I have written before about the highly regarded country reports by ACGA-CLSA:
The new report "CG Watch 2014" has been published, I have not yet read the full report, but this is what MSWG wrote about it in their weekly newsletter:
Malaysia is on the 4th position out of 10 in the ACGA-CLSA CG Watch 2014. The Report mentioned that Malaysia was the only country that had consistently edged up in the score from 49% in 2007 to 58% in 2014. The improvements were largely through a mix of government-driven reforms in the corporate sector such as the implementation of CG Blueprint 2011, a state-grandfathered push to require domestic institutional investors to take up CG seriously through the Malaysia Code of Institutional Investors and the creation of one of the region’s better independent Audit Oversight Board (AOB). The Report also recognised the emergence of some aspect of culture emanating through the development of the Institutional Investors Code, and elements of voluntary poll voting with improved communications by PLCs.
The Report highlighted that the Asian region as a whole often gets caught up in politics making legislative changes tough and thus would depend upon strong government support which normally is not forthcoming. Securities commissions are beginning to take enforcement seriously, but the disclosure of these efforts can be improved. The Report also highlighted the conflicts of interest in the role of stock exchanges. Shareholder rights in the different markets were said to be weak, especially relating to takeover and major or related-party transactions.
The CG Watch 2014 reported that our country began promoting corporate social responsibility (CSR) well ahead of many other Asian markets, however, the implementation stopped at the aspect of CG financial reporting.
The Report had suggested that PLCs in Malaysia should disclose more details in the AGM agendas and should provide commentary on services covered by non- audit fees.
Lastly, the Report also highlighted several sure ways to be downgraded in the next rating. One; is the continuation of voting by show of hand at AGMs/EGMs and two; if the implementation of the Malaysian Code of Institutional Investors is weak.
While I do agree that in general CG seems to have improved over the last years, there is still the lingering fear that "corporate governance [is] lacking substance".
The real test would be the next recession, "Only when the tide goes out do you discover who's been swimming naked" (a quote from Warren Buffett).
In the meantime, I am looking forward to the detailed report regarding Malaysia and Singapore.
Showing posts with label CG Watch 2012. Show all posts
Showing posts with label CG Watch 2012. Show all posts
Sunday, 5 October 2014
Monday, 24 September 2012
"Asean: Virtue and Vice"
From CLSA's highly influential CG Watch 2012, the executive summary for Singapore, Malaysia, Thailand, Indonesia and the Philippines is given on pages 11 & 12:
Singapore has the highest CG score of markets we cover ex-Australia
Asean spans markets that in our rankings are the highest as well as those that come at the bottom of CLSA and ACGA’s rankings. Singapore has, on average, the highest score for governance among its corporates. As this report goes to print, there is a battle for corporate control for Asia Pacific Breweries (APB), which owns leading beer brands in the region (Tiger, Anchor, Bintang, etc). The conglomerate F&N looks set to dispose its majority stake in APB to Heineken, with which it has had a partnership arrangement that was disturbed when Thai Beverages made a bid for both a stake in FNN and control of APB. The likely outcome is that F&N disposes of its stake in APB at a premium and might disentangle its current structure that puts brewing and softdrinks together with a large property division. That a battle for corporate control in one of the largest conglomerates is leading to realisation of shareholder value with commercial logic prevailing is a rarity in the region.
But S-chips are an embarrassment
However, Singapore’s embarrassment is the so-called S-chips, mainland companies that have listed in its market. CG standards are shoddy, a number of firms have flouted the listing rules and directors have absconded to China when the exchange pursues them. The case for Chinese companies listing in Singapore has never been clear and investors in these stocks certainly need to weigh seriously the risks. This segment of the market, however, is likely to diminish in significance over time.
Sime Darby takes a hit again
Across the causeway, the largest of Malaysian conglomerates once again disappointed the market. In the Asian crisis, Sime Darby nearly blew up for its poorly managed foray into banking and stockbroking. Over the recent crisis, its balance sheet is much stronger and loses less significant but it took a hit again, this time for cost overruns at Bakun as well as the Middle East power projects, a business where it has little expertise.
Unfavourable optics in Sime’s E&O takeover
An independent director at Sime Darby has recently been charged with insider trading. More embarrassing for the governance perception for the market was Sime’s acquisition of a controlling stake in the property company, E&O. This had been preceded by the chairman of E&O buying shares in the company, before Sime Darby announced it was taking over control at a 60% premium. On the basis that the acquisition of the stake was a private transaction between Sime and the previous significant shareholders (which did not include the chairman), and that the matter had not been discussed by the board of E&O, no charges of insider trading was brought to bear. But unfortunately for the optics of the matter, the E&O chairman was the husband of the then chairperson of the Securities Commission (SC). She has since stepped down when her contract was not renewed earlier this year.
Successful enforcement required to improve perceptions
The now retired SC chairman had been brought to the commission fairly recently in 2006 from outside the agency. The current chairman has been promoted from within and has been a regulator for over 20 years (neither does he have the disadvantage of having a spouse who is a corporate figure). CG issues are nevertheless likely to continue to crop up but the efforts of the SC to take to task directors for insider trading is a positive. The country, though, needs a period without governance accidents at its larger companies and successful enforcement against transgressors to improve the perception of investors on the market.
Little impact from new government in Thailand
Thailand has a new government in place now for slightly more than a year. This has not had much of an impact on the governance outlook for corporates. Related-party transactions remain an issue with certain groups, cropping up again with CP Foods. But as companies get larger we notice improvement in transparency. The stock exchange continues to push for high standards, for instance on voting by poll, which is not mandatory but most companies have been persuaded to adopt this for extraordinary and annual general meetings, a practice that is still relatively uncommon in the region.
