Mr Speaker, Sir, honourable Members will be aware of the efforts of my Ministry to encourage the further development of Singapore as a major regional and international financial centre. The success we have achieved has been due in large measure to our policy of welcoming the free inflow of all capital, whether regional or international, and whether for use directly in trade, industry or construction or merely for portfolio investments. Few if any restrictions are imposed on such investments which, when so desired, may be and often are in wholly-owned locally incorporated companies as well as in branches of foreign or multi-national companies. The presence of many old and new trading houses, manufacturing industries, banks, insurance companies, merchant banks, discount houses as well as holding companies and conglomerates is sufficient evidence of the effective operation of our policy. However, to ensure orderly conditions and fair terms of competition - and where many investors are concerned, fair treatment of minority interests - it has been necessary, here as elsewhere, to provide by law for the regulation of company operations. Over the last five years I have paid special attention to the question of im- proving the system of regulation of the securities industry and of enforcing high standards of conduct on the part of companies operating in Singapore. Honourable Members will be aware of the many legislative measures introduced during this period in the form of amendments to the Companies Act and the Securities Industry Act. A Code on Takeovers and Mergers was enacted and the Securities Industry Council was entrusted with the responsibility for administering it. The rules and bye-laws of the Stock Exchange of Singapore were made subject to my approval. These and other measures which I have taken are by now well known to companies whose shares are listed on the Stock Exchange of Singapore. Companies have also become familiar with the new procedural requirements imposed by the Code and the rules of the Exchange. The Securities Industry Council, in which members from the private sector outnumber those from the Government, has so far discharged its responsibilities in a conscientious and efficient manner. Together with the Committee of the Stock Exchange, the Council has exercised close supervision of the securities industry and ensured maximum protection for the small shareholder. In the past few weeks the Securities Industry Council and the Committee of the Stock Exchange have had to deal with an important transaction involving a leading quoted Singapore-registered company, namely, Haw Par Brothers International Ltd. In view of the large number of shareholders involved and the very considerable publicity which has been given to the transaction in Singapore and abroad, I deem it my duty to make a full report to this House on the Council's decision on this transaction and also on my decision to appoint two Inspectors to investigate the affairs of the company. On 27th May this year, the then Managing Director of Haw Par, Mr Ogilvy Watson, asked my secretary for what he said would be a brief ten-minute appointment with me. He would be leaving for Kuala Lumpur the next day, he said, and he would like to see me about an important and rather urgent matter before he left. At the interview he handed me an advance copy of a Press statement which he said his company would be issuing the next day. The statement was about a proposed exchange of shares between Haw Par and PERNAS Securities Sdn Bhd of Malaysia. It was a brief interview and I did not have time to elicit any details regarding the transaction. After the interview, I made enquiries in my Ministry and was told that it had no previous knowledge of the proposed transaction. But my Ministry was aware of a local newspaper report which appeared on 3rd May over three weeks earlier to the effect that turnover in the shares of Haw Par on the Stock Exchange was exceptionally high and that there was speculation as to whether any major development affecting the company was afoot. The Press statement announced that agreement had been reached between Haw Par and PERNAS Securities Sdn Bhd whereby Haw Par would issue 70,413 million shares to PERNAS in exchange for the entire issued share capital of Tradewinds (M) Sdn Bhd, a wholly-owned subsidiary of PERNAS. The principal assets of Tradewinds were: 20% of the issued capital of London Tin Corp Ltd 19% of the issued capital of Island & Peninsular Development Bhd 10% of the issued capital of Sime Darby Holdings Ltd and other quoted securities valued at M$l2 million. PERNAS would thus acquire a 40% interest in the enlarged Haw Par, while London Tin and Island & Peninsular would become subsidiaries of Haw Par. The Securities Industry Council was informed of this transaction by Haw Par on 28th May, the day on which the company's Press statement was issued. There was no prior consultation whatsoever. The then Managing Director, Mr Ogilvy Watson, appeared before the Council on 30th May, at the invitation of the Council, and argued that the Singapore Code on Takeovers and Mergers did not apply to the transaction. This was an argument Mr Watson was to abandon on the 4th of June. Nevertheless, it was not until the 11th of June that the Council even received a copy of the Agreement executed by Haw Par and PERNAS. On 29th May the Stock Exchange suspended the quotation of the shares of Haw Par and invited the company to justify the proposed issue to PERNAS of 70.413 million shares with a market value of $169 