Singapore has not had much to shout about in terms of Asia’s financial crisis. Sure, with a more robust economy it’s weathered the storm a little better than its neighbors. But sitting bang in the middle of a region that has been decimated by collapsing currencies, debt recalls and vanishing investors has not done much for the good times on Orchard Road.
Still, one thing it has provided is a prod in the direction of financial services sector reform. And IR is being swept along with the tide.
Although most public figures deny the fact, Singapore has jealously eyed Hong Kong’s position as the region’s dominant financial center for many years and the Singaporean government has viewed the crisis as a window of opportunity to implement some radical reform as a means of starting the long catch-up process. And the reforms initiated in the pristine city state could well have ramifications for the whole region.
Influential hub
It’s now just over a year since the first reform packages were announced – still too early to see any real impact but long enough to know that something serious is happening. A series of reports conducted in conjunction with the private sector dealt with most of the relevant issues in terms of making Singapore a more influential financial hub. Singapore has intensified its attempts to compete with Hong Kong by spearheading a comprehensive review of capital markets legislation. In so doing, the government recognized the need to modify the style and balance of its regulatory framework. While Hong Kong recently announced a capital markets review of its own, for once Singapore has a short lead over its Asian rival.
‘A key aspect of the reforms is that the private and public sector are working together. That has allowed for a better perspective on what is needed,’ says Hamish Bell, director, financial and investor relations at Shandwick International in Singapore.
‘The proposed financial reforms and the desire to lead the region should be taken seriously,’ continues Bell. He notes that Singapore is a place that traditionally ‘gets things done’ when it is stated as public policy. ‘The Asian crisis offers a window for Singapore to implement serious reforms over a couple years without resorting to one Big Bang.’
The importance of the financial services industry in all this is clear. Singapore is currently the world’s fourth largest foreign exchange trading center, fifth largest trader in derivatives, and ninth largest offshore lending center. There are over 700 local and foreign financial institutions in Singapore, and the city remains an important base of operations for major global financial institutions.
Raising standards
‘This reform process is meant to improve the sophistication of the Singapore market and raise standards,’ says Ian McEvatt, managing director at Indocam Asset Management. ‘To be a leader in Asia, where attitudes toward IR are ambivalent at best, these changes are key. Had disclosure levels been at the standard Singapore plans for 1999 we might not be in as dire a situation as we are today.’
The latest reforms open the market to competition and entrench the legitimacy of IR. Theoretically, at least, the reforms mean that Singaporean companies have little choice other than to get some form of IR function in place. Listed companies are being ‘encouraged’, Singapore-style, to adopt and adhere to full disclosure and transparency standards that meet or even surpass international requirements. The intention is that it should lead to a radical rethink from the closed approach many companies have adopted to date.
‘Singaporean companies are becoming more aware of the need for investor relations but there is a difference between that and actually implementing an IR program,’ says Bell. ‘Presently, IR is at an early stage in its life cycle in many Singaporean companies, and is primarily restricted to a few organizations. However, as companies increasingly look for capital outside Singapore it will be essential for them to endorse IR. With increasing global competition for capital, not only will IR be necessary for them to compete for visibility, but there will be a clear opportunity to use IR as a differentiation tool.’
To date global fund managers have snubbed Singapore’s small market, preferring Hong Kong for its China hinterland and regulatory environment. To begin to challenge Hong Kong’s supremacy Singapore decided to reform its fund management industry. Changes include the reduction on the minimum shareholders’ funds required for an investment advisor’s license from S$500 mn to S$100 mn. The minimum amount of global funds a parent company must manage was lowered from S$5 bn to S$1 bn. In addition, the government will place more funds with private managers. So far it has placed some S$10 bn with external managers but that should rise to S$35 bn by 2002.
The government will also relax restrictions on Central Provident Fund (CPF) unit trusts by widening the selection of CPF-approved fund managers; removing current caps on asset types and foreign investment; raising disclosure standards so that CPF investors can compare performance; and allowing foreign fund managers to market products through local banks. These changes are all things that international corporate investor relations teams in search of global capital should take into consideration.
