In a statement to the media, KLSE Executive Chairman Dato' Mohd Azlan clarified TRI's non-compliance as follows:
- Approval for capital repayment not obtained
The crux of the matter falls on TRI's failure to obtain shareholders' approval for the capital repayment which was a component of the internal restructuring. The rights issue and the internal restructuring to be implemented by TRI are inter-conditional. Failure to obtain shareholders' approval for the capital repayment meant that the implementation of the internal restructuring became uncertain - which in turn gave rise to uncertainty as to whether the rights issue can and will be implemented. As a result of this uncertainty in implementation of the rights issue, the pricing methodology adopted by TRI in respect of the Restricted Issue, based on the theoretical ex-rights price had not yet fully met Securities Commission's (SC) conditions.
- Approvals to implement the rights issue
It is incorrect for TRI to represent in its press statement that all necessary shareholders' approval to implement the rights have been procured, when the approval for the capital repayment has yet to be obtained. The capital repayment is part of the internal restructuring. It requires a special resolution to be passed by at least 75% of TRI shareholders, present and voting. This special resolution is still outstanding.
TRI holds the view that shareholders have on 25 January 2002 given approval to the directors to approve any amendments or variations to the proposals where it is in the best interest of the company. TRI is of the view that it is therefore entitled to carry out the proposed internal restructuring after the implementation of the rights issue.
This view is incorrect at the very least because the proposal approved by SC states that the rights issue and the internal restructuring are inter-conditional. Consequently, it is not up to the directors to vary the interconditionality without at least the regulators' approval.
The fact that SC's approval is required for such amendment is reinforced by the fact that TRI had earlier applied to SC on 12 December 2001, to remove the interconditionality, amongst others, between the rights issue and internal restructuring. TRI announced on 26 January 2002 this was rejected by SC.
- Issue of non-compliance with approvals by SC
TRI has stated that the issue of non-compliance with approvals given by the SC does not arise. This is an incorrect statement as SC has confirmed that the pricing of the Restricted Issue has not fully met the condition in relation of SC approval. Given that it involves compliance with SC's policies and guidelines, SC should be the authoritative party to determine whether there is compliance or otherwise and not TRI or its legal advisers.
- Underwriting of the rights issue
According to TRI KLSE had stated that there is no certainty that the rights issue will be completed despite the issue being fully underwritten. There is no argument as to the reliability of the underwriting arrangements. The issue is clear.
TRI had issued restricted shares based on a theoretical ex-rights price. To do that, TRI must ensure that the rights issue will be implemented. For so long as there is uncertainty in the implementation of the rights issue arising from its inter-conditionality with the internal restructuring, the pricing of the Restricted Issue on a theoretical ex-rights basis cannot be in compliance with SC's requirements.
The non-compliance is not related to the issue of whether the rights issue is fully underwritten. If approval of shareholders is not obtained for the capital repayment, the rights issue cannot be completed even if there is underwriting in place
- Deferment of listing not a rejection
Regulators are aware that TRI has to make payment of their bonds and Danaharta loan by 22 April 2002 to capture a savings of RM313.9 million. Regulators believe that TRI can still meet that deadline because regulators have not rejected the listing of the restricted shares. KLSE has just deferred the listing pending compliance with the conditions of SC. KLSE believes there is adequate time for TRI to obtain the necessary approvals and/or to obtain variations to the SC conditions and thereafter proceed with the implementation of the proposals.
The listing date of the Restricted Issue can only be determined once the conditions of SC have been met by TRI.
- Ex-date of 28 February 2002
There have been concerns raised as to whether the ex-date for the rights issue on the existing shares will remain on 28 February 2002. KLSE do not see any reason at this point in time to defer the ex-date for the rights issue .
Mohd Azlan said having presented the details of the matter, it is hoped there will be greater awareness and understanding of the matter.
"There should also be greater awareness and understanding of the approach taken by regulators to resolve this issue without fear or favour, whilst meeting the objectives of protecting investors, preserving market integrity and enhancing investors confidence," he said.
Mohd Azlan said the approach taken has to balance the requirement for immediate announcement, and the requirement for complete and accurate information to be announced. KLSE, he said, has acted accordingly in addressing both these concerns, with immediate general announcements on 20 February 2002, and a more comprehensive announcement on 22 February 2002.
"It has to be emphasised that regulators have to fulfill the duty of investor protection for all shareholders and investors of the Malaysian market, local and foreign, as well as shareholders and investors of TRI," he said.
Mohd Azlan explained if the listing of the Restricted Shares had proceeded despite the uncertainty of the rights issue being implemented, and for some reason the rights issue is not implemented - then the placees of the Restricted Issue would have enjoyed the benefit of having obtained the Restricted Shares at a substantial discount (i.e. at RM1.93 or RM1.75 which is 32.5-38.85%) vis-à-vis the existing shareholders of TRI.(i.e. weighted average market price 22/12/01-3/1/02 = RM2.86)
There will be an anomaly in the discount factor if the rights issue is not completed for shareholders of TRI. Due to this anomaly, an investor who bought 1,000 of TRI shares would have incurred some losses if for some reason the rights issue is not to be completed.
"The adverse impact on the existing TRI shareholders, including all other investors of TRI during the intervening period if the rights issue is not completed would have been irreversible.
"Therefore, under such circumstances, to allow the listing of the Restricted Shares to proceed would have been have been detrimental to the shareholders of TRI and the investing public," Mohd Azlan said.
Mohd Azlan added in allowing the listing of the Restricted Issue to proceed would have significant adverse consequences, as investors would perceive the Malaysian market as not well regulated and one that does not protect investors.
"This is certainly not the case and the KLSE intends to preserve the integrity and reputation of the Malaysian market.
"We believe this action by KLSE should convey to investors that regulators are serious about protection of investor rights. This in turn would contribute to reinforcing investor confidence," he said.
Mohd Azlan said it is also the duty, obligation and responsibility of issuers to ensure that true and accurate confirmation is made to all parties, including regulators, shareholders and investors. This would require issuers and their advisers to undertake proper due diligence so that information that is provided to regulators and the market is complete and accurate. This is especially for corporates who subscribe to the best principles of good corporate governance to observe.
Similarly, advisors, lawyers and other intermediaries have the duty to act responsibly and with great accountability not only on behalf of issuers, but also on behalf of the investing public.
Issuers and their advisors, Mohd Azlan said, have to ensure their duty is adhered to in a serious and committed manner. Industry participants, shareholders and investors cannot be made to expect interruptions to capital issues because issuers and advisors have failed to fully observe the requirements in discharging their duty responsibly and with full accountability to shareholders and investors, he said.
"In the move towards enhanced disclosure based regulation, there will be increasing reliance by investors and regulators on issuers and their professional advisors to be vigilant, responsible, accountable, true and accurate in their representations and confirmations," he said.
