CLOB ISSUE (Status)

Mr Leong Horn Kee asked the Deputy Prime Minister if he will give an update on the status of the Clob issue, and what are the possible solutions being considered to resolve the matter.

The Deputy Prime Minister (BG Lee Hsien Loong): Mr Speaker, Sir, I last updated Parliament on the Clob issue in May 1999. Since then, Mr Akbar Khan's cash offer has closed with 359 investors out of more than 172,000 accepting. Three more private sector offers have been announced, but none have obtained regulatory approvals and been formally made. Akbar Khan's Straits Fund Sdn Bhd is offering units in a closed-end investment fund in exchange for Clob investors' securities. It is not yet known at what price the Clob securities will be valued or how Clob investors are to trade these units. Tungku Abdullah's Bintang Melewar Sdn Bhd is offering Clob investors three options, including units in a closed-end investment fund, fund management services for larger investors, and custodial services for non-accepting investors. And the third private sector offer is for Clob investors to swap their securities for an equal proportion of shares in Telekom Malaysia and United Engineers of Malaysia ("UEM"). The two companies have said that they will purchase the Clob securities at a discount to market prices, and sell shares in Telekom Malaysia and UEM at a premium to market prices.

Any offeror intending to offer Clob investors shares or units in investment funds for their Clob Malaysian securities will need to issue a full prospectus in Singapore. This prospectus must be approved and registered with the Registry of Companies and Businesses ("RCB"). The RCB verifies that the prospectuses comply with the disclosure requirements set out in Singapore's Companies Act, and will register the documents if it is in the public interest to do so. In evaluating the public interest, the Registrar will take into account all relevant factors and considerations. The Securities Investors' Association of Singapore ("SIAS") has urged the Registrar not to register prospectuses of offers until a comprehensive solution is in place for all Clob investors. The Registrar has stated that it will take into account the views of the SIAS, which is the only body representing investors, together with other information and views that it may receive regarding the offers.

The Stock Exchange of Singapore (SES) has stated that it will not stand in the way of private sector offers. However, there should be clear and reasonable arrangements for non-accepting investors to trade their shares on the KLSE. When the offers are formally made, investors should study the terms of each offer carefully before making a decision. The agreement between CDP and SCANS contains arrangements for Clob investors to transfer their securities to individual account with the Malaysian Central Depository, and thereafter trade these securities on the KLSE. SCANS continues to be in breach of this agreement, but investors should not feel pressured into accepting any offers if they are not satisfied with the offerors' terms.

The SES is continuing to explore all means of resolving the problem. It has been taking advice from lawyers on the legal position. The SIAS has also announced that it too is consulting lawyers, as the legal position of the Clob investors is different from that of the SES.

Meanwhile the SES has submitted a proposal of its own to the KLSE, suggesting a staggered release of the Clob securities over 12 months, without prejudice to its rights under the CDP-SCANS Agreement. The proposed mechanism will result in a daily release of Clob securities with the value of a mere 0.015% of KLSE's total market capitalisation. This effect on KLSE stock prices should be negligible. This is a fair solution which directly addresses Malaysian concerns that any solution to the Clob issue must not disrupt the KL market, and enables Clob investors to exercise their rights under Malaysian law to trade their securities. The two exchanges are currently in communication on the proposal. And the SES will inform Clob investors as and when progress is made.

Mr Leong Horn Kee (Bishan-Toa Payoh): Sir, I would like to ask the Deputy Prime Minister whether he has any expectation on the timeframe by which this issue could be resolved since the CDP-SCANS Agreement would have to do the transfer by the end of the year. And if it is not done by the end of the year, would it lead to some legal process being introduced to enable the Clob investors to get their shares transfered?

The second question is whether the SES will assist in special cases where there are rights issues or warrants which have a timeframe expiry, for example, rights issues may be called within a certain timeframe or warrants may expire within this year, and whether the SES can approach the KLSE for special considerations to allow the Singapore owners to either exercise their conversion rights for such issues.

BG Lee Hsien Loong: Mr Speaker, Sir, on the timeframe, it is not the case that the end-of-the-year is the deadline, because the agreement was settled last year (signed in September 1998) and was meant to be implemented as soon as possible. There is no specific timeframe. The end-of-the-year is not a deadline for the agreement between CDP and SCANS. There have been some statements by one of the offerors, I believe, that at the end of the year, if this matter is not settled, the shares may be confiscated. But the SES is taking advice on that, and its advice so far is that even if the shares are transferred to the Minister of Finance in Malaysia, the titles still belong to the shareholders and they still have a claim on those shares. So they are not expropriated. But we are clarifying this position because it is an important point on which I am sure Clob shareholders would want reassurance.

As for the legal process, as I said in my statement, SES is taking legal advice and the shareholders' association is also taking legal advice. I do not think we should rule anything out but neither are we seeing that as the only solution.

As to when the whole package can be solved, as Members have been reading in the newspapers recently, the Malaysians are gearing up for elections and I think their minds are likely to be on other weightier matters for the time being. So it will be some time before the matter would be solved.

On special cases like rights issues and warrants, I have to ask the Stock Exchange to look into the matter but we will have to study the specific cases.

Mr Chng Hee Kok (East Coast): Mr Speaker, Sir, the Deputy Prime Minister said that to make Clob legal, the Malaysian authorities would have to go to Parliament, in other words, to pass a resolution to make Clob illegal.

BG Lee Hsien Loong: Mr Speaker, Sir, Clob is not illegal. Even today, it is not illegal. Clob is an offshore market. It operates outside Malaysia, just like people trade in Malaysian shares in London or Hong Kong. It does not require Malaysian law to make it legal. It did require the cooperation of the KL Stock Exchange because Clob had to operate nominee accounts and also investors had to buy additional shares, rights issues, and so forth. Indeed, it complied with all the rules and regulations of the KL Stock Exchange all the many years it was in existence. In September last year, the KL Stock Exchange changed its rules and Clob reassessed its position and decided that it was no longer viable for it to operate under the new rules. But there is no question of Clob being illegal.

Mr Low Thia Khiang (Hougang): Sir, in view of the difficulty of the Clob issue so far and the so-called unsatisfactory result in the level of negotiation between the Singapore Stock Exchange and the Malaysia Stock Exchange, does the Government intend to take up the issue with the Prime Minister of Malaysia?

BG Lee Hsien Loong: Mr Speaker, Sir, in fact, the Government had already done so. If you read my previous statement in May 1999, I explained that after the matter reached an impasse at the working level, the two Prime Ministers discussed it in Hanoi when they met during the ASEAN Summit. After the meeting, Dr Mahathir came out and told the press that Clob would be part of the package of issues to be negotiated between the two governments, including water, railway land, CPF, and so on, and he mentioned specifically Clob. But, unfortunately, the Malaysian Government subsequently changed its position.

On 17th May this year, Prime Minister Mahathir made a different statement and he said, "No. Clob is not one of the issues. Clob is a separate matter." But the Singapore Government has said, in our negotiations with the Malaysians, that while this is something we can negotiate separately, by the time the main negotiations are settled, Clob should not remain outstanding. So the two can proceed on parallel paths but they must reach a conclusion at the same time. But both packages may take some time to resolve because, in the nature of our relations with Malaysia, these are not easy problems. So we will have to wait and see what happens.

Mr Chng Hee Kok: Mr Speaker, Sir, would the Deputy Prime Minister say that he would not expect any form of solution until after the Malaysian general elections?

BG Lee Hsien Loong: I did not quite say that. I said that they have their minds on other matters right now. I am sure you understand the psychology. So I think it is more likely it will be settled after, rather than before, the general elections.