million in exchange for Tradewinds whose assets had a market value of only $114.4 million. This was the first of a series of queries by the Stock Exchange. The directors of the company were not able to give satisfactory answers to any of these queries. I am tabling as an Annex (See cols. 1161-3) to this Statement a summary of these queries and the answers received. On 3rd June I saw the Chairman of PERNAS Securities Sdn Bhd, Tengku Razaleigh Hamzah, in Singapore at his request. I assured him at this meeting that the Singapore Government had no objection in principle to PERNAS or any foreign company acquiring an interest in a Singapore company. I also told him of my concern that the proposed deal with PERNAS would result in the small shareholders' interest in Haw Par being diluted from 74% to 44%. It was important therefore that the Securities Industry Council, which was responsible for safeguarding the interests of small shareholders, should have the opportunity of examining the proposed deal in the light of the provisions of the Takeover Code. Tengku Razaleigh for his part acknowledged that the proposed deal was subject to the approval of the Securities Industry Council and indeed of the London City Panel, in addition to the approval of the regulatory authorities of Malaysia. After our interview, my Ministry issued a Press statement, the text of which was agreed to by Tengku Razaleigh. The Securities Industry Council ruled on 3rd June that the Takeover Code applied to the proposed transaction. On 4th June, the Council informed PERNAS of its ruling and enquired of PERNAS what steps it proposed to take to comply with the provisions of the Code, in particular Rule 27. This Rule laid down that partial offers, though generally undesirable, may be contemplated on the grounds of special circumstances but even then only with the prior approval of the Council. In the light of Tengku Razaleigh's statement at his meeting with me that he realised that PERNAS would have to have the approval of the Council before it can proceed with its deal with Haw Par, the Council had expected to hear representations from PERNAS as to why approval should be given under Rule 27 of the Code. However, in its reply to the Council dated 10th June, PERNAS argued that none of the provisions of the Code applied to the proposed transaction except the general rule to give the fullest possible information to shareholders. PERNAS must or should have been aware that the Companies Act provides that the rulings of the Council are final. The letter from PERNAS went on to say that PERNAS wished to see maintained on a lasting basis the present liberal policy of enabling investors in our respective countries to participate in the economic development of both countries. The partnership with Haw Par investors would be an important milestone in that direction". Four days earlier, on 6th June, the London City Panel had this to say on the concept of partnership: `The concept that there should be a partnership between British industrial and commercial interests and those of Malaysia is to be welcomed. However, the Panel considers that for such a partnership to be successful, it should arise as a result of an association entered into willingly by all shareholders in accordance with normal commercial practice.' On 19th June the Securities Industry Council ruled that PERNAS, having failed to advance any reasons to justify a waiver, had an obligation to make a general offer to the shareholders of Haw Par at $2.42 per share, and that the proposed issue of 70.413 million Haw Par shares to PERNAS should also be at that price. The London City Panel had already ruled that Haw Par and PERNAS had acted in concert in acquiring a 51% interest in London Tin and that they should make or procure a bid for the remaining shares of London Tin at 197 3/16 pence per share. There has been no significant development since these two rulings were published. The Stock Exchange was unable to verify the claim made by the company that 57% of the group's assets was situated in Malaysia. Nor could Mr Watson, Mr Tamblyn or Mr Gammell explain the diminution in the value of shareholders' assets to the extent of over $112 million - from $234.4 million, as stated in the offer document for the takeover of Motor & General Underwriters Investment Holdings Ltd in January 1974, to $121.6 million, as stated in the company's Press statement of 28th May 1975 - all in the course of less than 18 months. Queries from the Stock Exchange produced replies from the company which merely led to further queries. Finally, at a meeting with the Committee of the Stock Exchange, Mr Gammell, the Chairman of the company, requested the Stock Exchange to query the company on a confidential basis. This request was unacceptable to the Stock Exchange as their sole purpose in asking the questions was to keep the general public, including the shareholders of the company, fully informed. Mr Gammell also asked for a waiver of the requirement imposed by the Stock Exchange that the information to be furnished to shareholders by Chartered Merchant Bankers Ltd, who had been appointed to advise outside shareholders, should include an Accountant's report on the business of the company and all its subsidiaries. This request too was turned down by the Stock Exchange. While the Securities Industry Council was examining the terms of the proposed deal between Haw Par and PERNAS and the Stock Exchange was scrutinising the accounts of Haw Par, my Ministry received information which strongly suggested that there might