From The Business Times, Singapore
3rd January 2000
Thorny issues remain despite Clob extension
Singapore CDP's authorised nominee status
extended to June 30
By Eddie Toh
SEVERAL questions still remain over the fate of the Malaysian shares owned by Clob investors, even though the Kuala Lumpur Stock Exchange (KLSE) last Friday extended their joint nominee accounts by another six months to June 30.
Observers, while welcoming the extension, noted that the KLSE had not officially endorsed any of the private sector proposals. "The KLSE should indicate offers that are palatable to Malaysia. What if the Clob investors accept an offer that breaches Malaysian securities laws?" said an analyst.
For instance, Akbar Khan's Effective Capital and Negri Sembilan prince Tunku Abdullah's Bintang Melewar are the front-runners with their offers but they, too, have not obtained written approvals from regulatory bodies in Malaysia.
Furthermore, the KLSE has not officially rejected proposals from the Singapore Exchange (SGX) and the Securities Investors Association of Singapore (SIAS), although their proposals might actually have been put on the backburner by the Malaysian authorities, some market watchers say. The KLSE, on its part, has said that it is not its role to consider the merits of any proposals put forward by private sector parties to solve the Clob problem.
On the table now are proposals from Effective Capital, Bintang Melewar, the SIAS, United Engineers Malaysia, Malaysian lawyer Tai Sim Yew, the SGX, and Collective Custodial Services. "As previously explained, it is up to the SGX, CDP and the Clob investors to accept or reject proposals put forward by the private sectors," it said in its statement on Saturday announcing the extension. "KLSE and its subsidiaries' role is to ensure that the implementation procedures for any proposals are in full compliance with their rules and regulations."
As some market watchers see it, it is crucial that this circle of wait-and-see be broken if a solution is to be found in the next six months. Another uncertainty is the concern over the transfer of the shares to the Ministry of Finance (MOF) if no deal is reached by the new deadline. If the shares do revert to the MOF, the ministry is empowered to dispose of any unclaimed shares after a period, thought to be six to nine months.
But an analyst said there is still no indication of the procedure by which Clob investors who reject all the proposals could reclaim their shares or the proceeds from the Accountant-General's office. This is because the exercise would be quite unprecedented.
An additional thorny issue is the status of the agreement signed by the KLSE's Securities Clearing Automated Network Services (Scans) and the SGX's Central Depository (Pte) Ltd (CDP) in September last year. CDP's lawyers -- Shook Lin & Bok and Queen's Counsel Charles Flint -- have said that the shares should migrate to the individual owners' accounts as agreed upon by the two stock exchanges, and that there is no question of the shares reverting to the MOF.
But the Malaysian exchange takes the view that the agreement was merely to assist the Singapore exchange in finding a solution to the Clob problem, and was not intended to assume responsibility towards Clob investors.
On Friday, the KLSE issued a statement saying that the third extension was a "final opportunity" for the CDP to resolve the issue and to facilitate the completion of proposals already put forward to it. The frozen Malaysian shares of the estimated 172,000 Clob investors worth about 17 billion Malaysian ringgit (S$7.5 billion) are held under the CDP's omnibus nominee account with the Malaysian share depository.
The authorised nominee status was first given by the Malaysian exchange to CDP on Dec 1, 1998. This was shortly after trading in the Malaysian shares previously traded on Clob International, Singapore's over-the-counter market, was halted in September following the imposition of capital controls by Malaysia.
CDP's nominee status was to have expired on Jan 1, 1999, but was extended to Dec 31, 1999. "With this extension, Clob securities presently held by CDP will remain status quo, until the resolution of the issue or the expiry of the authorised nominee status, whichever is earlier," the KLSE said in its statement.
By the provisions of the Securities Industry (Central Depository) Act 1991, all Malaysian securities must be held in the account of a beneficial owner or an authorised nominee. "Any securities not held in the account of a beneficial owner or an authorised nominee shall be transferred to the Minister of Finance, and all claims thereafter shall be made through the Accountant-General's office," the KLSE statement added.
"This will also apply to the shares previously traded on Central Limit Order Book International (Clob) should the matter not be resolved by June 30, 2000."