Agenda Daily

Whither good corporate governance?

ykadirxWhile the ruling coalition Barisan Nasional sees ifs grip on Sarawak loosen in the recent state election, the Sime Darby merger is being investigated for insider trading. What has happened to credibility and transparency?
IN SPITE OF THE STATE-BASED SARAWAK BARISAN Nasional (BN) successfully retaining power in the April 16 state election, the rolling effect of the 2008 political tsunami continues.

 The BN’s monopoly of power in the resource-rich state was further broken. The Opposition, led by the Democratic Action Party (DAP), doubled its presence in the 71-seat State Legislative Assembly to 16. The BN’s lead was thus trimmed from 63 to 55.

 The Chinese-led DAP was most successful, winning 12 out of the 19 seats it contested. It eliminated the BN in all the Chinese-majority urban and sub-urban seats, dealing a crippling blow to the Sarawak BN’s main Chinese-led component party, the Sarawak United People’s Party (SUPP).

 The SUPP’s fate mimicked that of the Malaysian Chinese Association (MCA) and the Chinese-led Gerakan in the Peninsular in the 2008 general election. It won only six out of the 19 seats contested.

 The DAP was so confident of marshalling the Chinese support that it paid only lip service to its Pakatan Rakyat partners the People’s Justice Party (PKR) and the Pan Malaysia Islamic Party (Pas).

 It was the right strategy. While the PKR was forced to slug it out for seats to contest with state-based de facto member, the Sarawak National Party (SNAP), the DAP was left unscathed, allowing it to concentrate its energy on battling the BN.

 The PKR continued with the policy of allowing all and sundry who were willing to contest on its behalf to take part. As a result, it had candidates in 49 constituencies, making it the party to field the most number of contestants, but winning only three.

 Pas remained an outsider’ in the predominantly Christian state. It lost all the five seats contested, while SNAP could be on the way to eventual death in the face of the larger and better organised Peninsular-based parties. Despite contesting 26 seats, it won none.

 The DAP stands an even bigger chance of making a greater impact in the state if it is able or willing to co-op the local non-Chinese leaders among the Dayaks and other natives into its leadership ranks as Umno did when it entered Sabah in 1991.

THE OUTCOME of the state election does not bode well for the BN. If it fails to reverse the trend between now and the next general election, it could stand to lose between five and seven Parliamentary seats to the DAP.

 In the 2008 general election, the BN was spared eventual defeat by the solid support from Sarawak and Sabah. Despite being sparsely populated, the two states have a combined 56 Parliamentary seats, which the BN won all except one. The Bandar Kuching seat was won by the DAP. Last year, the party wrested control of Sibu in a by-election.

 Despite the relentless attack by the Opposition on the Chief Minister, Tan Sri Taib Mahmud, for alleged corruption and cronyism, his party, Parti Pesaka Bumiputera Bersatu (PBB), the leading partner of the state BN, did extremely well, winning all the 35 seats it contested.

 The future of the PBB and hence the state BN rests on who will succeed Taib. The veteran Chief Minister, who assumed power in 1981, had made an electoral promise that he would step down before the assembly term ends.

 Sources say Taib is likely to hang on until the term of the present Governor, Tun Datuk Patinggi Abang Muhammad Salahuddin Abang Barieng, ends, when he is expected to assume the ceremonial post.

 But with his personality and influence, Governor Taib’ is expected to exert considerable influence on his successor and the rest of the PBB and state BN leaders. If this happens, it would continue to offer the Opposition bullets to shoot at the BN.

THE BUSINESS section of the New Straits Times (NST) on April 21 reported that the Securities Commission (SC) is carrying out insider trading investigations surrounding the mega-merger that had created Synergy Drive, the group that’s now known as Sime Darby Bhd.

 Quoting sources, the paper said the capital market regulator had called in several persons for questioning to ascertain if pertinent information had been leaked before the first announcement of the merger was made on Nov 27, 2006.

 Let’s hope that this is not another false alarm or some kind of shadow play to soothe the investing public, as the NST report said it isn’t clear why the SC is making the probe some five years after the merger exercise was completed.

 It is widely known that many parties harboured the suspicion that the mega-merger was not as transparent as was made out to be.

 It is also widely known that several prominent market players had, from as early as the time when Tun Dr Mahathir Mohamad was Prime Minister, openly expressed disappointment with what they considered an under-valuation of Permodalan Nasional Bhd (PNB)’s counters on Bursa Malaysia.

 But they had not dared make a move on PNB’s counters because they were aware of Dr Mahathir’s strong stand against disturbing the latter’s investment. But the move to merge three of PNB’s plantation-based companies, namely, Sime Darby Bhd, Golden Hope Plantations Bhd and Guthrie Bhd, happened as soon as Tun Abdullah Ahmad Badawi took over as Prime Minister.

 It is also widely known that the merger was essentially forced upon the national equity corporation and was almost completely driven by the 01MB-driven special purpose vehicle (SPV) called Synergy Drive.

 The NST report said the financial advisers involved in the RM31 .4-billion takeover and merger had also been asked to cooperate in the investigation.

 What was widely noticed prior to the announcement of the proposed merger was the sudden rise in the prices of the affected counters.

 For instance, according to Bloomberg market data, the shares of Guthrie rose 13% almost a month before the merger announcement was made, rising from a low of RM3.60 to RM4.08 on Nov 22, 2006, a day before trading in the counter was suspended.  Golden Hope shares also rose steadily in about the same time frame from the low of RM4.58 to RM5.20, a 14% improvement.
WHATEVER the SC’s reasons for opening the investigation, the outcome should not be another gentle slap on the wrist or a summary fine of a few hundred thousand ringgit.

 The perpetrators must be dealt with severely and made examples of. What is a few hundred thousand ringgit or even an RM3-million fine when these detestable characters might have made hundreds of millions using illegally obtained inside information?

 The Malaysian financial and capital market regulators, the SC included, cannot begin totalk about transforming this country into a world- class financial and capital market if insider traders continue to be treated with the lackadaisical tidak apa attitude simply because they are rich, powerful and well-connected, or because the regulators have neither the willpower nor expertise to face up to them.

 The SC and other local financial and capital market regulators should pay attention to the high-profile insider trading trial of Sri Lankan, Raj Rajaratnam, now progressing in the United States.
 The 53-year-old Galleon Group founder is accused of making more than US$ 63 million from insider tips passed on by his friends and colleagues in the top financial circles of Wall Street. Our own insider traders could be making a lot more than that.

 Despite the mantra of market transparency and good corporate governance, insider traders have so far beenonly mildly punished that it has been no deterrent to others.Insider traders may not have bludgeoned anybody to death,but their activities are a stab in the back for genuine, law-abiding investors.

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