have been misapplication of company funds in the past. The information was about transactions which took place well before, and did not appear to be related to, the proposed deal between the company and PERNAS. Preliminary investigations tended to confirm the suspicion that there may have been serious wrongdoing on the part of some of the company's officers. There was evidence of the existence of a company in Hong Kong known as Spydar Securities (Hong Kong) Ltd, which was formed in 1972 for the purpose of share dealing for the personal benefit of directors. The parent company, i.e. Haw Par, would sell quoted securities of its subsidiaries to this Hong Kong company at cost which was well below prevailing market prices. The Hong Kong company would in turn sell these securities in the market and distribute the profit to directors participating in the scheme. The existence of Spydar Securities (Hong Kong) Ltd was never disclosed to the shareholders of Haw Par Brothers International. There was also evidence of directors setting up Unit Trust operations to circumvent the provisions of the Companies Act. There appeared also to have been other irregularities or breaches of the Companies Act relating to share options given to some directors which have not been disclosed to shareholders as required by the law. On 2nd July I consulted the Securities Industry Council, whose unanimous advice was that Haw Par Brothers International Ltd should be made a Declared Company under Part IX of the Companies Act and that an Inspector should be appointed to investigate its affairs. It was unacceptable that a cloud of suspicion should hang over a leading Singapore-registered company, whose shares are quoted on the Stock Exchange of Singapore and are held by a wide cross-section of the public in Singapore and Malaysia. On 10th and 11th July, I appointed two Inspectors -- Mr G. Starforth Hill, a senior member of the Bar, and Mr PG. Grundy, senior partner of an international firm of Accountants - to investigate the affairs of the Company. A public statement issued by my Ministry made it clear that recent developments in respect of a proposed takeover of Haw Par by PERNAS had no direct bearing on my decision to appoint Inspectors. The appointment of the Inspectors was quickly followed by the resignations and the rather hasty departures from Singapore of both Mr Ogilvy Watson and Mr Tamblyn. It is of course open to the Inspectors to invoke the powers conferred on them under the Companies Act to obtain the evidence of persons who, in the opinion of the Inspectors, would be able to assist them with the investiga- tion. It is to be hoped that both these gentlemen will, in accordance with their assurances of cooperation and affording every assistance to the Inspectors, duly show up when requested to do so. However, up till now the Inspectors' notices to these two gentlemen have not been answered. The Inspectors have accordingly taken steps provided for under the Companies Act to compel their appearance. Motion papers have been filed in the High Court this morning, and leave to serve these papers outside this jurisdiction is being sought. Once this is obtained, the actual contempt proceedings, consequent upon a continued failure to appear on behalf of a witness so required to appear before the Inspectors, will be heard. It is a matter of the utmost importance that pending compliance with the ruling of the Securities Industry Council, no major asset of the Haw Par group of companies should be disposed of. As a precaution, the present Board of Directors have called for the immediate resignations of Messrs Gammell, Ogilvy Watson and Tamblyn from the Boards of all subsidiaries and associate companies of Haw Par Brothers International Ltd. Inevitably there has been speculation in the Press as to the repercussion of the investigation on the proposed deal between Haw Par and PERNAS. The Securities Industry Council recognises that there may well be sound commercial logic in Haw Par entering into an arrangement with PERNAS. So long as the requirements of the Companies Act and the Takeover Code are complied with, there is no reason why the two companies should not enter into any such arrangement. The Haw Par directors originally concerned with initiating the negotiations appeared to have tried to force the transaction through the Securities Industry Council and the Stock Exchange. They may have believed that, because of its connection with PERNAS and because the transaction appears as the carrying out of the Malaysian Government policy of controlling its own natural resources, the deal would not be subject to the scrutiny of the regulatory agencies. The directors of Haw Par who have resigned and left Singapore after the appointment of the two Inspectors must have believed that they could ignore complying with any of the regulations of the Stock Exchange or the Code on Takeovers and Mergers. They do not seem keen to help ascertain and clarify the true present financial position of Haw Par for the benefit of shareholders and investors, in spite of the discrepancies between the Haw Par figures given for the present transactions and those it had presented on other occasions, and in its Annual Reports and accounts. Unless we are prepared to accept the dismantling of our regulatory agencies, the normal procedures must be observed in the interests of the securities industry and the investing public. But I restate my assurance to Tengku Razaleigh that there is no intention to frustrate the legitimate aspirations of Malaysia in the