Poor disclosure not only hurts shareholders, but can cost companies too

WHEN AGV Group disclosed in a regulatory filing on July 1 that it had been asked to provide assistance for an investigation into an offence and that a director had given a police statement, the Catalist-listed hot-dip galvanising services provider did not identify the director.

It took the Singapore Exchange (SGX) two queries on July 2 and July 6 to flush out further information; AGV's Albert Ang was the director who had furnished a statement for the investigation into an offence under the Securities and Futures Act.

Mr Ang was also AGV's chief executive from July 2017 to March 2018 - the period that the investigation by the white-collar crime-buster Commercial Affairs Department (CAD) and the Monetary Authority of Singapore has focused on.

In the responses to the SGX queries, AGV said that its nominating committee "wishes to state for the record that upon being notified of the CAD investigation, an emergency board meeting was held" and had deliberated on Mr Ang's suitability to remain as an executive director. It also furnished reasons for keeping him on the board.

Further, the company couldn't confirm if the investigation was directed at AGV because it was not told who the subject of the investigation was.

However, all this basic yet material information was glaringly missing from the company's disclosure on July 1. Yet, it advised in the same filing that shareholders and investors exercise caution when dealing in AGV shares.

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Between the day after the bare-minimum filing was made and the day after AGV gave a fuller picture with more details, its share price fell 29.5 per cent. Specifically, its price dropped by 19 per cent the day following the announcement of the investigation and another 9 per cent the day after it revealed the identity of Mr Ang to the SGX.

It rebounded before dropping again when AGV further disclosed - in response to the SGX - that Mr Ang's passport had been retained by the police.

The Straits Times Index, on the other hand, was on a winning streak during the same trading period.

In the book How the Stock Markets Work, the writer postulated that an early and full announcement of both the problem and the corrective action is not just a regulatory requirement. While obviously negative for the share price in the short term, it means the company can ensure the issue is aired on its own terms and in the right context.

When a company drip-feeds bad press, it is placed on the defensive and appears indecisive and not in control of the agenda. Announcing a bit of bad news one week, and a bit more the week after, gives the impression that the management is floundering, the book added.

Indeed, AGV should have volunteered in the July 1 announcement that the board had convened an emergency meeting to discuss the status of Mr Ang's directorship, instead of keeping this piece of information until its second response to the SGX.

The fact that the company has taken immediate action but this was not promptly conveyed to investors was not doing justice to its board and shareholders.

Disclosure obligations

Although what caused AGV share price to slide cannot be determined with certainty, the management may want to remember this: when investors don't get adequate and timely information from the company, they might fill in the gaps with their own speculation.

Authors of the book entitled The Practitioner's Guide to Global Investigations wrote that, where getting the information out early is possible, the company can effectively take the wind out of the sails of the speculation by preventing the drip-feeding of details over an extended period and also shortening the period of negative media focus.

The book further said that presenting the worst-case scenario clearly and rationally may seem counterintuitive but it can take a lot of the "fear factor" out of market and wider stakeholder reaction.

Hoe Leong is another company that recently released a regulatory statement that was also bereft of key information - over a material re-appointment.

The company had re-appointed executive director Joseph Liew just two days after he had failed to secure a re-election at the annual general meeting (AGM). Furthermore, shareholders at the AGM refused to back a resolution to give him shares as part of his remuneration as the chief executive.

Given the seemingly utter lack of support at the AGM for Mr Liew, one would expect Hoe Leong to provide adequate information to allay shareholders' concern that their wishes at the AGM had not been flagrantly disregarded.

However, when the company disclosed in the regulatory filing that two substantial shareholders had put in proxy forms past the deadline supporting Mr Liew's re-election and this has resulted in his re-appointment, the substantial shareholders were not named nor were their stakes made known.

It was only when the SGX asked that Hoe Leong disclosed they were United Overseas Bank (UOB) and DBS Bank and provided information on their stakes.

Two days later, the company added that these shareholders are financial creditors, and they had earlier nominated Mr Liew to manage Hoe Leong's financial and corporate restructuring.

Hoe Leong shares have been suspended since last September, after the company was issued a statutory demand from UOB for the repayment of a S$5.7 million loan.

When a company furnishes scant information in their disclosure, it is complying with the letter but not the spirit of the law. It's also arguable that they have not discharged their disclosure obligations because the very little information provided could hardly help investors make informed decisions.

In providing the necessary clarity for the benefit of investors - and the company itself - the board may want to consider including the five Ws (what, who, where, when and why) and one H (how) in regulatory filings.