By Stephanie Jacob
By the Securities Commission’s and Bursa Malaysia’s rules, none of the companies covered over the past two days have done anything wrong. The problem is the current regulations are not stringent enough to protect minority shareholders. Tiger looks at what’s to be done.
Tigers are the apex predators of the jungle, but even we do not throw our weight around like the big cats on Bursa Malaysia. But then again, tigers have to contend with elements that can go against it and work for the benefit of all the jungles’ smaller creatures.
When looking at the layout of the local bourse, however, Tiger sees a much more predatorial place. And what’s more, it often appears that even the rules of this jungle plays into the hands of the big and powerful, instead of levelling the playing field for all participants.
This is obvious by the fact that neither Maxis, 7-Eleven, IOI Property Group nor Bumi Armada actually contravened any of the Securities Commission’s (SC) or Bursa Malaysia’s rules when they executed their shrewd delisting and then relisting exercises over the past years.
The fact is, despite the seemingly uneven hand dealt to minorities, none of these entities, or rather their controlling or majority owners, broke any of the rules put in place by the regulators.
As one popular blogger said in response to an angry reaction to Astro’s relisting in 2012 — the player (in this case Ananda Krishnan) has done nothing wrong; he has always played within the rules. The savvy blogger suggested that any anger should be directed towards the rules which make trading and investing on Bursa such difficult and dangerous games for minorities and long-term investors.
Tiger tends to agree — you cannot fault a clever big time investor for using the options available to him to get the most out of the market. That after all is any Bursa investor’s gameplan. So, it is up to the referees, in this case the SC and Bursa, to make sure that everyone gets a fair shot and is not trampled by the big boys.
For example, there are no specific regulations in way of what an offeror can give or threaten to take away during privatisation. Nothing governs valuations or a company’s listing status. So in a situation where an offeror is attempting a mandatory takeover that minorities do not like, the latter’s only option is to take the matter to court.
Of course, it would be akin to a kancil taking on a tiger. And Tiger is willing to bet that like the kancil, most minorities are unlikely to be able to match the spending capacity of the majority shareholders and would struggle to sustain a long-drawn court battle.
Similarly during the relisting process, the regulators keep intervention to a minimum. A source familiar with the regulators’ policies said that the SC demands that a relisting company provides justifications for its new valuations and details on why it believes it can perform better on the market this time around.
However, there are no pre-imposed rules which would make returning to the bourse difficult — regardless as to how the company treated minorities during the relisting process, or in the period between then and the relisting.
When the depth of the regulations are considered, the pertinent question seems to be if they are adequate to protect the companies covered in the earlier parts of this week’s series — or at the very least, give them a fair deal.
It would appear not. Rather, minorities in fact had very limited options during the privatisation deal. The majority shareholders benefitted handsomely both on and off the market, and at the expense of the minority investors.
Which leads to the question if Bursa is really the place for the retail and long-term investors. Tiger believes not, and feels that more must be done. The regulators should consider making the delisting of promising companies, from the bourse tougher.
It is fair that majority shareholders should have the option of trying to take a company off the bourse, especially when they feel that the market is not reflecting its true value. However, what they can offer or threaten minorities with must be better defined.
According to current regulations, majorities who hit 75% are required to make a general offer. If the offer secures 90% acceptances (excluding what the offeror already owns), then a mandatory takeover can be executed.
Nonetheless, even without getting 90%, majorities can still choose to delist a company and leave the minorities in limbo. Regulators should not allow the company to be privatised if the offeror does not get sufficient acceptances.
In other words, unless the offeror garners 90% or more acceptances, they should not be allowed to take the company off the bourse. Furthermore, if an offeror does not obtain sufficient acceptances, the offerors should be required to sell down their stakes to below the 75% threshold and maintain the listing status of the company.
If Maxis wanted to sell its foreign businesses to improve its risk profile, could it not have been done while it was listed? Yes. Couldn’t IOI have restructured its property business while allowing IOI Properties to be listed? Yes. Is there anything to stop Seven Convenience to wait for a while for value to be recognised? No. And it goes on.
Remember that majority shareholders, because they appoint management, know how much a company is valued. If they are willing to buy out the company, they must know something. And if a significant number of minority shareholders want to stay on for the ride, they should be allowed to and not be unceremoniously ejected from their seats which they have already paid for.
In a nutshell, Tiger says that minorities should not be frightened into selling their stakes. If Bursa is serious about increasing the participation of retail investors on the bourse, it is time that the SC and Bursa reconsider the issue of indiscriminate delisting and relisting, and start protecting the minority long-term investor. It’s easy to do.
GRRRRR!!!
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