control of its own natural resources. The procedures of the Securities Industry Council allow for prior consultation and advice on any proposals which may be contemplated. The Securities Industry Council has ruled on the arrangements which have been submitted. It is possible that if these proposals are now formally withdrawn, new and suitable alternative proposals can be submitted for consultation and consideration. The investigation by the Inspectors, however, will continue irrespective of the outcome of these discussions or of any possible fresh negotiations between Haw Par and PERNAS. Mr Speaker, Sir, the investigations by the two Inspectors are to discover, first, the facts regarding Spydar Securities (Hong Kong) Ltd and a Unit Trust, second, the circumstances regarding the offer of share options to specific directors contrary to the law and third, the reasons for the diminution of assets of Haw Par Brothers International Ltd. The investigations cannot prevent, and indeed were never intended to prevent, the Malaysian Government taking control of any percentage of the equity of any company operating in Malaysia, be it in tin mining or rubber and palm oil plantations or any other corporate investment. These investigations are designed to unravel the facts related to wrongdoing which appears to have been committed by at least two of the directors who have resigned and left Singapore. The Government is under an obligation to unravel the facts and to protect the assets of innocent shareholders of Haw Par as best it can. Mr Speaker, Sir, perhaps I may be allowed to read the Annex which I have tabled and which I had previously intended to circulate to Members except that insufficient copies were available. The Annex is on: Queries by the Stock Exchange of Singapore and Replies from Haw Par Brothers International Ltd. 1 On 29th May, the Stock Exchange of Singapore pointed out to Haw Par that the market value of the 70.413 million shares it proposed to issue to PERNAS Securities Sdn Bhd was $54.6 million more than the market value of the assets of Tradewinds (M) Sdn Bhd. In reply, the directors of Haw Par said that, for the purpose of the transaction, they had used the net asset backing rather than the much higher market value of Haw Par shares. But Tradewinds, whose assets were all quoted securities, was valued at market value. The directors sought to justify this enormous capital gain for PERNAS on the ground that participation by PERNAS was essential for the further development of one of Haw Par's major assets, namely, London Tin. 2 On 4th June, the Exchange wrote to Mr Ogilvy Watson for an explanation of the diminution in value of shareholders' assets from $234.363 million (as stated in the offer document for the takeover of Motor & General Underwriters Investment Holdings Ltd in January 1974) to $12 1.584 million (as stated in the company's Press Release of 28th May). The Exchange also asked for an explanation of the company's announcement that 57% of the Group's assets were located in Malaysia, 17% in Singapore and 26% in Hong Kong. Finally, the company was asked to explain why there was no mention, in the company's Press Release of 28th May, of options on 2.125 million shares granted to certain directors. The company's reply of 16th June stated that the diminution in the value of shareholders' assets was mainly attributable to Consolidation of goodwill and excess of book value over market value; that the figures for the geographical distribution of assets were based on the net book assets employed in each country after deducting holding company's liabilities; and that no interest in the options had yet arisen as the options had not yet been accepted by the directors concerned and that, in any event, the offer was received only on 2nd June. 3 On 25th June, the Exchange informed the company that, on the basis of net book assets employed in each country after deducting holding company's liabilities, the proportion of assets employed in Malaysia was only 15.5% not 57% as claimed by the company, and that no more than 22% of the company's income was derived from Malaysia. The company's explanation of the diminution in asset values was vague and the Exchange asked for a fuller statement. In its reply dated 27th June, the company said that the figures for the geographical distribution of its assets were based on unpublished, unaudited balance sheet as at 31st March 1975 and not, as the Exchange had done, based on the audited balance sheet as at 31st December 1974; that a "substantial" part of the company's income was derived from Malaysia, but it was not in the shareholders' interest to publish the exact percentage; and that the dimunition in asset values was due to the following factors: $ million Goodwill on consolidation 18,363 Excess of book vaue over marker value of investments 83,243 Recovery of shortfall in market value of investments as at 30-4-75 (52,095) Profits after taxation minority interest and extraordinary items ( 4,951) Drop in market values between balance sheet dates of M&G offer document and 31-Dec-1973 68,219 ----------- 112,779 =========== 4 On 4th July, the Exchange wrote to the company saying that, in view of the many unsatisfactory features in the replies it has received from the company on the questions of geographical distribution of assets and the diminution of asset values, the company should furnish an independent Accountant's Report so as to avoid further confusion in the minds of the investing public. No reply has yet been received from the company. 5.25 p.m.