CAM INTERNATIONAL

Mr Inderjit Singh asked the Minister for Finance if he will elaborate (i) how CAM International got through the supposedly stringent SES listing criteria; (ii) what were the issues that led to the suspension of trading of CAM International shares in the stock market; and (iii) what will his Ministry do to avoid similar companies from getting listed so that small investors will be better protected.

Dr Richard Hu Tsu Tau: How CAM International got through the supposedly stringent SES listing criteria

CAM International ("CAM" or the "Company") applied for listing on the Main Board of the Stock Exchange of Singapore ("SES") in March 1994. The listing application was sponsored and managed by United Overseas Bank ("UOB"). UOB had reviewed the business and financial position of the Company, and was satisfied that the Company was suitable for listing on the SES. UOB had also carried out due diligence on the disclosures made in the listing application and in the prospectus issued subsequently in connection with the share issue.

Prior to 1993, CAM's accounts were audited by Cheong Khee San & Co. Before the listing, Ernst & Young was appointed the joint auditor starting from the financial year ended 30th September 1993. The joint auditors did not make any material qualifications to the 5-year audited consolidated financial results of the group which were submitted in the listing application.

Based on the information (including the 5-year audited accounts) contained in the listing application, the SES considered CAM to have met the minimum listing requirements, and accordingly, approved the Company for listing on the SES.

In reviewing listing applications, the SES, like other stock exchanges elsewhere, has to rely on information and documents prepared, provided and/or vouched by various independent professionals. These professionals include the auditors of the listing applicant, the investment bankers sponsoring and managing the listing and share issue, and the lawyers advising on the legal issues. It is both impossible and impractical for the SES to verify every piece of information contained in a listing application. In CAM's case, there was nothing to cause the SES to suspect that any information contained in the listing application was inaccurate or misleading.

The problem in CAM's case would appear to be an audit failure resulting from alleged collusion between a partner in Cheong Khee San & Co and the top management of CAM to falsify the group's financial accounts. Consequently, the 5-year audited consolidated accounts of the group submitted in the listing application were likely to have vastly overstated the group's profits or concealed its losses. Had the group's past accounts been properly prepared and audited, the Company might not have met the SES' listing requirements and the listing might not have taken place.

Issues that led to the suspension of trading of CAM International shares in the stock market

CAM shares were suspended from trading on the SES on 29th April 1997. The SES took that action after it was notified by the Monetary Authority of Singapore that Ernst & Young had made a report to the Minister for Finance under section 207(9A) of the Companies Act. In that report, Ernst & Young concluded that it believed that a serious offence had been or was likely to have been committed against the Company by its officer(s). The SES decided that it would be in the interest of the investing public to suspend trading in CAM shares until adequate details about the alleged irregularities and their effect on the Company's financial conditions have been established and disclosed to the public.

Since then, the Company had appointed Price Waterhouse to investigate the matter, and Price Waterhouse's findings had been released to the market. However, the Company had not released its audited accounts for the year ended September 1996 and its interim results ended March 1997 within the 6 / 3 months (as the case may be) required by the SES rules. As a result, the investing public does not have recent information on CAM's financial position, including its solvency. In view of these circumstances, it would not be appropriate to resume trading in CAM shares now.

The SES will let the shares resume trading after the Company has finalised and reported its September 1996 audited accounts and March 1997 interim results, and the Company can show that it has sufficient working capital to continue as a going concern.

What will MOF do to avoid similar companies from getting listed so that small investors will be better protected?

The review of listing applications falls within the purview of the SES. No amount of rules can ever prevent frauds and dishonest conduct. To try to do so by introducing more or stricter rules will increase the cost of operations for an overwhelming number of good corporate citizens. What can and should be done is to impose severe punishment on those persons found to have perpetrated serious frauds that caused huge losses to the public. In addition, professional bodies, in this case the Public Accountants Board and the Institute of Certified Public Accountants of Singapore, must deal with unprofessional behaviour of their members quickly and firmly.