According to a report by Standard Chartered Bank (StanChart) Global Research:

• Khazanah Nasional Bhd is among the top 20 sovereign wealth funds (SWFs) in the world which are also considered as “transparent.
• The report entitled “State Capitalism: The Rise of Sovereign Wealth Funds” listed Khazanah as the 12th largest SWF in the world with estimated assets of US$17.9 billion (RM60.86 billion) as of May 2007, accounting for 12.3% of the country’s gross domestic product
• Other SWFs that are transparent include those from Norway,Singapore,Alaska (US),Alberta Canada and Azerbaijan.
• Those with relatively low level of transparency include funds from the UAE, Kuwait, China,Qatar,Brunei,Venezula,Taiwan and Oman
• The report estimates SWFs are valued at US$2.2 trillion and if their current rapid pace of growth can be sustained, then in 10 years time SWFs can soar to US$13.4 trillion
• Currently, the largest SWF is the world is the Abu Dhabi Investment Authority from UAE with an asset size of US$625 billion, way ahead of the second largest fund, which is Norway’s Government Pension Fund with US$322 billion.
• Singapore had two SWFs in the top 10, namely the third-ranking Government Investment Corporation, with US$215 billion and Temasek at the seventh place with US$108 billion in assets.

About this Study:

The study identifies 20 SWFs, which are mainly investment funds owned by sovereign nation states. There is also a group of “super seven funds” each with over US$100 billion in assets.

The study was carried out with support from Oxford Analytica for an independent perspective, as some SWFs are shareholders in StanChart.

StanChart Global research chief economist Gerard Lyons said

• the influence of SWFs on global financial markets was set to grow
• Western countries might need to accept the rise of SWFs as a further sign of a shift in the world economy and should seize this as an opportunity to work with emerging economies such as China and Russia, countries in the Middle East to find common ground rules and a code of practice;
• expect these government controlled funds to take bigger financial stakes in equity and bond markets across emerging economies, to feed more money into alternative investments such as hedge funds and private equity, to boost strategic links with countries that have not shared fully in the benefits of globalisation or which have been shunned by the West, and to take more strategic stakes in sensitive areas within developed countries
• the report also highlighted a strong case for SWFs to adopt the best practice of open funds like Norway.
• However, many governments will argue that it is their money and why should they be so transparent when so many other areas of financial markets are not
• It also said countries of these SWFs should also open up their markets. “If not, then protectionist pressures will come to the fore, risking a clash between Western governments and SWFs. Already, this is happening ,with more signs of a hardening of stances across Europe

(Source:The Star Malaysia17/10/07)

The Securities Commission (SC) has directed Talam Corp Bhd to reissue its financial statements for 2006 and 2007 by Oct 31.  Talam is the third to be asked to do so after Aktif Lifestyle Corp Bhd ( May 4, 2005) and Oilcorp Bhd ( March 24, 2005)  

Details:

• The reason for doing is that Talam has breached Regulation 4 of the Securities Industry (Compliance with Approved Accounting Standards) Regulation 1999. 
• This involves the adjustments of various transactions in its financial statement for the year ended Jan 31, 2006 despite its auditors, Ernst & Young’s inability to obtain sufficient appropriate audit evidence to satisfy themselves of the said adjustments. 
• The adjustments had the effect of reclassifying RM90mil of its debtors into property development costs, other liabilities and retained profits brought forward
• This accounting treatment was not in compliance with the Financial Reporting Standard FRS 101 on Presentation of Financial Statements, which required financial statements to present fairly the financial position, financial performance and cash flows of an enterprise. 
• SC therefore has directed Talam to reinstate the RM90mil and reissue its 2006 and 2007 financial statements. Talam is also required to announce to Bursa Malaysia in respect of the rectification of its 2006 and 2007 financial statements, together with the reasons and effects (financial or otherwise) of its actions
• The SC also directed Talam to comply with all regulatory requirements, including tabling its financial statements at a shareholder meeting and to re-lodge the financial statements along with the minutes of the meeting with Companies Commission of Malaysia within 14 days from the date the rectified and reissued financial statements were submitted to the SC and Bursa Malaysia

Interestingly, prior to this irregularity,Talam recently announced several changes to its board whereby the chief executive officer Puan Sri Thong Nyok Choo and non-executive directors Sulaiman Hew Abdullah and Lai Moo Chan had resigned on Oct 1. 

