SC must address the elephant in RAM Holding’s room

 

Editorial

Despite CTOS Digital’s attempt to placate the public by saying that it will respect the independence and integrity of RAM Holdings in all matters, market watchers remain sceptical.

In a press statement issued last Thursday, the company sought to assure that it will respect RAM Holdings’ independence and integrity by not getting involved in ratings-related decisions or operational matters. It also said it will not seek to control the ratings agency’s board of directors or any of its financial decisions.

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Perhaps the Securities Commission Malaysia was won over by these assurances. However, they fail to address the elephant in the room. In reality, all these assurances do is hint at various powers at the disposal of a shareholder with majority control.

Prior to RAM Holdings’ AGM on June 9, its constitution only allowed shareholders to own a maximum 20% stake in the company. That threshold was set by Bank Negara Malaysia (BNM) in 1990 with the obvious intention of restricting any one shareholder from acquiring a dominant stake in the ratings agency.

That being the case, SC ought to disclose whether BNM’s views were sought prior to granting the approval.

What is alarming is that the regulatory body’s approval did not merely allow CTOS Digital to breach the shareholding threshold. It also set the course for a dramatic change in the ownership structure of the ratings agency by paving the way for CTOS Digital to acquire a dominant majority stake.

This is clearly reflected by the fact that the SC also waived the requirement for CTOS Digital to secure further approvals for subsequent share acquisitions.

Several financial institutions are among the smaller shareholders who have been significantly impacted by this. That being so, the regulatory body should disclose whether they were consulted prior to granting the approval.

It is quite telling that Public Bank and Deutsche Bank opposed the vote. Has the SC inquired into why they took this position?

Market watchers will also be keen to know what mechanisms the SC has put in place to ensure that CTOS Digital abides by its assurances. Presently, there appears to be no legal impediment to CTOS Digital taking actions contrary to the assurances given.

Properly, any approval ought to be accompanied by restrictions with a requirement that particular provisions be entrenched in the company’s constitution.

SC must disclose what restrictions were placed on the approval granted to CTOS Digital and if these are to be entrenched in RAM Holdings’ constitution. - FMT