Singapore Telling Noble they were mean sends what message?


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What does Singapore Inc. have to say to shareholders who valued commodities trader Noble Group Ltd at $10.8 billion? a few years before it went bankrupt? It sounds a lot like “drop dead”.

Four years after its delisting from the Singapore Stock Exchange as part of a debt restructuring, regulators fined Noble 12.6 million Singapore dollars ($9.1 million) for publishing information misleading financial statements and issued “stern warnings” to two former managers of his local unit.

That sum seems paltry given the scale of Noble’s collapse. Just last month, the US Securities and Exchange Commission fined an insurer $50 million for failing to properly disclose charges to annuity investors, while the UK’s Financial Conduct Authority would have imposed a fine of £37.9 million ($44.5 million) for misleading statements leading to the collapse of Carillion Plc, had the company not already gone into liquidation. Banks have been fined around $9 billion over the Libor interest rate rigging scandal over the past decade, while BNP Paribas SA alone was fined $9 billion in 2015 for violating US sanctions. The modest sum levied against Noble is unlikely to deter other companies down the same path, given the gross profits of more than a billion a year it pumped out.

Publishing false statements has ‘no place in Singapore’s capital markets’ and risks ‘adversely impacting the integrity of our capital markets’, regulators and regulators have said. law enforcement led by the Monetary Authority of Singapore in a statement announcing the sanction. MAS did not respond to an email seeking comment on this article.

The official words hit the right note, but lightly nudging the stable door now, years after the horse ran away, has a discordant tone. As early as February 2015, Iceberg Research, a short seller run by a former Noble credit analyst, cited issues with the marketing deals that formed the core of last week’s fine. Singapore’s investigation into the matter only began in November 2018, at a time when shares had already been suspended and 10 months after the company announced a debt restructuring that wiped out shareholders. Noble still operates as separate industrial and commercial companies after the restructuring.

Consider in general how rare it is for commodity trading houses to be listed companies. With the exception of London-listed Glencore Plc and a few agricultural processors (including Singapore’s Olam International Ltd. and Wilmar International Ltd.), virtually the entire industry is tightly owned by owner-managers and founding families. .

It’s not an accident. Traders take significant risks with the company’s balance sheet and expect tempting bonuses in return. When the people providing the risk capital are separate from those who benefit from a successful trade, equity investors can find themselves harmed by insiders who capture most of the upside for themselves but pass the downside on to investors. shareholders. The very existence of Noble as an exception to this rule should have been a warning.

That’s not the only sense in which Noble was a weird beast, though. In Singapore, nearly every company in the main Straits Times index has government or regional tycoons like the Keswick family of Jardine Matheson Holdings Ltd. as their main shareholders. Singapore Telecommunications Ltd., CapitaLand Investment Ltd. and Singapore Airlines Ltd. are controlled by public investment fund Temasek Holdings Pte., while the three largest companies in the index, DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. counts, respectively, Temasek and the founding families Lee and Wee as significant shareholders.

There was a time around the time of Noble’s IPO in 1997 when it looked like that might change. Jardines herself had moved her public listings from Hong Kong before the city was transferred to China. Singapore could have seen its stock market as the cornerstone of its aspirations to become a regional financial center – a common dream of fast-growing economies, even if they hardly need the capital raising and allocation services that Singapore a dynamic stock exchange can bring .

This year, it is the turn of Saudi Arabia and the United Arab Emirates to delude themselves that a series of major share sales can transform the fundamentals of an economy. But just as it is illusory today to think that the Persian Gulf monarchies will be dominated by anything other than oil in the coming decade, it was illusory two decades ago to think that shareholders rather than traders in raw materials could prevail in Singapore. . Since Shell Plc established its first fuel storage facility on the island of Pulau Bukom in 1891 and in the 1960s when Prime Minister Lee Kuan Yew made the construction of oversized oil refineries a central part of his development strategy, Singapore’s fortunes and those of commodities have been intertwined. intertwined.

In 2001, when Noble’s rise was still in its infancy, the city-state launched its Global Trader program which explicitly aimed to make Singapore a hub to compete with Chicago, London and Geneva by offering premium rates. corporate tax of 5% or 10% for companies that have moved trading desks there. It has helped attract professionals from around the world: Trafigura Group Pte. abandoned its European roots to integrate into the city when Noble’s valuation was at its height in 2012, and major mining companies set up trading arms that sparked long-running disputes with Australian tax authorities.

Some 320,000 people are now employed in Singapore’s wholesale sector, contributing 17% of gross domestic product. When the Global Trader program was due to expire last year after an initial period of 20 years, the government quietly extended it until 2026.

The country has made its choice. It’s not alone. For all the energy that a bustling stock market can bring to a city, Switzerland has done quite well in combining a sleepy stock market with low-key but lucrative ventures in commodities and private wealth. This is the path that Singapore has decided to follow.

Those who feel they have been harmed by investments in Noble shares might as well make the same criticism of the Singapore stock market as a whole. Even investors in the Brexit-ravaged FTSE 100 index have performed better than those who bought the Straits Times index over the past decade. Hong Kong’s Hang Seng Index is one of the few to match Singapore’s lackluster performance – but it took the destruction of the territory’s long-held freedoms to achieve this dismal result. In terms of market cap, Indonesia and Thailand are bigger stock markets today, and even former rival Malaysia isn’t far behind.

The people of Singapore, which have gone from being the ninth richest in the world in terms of GDP per capita when Noble was listed in 1997 to the second richest today, don’t seem to care. Yet with Hong Kong’s decline as a financial center, the chance to become a stock market for the entire region has not completely disappeared. Singapore may have been able to prioritize shareholders less in the past. Don’t count on always being so lucky.

More from Bloomberg Opinion:

• Singapore’s next big challenge is already here: Daniel Moss

• Commodity traders make record profits – and now want a bailout: Javier Blas

• Singapore’s long-awaited moment may have arrived: David Fickling

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.

More stories like this are available at bloomberg.com/opinion

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