Frankly Speaking: Jan 31- Feb 6, 2011

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More say for minorities The move to raise the shareholder approval threshold for the sale of the assets of a listed company which would result in its delisting bodes well for investor protection in the country.

Effective last Friday, parties choosing what is known as the “assets and liabilities route” to take over a listed company will need 75% shareholder approval instead of a simple majority of 50% plus one vote, following changes to Bursa Malaysia’s listing requirements.

Not only that, companies undertaking this route will be required to provide shareholders with independent advice as well as meaningful and detailed disclosure of the utilisation of the proceeds from the disposal. The independent adviser’s role is to comment on whether the offer is “fair and reasonable” as far as the shareholders are concerned, and advise them on whether they should vote for the disposal.

The SC will provide guidance on the “fair and reasonable” standard in due course.

The change ensures parity in investor protection for all shareholders regardless of the number of shares one holds. It also closes a regulatory gap which had compromised investor protection in the past when minorities were often left with little or no option in a deal where the substantial shareholders bulldozed their way through.

In a media briefing, the SC revealed that there was significant support for the 75% rule among respondents who participated in the public consultation called by the SC and Bursa Malaysia last March. This is encouraging and shows that most people want fair play in the capital market.

Concerns that the 75% rule might stifle M&A is misplaced as Hong Kong, which adopted it in 2008, is today one of the world’s most vibrant capital markets as companies rush to list there. Last year, Hong Kong led the global IPO herd with US$52.9 billion, ahead of New York, which raised US$34.6 billion.

The SC and Bursa should be commended for making the bold move to ensure equal protection for all shareholders.

Improving governance a better betAn announcement last week that the Printing Presses and Publications Act 1984 will be amended to cover online media, followed by a quick change of tack the next day, raises questions about the direction in which media regulation is heading.

It is evident that as a society advances, it places increasing value on civil liberties, transparency and good governance. Indeed, these indicators are among the well-established benchmarks of a nation’s socio-economic development, with a few notable exceptions.

It bears reiterating that investor confidence is tied to the assurance of systems of accountability, rule of law and access to information in a country. These norms help ensure a level playing field, reduce opportunities for collusion, lead to the exposure of corruption and thereby create an environment where good governance can thrive.

Although the government may be tempted to tighten the rules on online content to shut out unfavourable views of the administration, such a move would be short-sighted and regressive. A far superior approach would be to raise the standards of governance it practises, so that public confidence in its integrity will be unaffected by such negative sentiments.

A clampdown on the online media may provide quick relief from its tormentors, but the effects would be short-lived. Furthermore, the damage to the country’s image as a modern, progressive nation and an attractive destination for the best talent and investments would be mauled.

There is more to be lost than gained by closing down online chatter. Such attempts are likely to have limited success in view of the versatile nature of the digital media. The regulators could well become tied up in a futile exercise.

There really is no rush Unlike other spurned lovers, KUB Malaysia Bhd wasted no time in looking for a new business after being rejected in a bid to acquire QSR Brands and its subsidiaries. In an announcement two weeks ago, KUB and Malaysia Steel Works (KL) Bhd (Masteel) announced a 40:60 joint venture that proposes to build a world-class commuter train network in Iskandar Malaysia.

What stands out here is that two announcements were made to Bursa Malaysia on the JV. The first read as though the job was safely in hand while the second, made the following trading day, stressed that it was just a proposal.

Between the two announcements, KUB was one of the most actively traded stocks, with 32 million shares changing hands.

The KUB-Masteel proposal to build a train network is not the only one on the table as the authorities are still assessing all the proposals put forward. However, it comes with more details. For instance, it states the cost, estimated at RM1 billion, and that the JV is commited to forking out up front about 30% of capital.

The value proposition of the other proposals is sketchy.

Nevertheless, there is really no hurry to decide on a rail system in Iskandar Malaysia. If and when Khazanah Nasional Bhd decides to implement it, it should be based on what gives the best value for money and not on the basis of who proposed the project first.

For instance, the government has decided to go ahead with the RM36 billion MRT project by June/July this year. But until today, there are still niggling thoughts if this is really the best and cheapest option on the table. The same should not be the case for the rail system in Iskandar Malaysia.

This article appeared in Corporate page, The Edge Malaysia, Issue 843, Jan 31- Feb 6, 2011