the Companies Act, 1965.
In terms of the rules, once a substantial shareholder informs the company of his shareholding changes, the company must make an immediate announcement to Bursa Malaysia pursuant to paragraph 9.19 (17) of the Listing Requirements.
If there is no compliance, the onus is on the CCM to take rightful action.
In 2011, Datuk Low Tuck Choy, a substantial shareholder of Ho Hup Construction Bhd was charged with failing to notify changes in his interest in the company within seven days as required under the Com­panies Act 1965.
Notably, the Securities Commission also monitors changes regarding interest in securities held by directors and CEOs of public listed companies.
Besides XingHe, a random search on Bursa Malaysia’s website also revealed another example of a company where its substantial shareholder did not comply with the disclosure ruling, namely timber and wood-based product company Priceworth International Bhd.
According to its most recent filings to Bursa Malaysia, it appears that its substantial shareholder, Lim Nyuk Foh, had missed announcing his latest acquisition within the necessary disclosure period, announcing the purchase of 4.5 million shares made last December, only earlier this month.
Lim, who had prior to this made announcements of his buying and selling of shares in the firm accordingly is the managing director and founder of Priceworth.
In April 2015, he emerged as a substantial shareholder in property company Bertam Alliance Bhd after he bought an estimated 12 million shares from the open market.
He has since become managing director at Bertam.
Coincidentally, filings to Bursa Malaysia show that Lim also missed announcing his latest purchase of shares in Bertam within the required time frame.
On Jan 7, he acquired 3 million shares in the firm but only disclosed the buying on March 15.
In Koon’s case, V.S. Industry had on May 4 announced to Bursa that he had ceased to be a substantial shareholder in the firm after having sold some 44.08 million shares between March 18 and April 11.
Prior to that announcement which was made only several weeks later after the stake sale, Koon was the third-largest shareholder of the electronics manufacturing services provider with an 8.8% interest.
As for furniture manufacturer Latitude Tree, Koon started accumulating its shares starting in October 2014 and finally emerged as a major shareholder with a 5.01% stake.
He ceased to be a substantial shareholder in the firm at end-November 2015 but only gave notice of his disposals two months later.
Finally, on Wednesday, Bursa filings showed that Koon had bought a 6.71% stake or some 6.93 million shares in Focus Lumber on April 11 with the company saying that it only received notification from Koon on May 9 regarding the purchase.
The Focus Lumber stock is up about 13% since the announcement of Koon’s emergence in the firm.
Shorter disclosure time frame
Areca Capital fund manager and CEO Danny Wong notes that timely disclosure is very important to ensure fairness and transparency across the market.
“It improves market efficiency for timely decisions and an inefficient market will discourage investors as it will only benefit insiders,” he says.
Wong also suggests that there should be a more robust system for disclosure here.
“It should be automated.”
Another observer who is well-versed with the local capital market concurs.
“In order to protect minority shareholders, substantial shareholders who are often the controlling shareholders should make the disclosure within 24 hours as opposed to the current seven market days so at least the minorities are aware that they (the substantial shareholders) have sold in the case of a disposal,” he says.
He points out that after seven days, a stock may have already lost a lot of value without the minorities being aware of what had actually happened.
In neighbouring Singapore for instance, the disclosure period requirement is much shorter, that is within two business days.
Fortress Capital Asset Management CEO Thomas Yong shares the same view as the rest.

“Trade actions of company insiders or even substantial shareholders are generally considered as material price sensitive information and as such require timely disclosures in the interests of protecting other minority shareholders and smaller-scale investors.”

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