Why no SGX query on Olam price surge?

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An honorable member of the Coffee Shop Has Just Posted the Following:

Source : Business Times
Date : 15 Mar 2014
Author :R. Sivanithy


LAST month, when the Monetary Authority of Singapore and Singapore Exchange (SGX) proposed measures to stre ngthen the local securities market that included new warning signals to be incorporated in SGX's questioning of listed firms over odd price movements, hopes were high that after years of largely ineffective - and sometimes farcical - querying, substance would finally trump form.

Unfortunately, after just one week of the new, it's beginning to look like more of the old. Queries and warnings were dispatched for penny stocks Giken Sakata and Ziwo Holdings, counters whose trading arguably has limited reach and impact, while nothing was said throughout Olam International's spectacular month-long rise that had everyone talking and that culminated in yesterday's announcement of a Temasek Holdings takeover.

It might be tempting to attribute regulatory inaction to a rise in the entire commodities sector. After all, there was speculation that Noble Group might sell its agriculture business for US$1 billion which, together with a concurrent rise in commodity prices, did lead analysts to say that the whole sector justified a re-rating. This, in fact, did occur.

However, Olam's outperformance prior to yesterday's announcement is simply too large and too noticeable, and has led to too many raised eyebrows to be simply brushed off as part of a sector trend.

In the five weeks from Feb 4 leading up to Olam halting trading in its shares on Wednesday at $1.995, the company's shares gained 56 cents or about 40 per cent. This compares with Noble's 15 per cent and Wilmar's 12 per cent gain over the same period. The Straits Times Index (STI), in the meantime, rose just 4.4 per cent.

In other words, Olam's gain was 10 times the STI's and almost treble that enjoyed by other stocks in the sector. This spectacular move that got the entire market sitting up and taking notice apparently was lost on SGX. Even the standard query might have been enough to signal that the exchange was at least watching if nothing else. Instead, no query was sent and the market was left to speculate for several weeks on reasons why the stock was rising.

If a general uptick in the sector isn't an excuse, what then of somewhat cynical murmurings that SGX was reluctant to query Olam because the latter is a Temasek-linked company (TLC)?

There are no numbers to analyse and there are no readily available statistics on how many times SGX in the past has censured government-linked companies (GLCs) and TLCs.

However, cynics who believe TLCs and GLCs are accorded special treatment cannot ignore that there have been past cases to the contrary, where SGX had taken action against them.

In August 2001, for example, SGX took the unprecedented step of suspending trading in the shares of Neptune Orient Lines (NOL) for one day after its then-chief executive, Flemming Jacobs, was deemed to have divulged material information in a Bloomberg interview.

SGX took a fair amount of flak from the public for that because a trading suspension penalises all parties and not just the errant company. But credit where credit is due, SGX stuck to its guns and rode out the criticism.

In April 2002, Keppel Telecommunications and Transportation was publicly reprimanded for breaching two sections of the Listing Manual relating to disclosure and in March 2009, NOL was reprimanded for being too vague when responding to widespread rumours of a rights issue.

So there have been previous cases where the exchange has singled out GLCs or TLCs for censure and it remains to be seen if the same might be the case with Olam.

At the same time, SGX should look into who the buyers were in the stock's marvellous five-week run to see if the takeover was leaked. After all, if it had queried Olam and if it had issued its new "Trade with Caution" notice, the public would have noted the last paragraph in the notice, which reads: "The Exchange will investigate all possible transgressions and will work with the relevant regulatory authorities to pursue actions to maintain a fair, orderly and transparent market."


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