On the same day, it redesignated Datuk Ab Rauf Yusoh as executive director and appointed Chua Kim Lan executive director. Also appointed were three non-executive directors Datuk Kamaruddin Mat Desa, Lee Swee Seng and Loy Boon Chen. The existing board members are executive chairman Tan Sri Chan Ah Chye, deputy vice-chairman Tengku Sulaiman Shah Al-Haj Ibni Al-Marhum Sultan Salahuddin Abdul Aziz Shah Al-Haj and non-executive director Tsen Keng Yam. 

FTEC Resources Bhd’s managing director Kenneth Vun Yun Liun has resigned from the company following the Securities Commission’s action in initiating a civil suit against him demanding the restitution of RM2.5 million to the company.

FTEC told Bursa Securities that Vun, 33, had tendered his resignation as managing director of the company. Vun is a major shareholder of FTEC, with 32.27% stake comprising a direct interest of 50.99 million shares and an indirect interest of 3.89 million shares.

Earlier, the SC alleged that Vun had utilised the RM2.5 million, which was part of the proceeds in an initial public offering (IPO) raised by FTEC in 2003, for his own benefit and personal use. Vun’s misconduct was uncovered following its investigation into the utilisation of the public issue proceeds by the company.

The SC also asked that Vun be restrained from directly or indirectly managing funds of FTEC Group in the absence of proper controls being put in place by the said companies including but not limited to external supervision by the SC and that he caused FTEC to properly disclose in its audited report for the next financial year, the manner in which the sum of RM2.496 million had been utilised.

FTEC develops, manufactures and distributes computer hardware and software, information technology (IT) systems and digital surveillance security systems. It was listed on the Mesdaq Market on Dec 19, 2003.

“The Securities Commission (SC) has filed a landmark suit on Sept 26 to compel FTEC Resources Bhd (FRB) managing director and shareholder Kenneth Vun @ Vun Yun Liun to restitute RM2.5mil to the company.”

Details:

·         The sum of R2.5mil represented part of proceeds raised by FRB in an initial public offering in 2003;

·         The commission’s investigation into the utilisation of the public issue proceeds had uncovered that Vun had utilised a portion of the proceeds for his own benefit and personal use;

·         Vun’s personal utilisation of the proceeds had not been reflected in the FRB Groups’ unaudited quarterly financial statements for the first quarter ending on 31 March, 2004 released to Bursa Malaysia Securities Bhd;

·         The utilisation of proceeds was not in compliance with the conditions set by the SC in the listing approval of FRB.

Incidentally, the aforesaid action against Kenneth Vun is one of the numerous civil enforcement action undertaken by the SC recently against directors of public listed companies for corporate governance misdeeds.

Other civil actions by the SC include:

·         the disgorgement of companies’ ill-gotten gains and the freezing of assets to prevent them from being diverted. One such notable case is the Ayer Molek Rubber Company Berhad, where the SC had obtained an injunction to safeguard the RM20mil of the company’s monies to prevent the company and its solicitors from disposing or dealing with the said monies representing the company’s sale proceeds of several pieces of land in 2006 and 2007.

·         More recently, in the Swisscash Internet Investment scam where the SC had obtained a worldwide Mareva injunction to prevent the disposal of assets by the defendants and the SC had also secured a court order to direct one of the defendants, Amir Hassan, to transfer RM35mil of Swisscash monies held in bank accounts overseas back to Malaysia.

MSWG chief executive officer, Abdul Wahab Jaafar Sidek said companies should be committed to transparency and not merely comply with the code. This is despite that at the Directors’ Remuneration Survey 2007, it was found that overall compliance with the Malaysian Code on Corporate Governance had been generally satisfactory. [This survey is a joint effort by Minority Shareholder Watchdog Group (MSWG) and Universiti Teknologi Mara (UiTM) pertaining to the importance of linking directors’ remuneration to the performance of companies so that the right incentive could be provided for performance targets and in line with the interest of stakeholders. The survey covered the top 500 companies based on market capitalisation as at Dec 31, 2005.]

However, compared to international standard, there is still a dire need to improve upon the detailed disclosure of the directors’ remuneration. It was pointed out that Imperial Tobacco Group PLC provided a good model of disclosure of the remuneration and incentives for its directors. The format is tabulated as below:-

Name of Director:                   Designation:

If with the lack of transparency on directors’ remuneration policy and performance criteria that are linked to the rewards, this will make it difficult for shareholders to make a proper assessment of the rewards and evaluate whether directors are being paid what they are worth.