‘When we looked at Singapore within the Asian context we found it had tremendous potential to manage money,’ says Lee Tiong Seng, managing director of BT Funds Management (Singapore). ‘The investment industry is new, the country is rich, and the government plans to give fund managers money to manage. Meanwhile one of the consequences of the reform is that everything is more transparent. Companies must be more friendly and open, especially to foreign funds looking to invest in them. In effect, the reforms have expedited what could have been a very slow process.’
Opening up
One of the prevailing themes to emerge from the review was a need for more disclosure and transparency. In an unprecedented move, Singapore shifted its regulatory approach from a merit-based system to one that is predominantly disclosure-based.
According to deputy prime minister and MAS chairman Lee Hsien Loong, a lack of transparency and the exposure of financial institutions precipitated the Asian crisis: ‘Investors who do not know enough fear the worst,’ he says. ‘We should rely on market discipline and full information disclosure to protect investors rather than extensive regulation. The regulator’s role is to make sure there is transparency and full disclosure so that the field is level.’
Information scrooges
‘Changes in disclosure standards will mean investors are more informed of risks and returns. They can compare the performance and charges of different unit trusts,’ adds Basskaran Nair, managing director at Gavin Anderson in Singapore. ‘Disclosure will only succeed with the help of the media since it has the widest reach to retail investors. Presently, shareholder communication is limited to reporting seasons. In that regard Singapore companies are information scrooges, doing the minimum to communicate with shareholders. This will now change.’
The banking industry is most affected by this transparency sea change. Local banks will no longer be allowed to hold hidden reserves. They must also disclose the market value of investments, disclose non-performing loan levels, as well as past and future provisions. This is something of a leap forward for an industry that has traditionally been considered not just closed but virtually under lock and key when compared to rivals in other regions.
‘A couple of years ago ING Barings conducted a survey of disclosure standards for banks in Asian countries based on the 1996 financial year reporting standards and Singapore ranked among the lowest in terms of bank disclosure,’ says Kim Chiu Chua, lead partner for the banking industry at PricewaterhouseCoopers in Singapore. Chua was also a member of the banking disclosure committee which reviewed the disclosure standards of banks. ‘Since the reforms some banks have released financial statements adhering to the new standards. I’m sure that if the same survey was conducted again today that Singapore would be much higher up the list.’
What’s this?
Indeed, that process may already have started. One of Singapore’s most secretive institutions, OCBC Bank, recently stunned industry analysts and the media by ‘an avalanche of disclosure’. Journalists were amazed as they were handed 19 pages of material during the 1998 financial results announcement. For the first time the bank offered detailed breakdowns of loans as well as valuation surpluses on properties. On top of that OCBC promised more disclosure in its forthcoming annual report, including a list of properties and shareholdings as well as valuations.
A further example of a shift in mentality is the effort made by the bank’s executives to be more available to the media. During the press conference observers were pleasantly surprised by chief executive Alex Au’s openness to fielding questions. More importantly, two senior executives rarely seen by the media were present during the meeting. That’s quite a change from a bank that once refused to let its CEO be quoted by name or even photographed during results announcements. Unsurprisingly, feedback on OCBC’s newly-discovered proactive investor relations program has been positive.
‘Singapore’s potential in leading Asia toward being a responsible shareholder haven is welcome and important,’ says McEvatt at Indocam Asset Management. ‘Raising disclosure levels, allowing legal redress where past conditions have caused problems, and raising the standard of financial statements are all crucial moves.’
Despite numerous denials from the Singaporean government, Singapore is still intent on trying to compete with Hong Kong to become Asia’s leading financial center. The reality is that Hong Kong’s dominant position is now supported by China, an explosive economy that is tightly controlled and relatively stable. Still, Singapore’s backyard consists of Malaysia and Indonesia which have the potential to spring a few surprises of their own.
‘Singapore and Hong Kong are not really in direct competition,’ says Nair. ‘They are complementary. The volume of financial business activity in Asia Pacific is too big for either of these two cities on its own.’