Regulatory issues in Indonesia
Indonesian firms have had to deal with regulatory uncertainty with regard to ownership limits on the banks and export restrictions on the mining sector. These impact their ability to maximise shareholder value, which is one of the issues in our CG scoring. Indonesian companies are also the slowest to release full-year results; given the 90-day deadline for releasing full-year numbers, none report within two months which is becoming the norm elsewhere.
Shadow play in the London market
Over in the London market, a shadow play for control of a FTSE constituent that had recently been created to take an interest in an Indonesian mining asset was illuminating. It reveals firstly there is still risk of change in shareholding structure for groups where major shareholders are highly geared. Yet, influential groups will often be able to retain effective control. Other shareholders and investors should expect to go along with the intentions of the effective controlling shareholder.
No real CG change yet in the Philippines
In the Philippines, President Aquino has been in power since 2010 and sets a positive backdrop for clean governance nationally. At the corporate level, however, there is little evidence of much change as yet. Companies continue to issue new equity when the purposes are unclear, eg, Ayala Corp, or
sometimes surprising the market with the size, eg, Banco de Oro. Inter-group transaction of assets within the First Philippine Holdings listed companies raised questions over pricing.
Singapore has the highest CG score of markets we cover ex-Australia
Asean spans markets that in our rankings are the highest as well as those that come at the bottom of CLSA and ACGA’s rankings. Singapore has, on average, the highest score for governance among its corporates. As this report goes to print, there is a battle for corporate control for Asia Pacific Breweries (APB), which owns leading beer brands in the region (Tiger, Anchor, Bintang, etc). The conglomerate F&N looks set to dispose its majority stake in APB to Heineken, with which it has had a partnership arrangement that was disturbed when Thai Beverages made a bid for both a stake in FNN and control of APB. The likely outcome is that F&N disposes of its stake in APB at a premium and might disentangle its current structure that puts brewing and softdrinks together with a large property division. That a battle for corporate control in one of the largest conglomerates is leading to realisation of shareholder value with commercial logic prevailing is a rarity in the region.
But S-chips are an embarrassment
However, Singapore’s embarrassment is the so-called S-chips, mainland companies that have listed in its market. CG standards are shoddy, a number of firms have flouted the listing rules and directors have absconded to China when the exchange pursues them. The case for Chinese companies listing in Singapore has never been clear and investors in these stocks certainly need to weigh seriously the risks. This segment of the market, however, is likely to diminish in significance over time.
Sime Darby takes a hit again
Across the causeway, the largest of Malaysian conglomerates once again disappointed the market. In the Asian crisis, Sime Darby nearly blew up for its poorly managed foray into banking and stockbroking. Over the recent crisis, its balance sheet is much stronger and loses less significant but it took a hit again, this time for cost overruns at Bakun as well as the Middle East power projects, a business where it has little expertise.
Unfavourable optics in Sime’s E&O takeover
An independent director at Sime Darby has recently been charged with insider trading. More embarrassing for the governance perception for the market was Sime’s acquisition of a controlling stake in the property company, E&O. This had been preceded by the chairman of E&O buying shares in the company, before Sime Darby announced it was taking over control at a 60% premium. On the basis that the acquisition of the stake was a private transaction between Sime and the previous significant shareholders (which did not include the chairman), and that the matter had not been discussed by the board of E&O, no charges of insider trading was brought to bear. But unfortunately for the optics of the matter, the E&O chairman was the husband of the then chairperson of the Securities Commission (SC). She has since stepped down when her contract was not renewed earlier this year.
Successful enforcement required to improve perceptions
The now retired SC chairman had been brought to the commission fairly recently in 2006 from outside the agency. The current chairman has been promoted from within and has been a regulator for over 20 years (neither does he have the disadvantage of having a spouse who is a corporate figure). CG issues are nevertheless likely to continue to crop up but the efforts of the SC to take to task directors for insider trading is a positive. The country, though, needs a period without governance accidents at its larger companies and successful enforcement against transgressors to improve the perception of investors on the market.
Little impact from new government in Thailand
Thailand has a new government in place now for slightly more than a year. This has not had much of an impact on the governance outlook for corporates. Related-party transactions remain an issue with certain groups, cropping up again with CP Foods. But as companies get larger we notice improvement in transparency. The stock exchange continues to push for high standards, for instance on voting by poll, which is not mandatory but most companies have been persuaded to adopt this for extraordinary and annual general meetings, a practice that is still relatively uncommon in the region.
Regulatory issues in Indonesia
Indonesian firms have had to deal with regulatory uncertainty with regard to ownership limits on the banks and export restrictions on the mining sector. These impact their ability to maximise shareholder value, which is one of the issues in our CG scoring. Indonesian companies are also the slowest to release full-year results; given the 90-day deadline for releasing full-year numbers, none report within two months which is becoming the norm elsewhere.
Shadow play in the London market
Over in the London market, a shadow play for control of a FTSE constituent that had recently been created to take an interest in an Indonesian mining asset was illuminating. It reveals firstly there is still risk of change in shareholding structure for groups where major shareholders are highly geared. Yet, influential groups will often be able to retain effective control. Other shareholders and investors should expect to go along with the intentions of the effective controlling shareholder.
No real CG change yet in the Philippines
In the Philippines, President Aquino has been in power since 2010 and sets a positive backdrop for clean governance nationally. At the corporate level, however, there is little evidence of much change as yet. Companies continue to issue new equity when the purposes are unclear, eg, Ayala Corp, or
sometimes surprising the market with the size, eg, Banco de Oro. Inter-group transaction of assets within the First Philippine Holdings listed companies raised questions over pricing.
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