Most investment bankers have not commented made on the new rules requiring them to do more extensive work when producing independent advice in situations involving takeovers of listed companies.
One industry executive, however, called the introduction of the guidelines, tagged as additions to Practice Note 15 (PN15) of the Code on Takeovers and Mergers 2010, a “good and healthy” development as it would compel IAs to be clearer in their rationale and evaluation of a company.
“Currently, IAs and investment bankers can be vague in their use of the terms fair' and reasonable'. We need to clearly define what is fair',” Astramina Advisory managing director Wong Muh Rong said.
“It is time the market gets clarity on how the evaluation process is derived. For many years, there was no need for IAs to form a valuation on their recommendation.
The additional rules, she added, would cause a shake up in the corporate advisory industry.
“Once it comes into effect, advisors would not be able to say the valuation of the company is such and such based only on the market price. They would need to really derive a value and not state a certain amount simply due to a lack of liquidity or trading interest,” Wong said.
Another investment banker who requested anonymity said the guidelines could make mergers and acquisitions more cumbersome.
“IA fees will have to be higher and it will take longer to conclude a takeover, especially in cases where the valuation involves specialised assets such as plantation or property,” he said.
The regulator had on Tuesday issued an expanded PN15 addressing requirements for independent advice circulars for take-over offers in a bid to enhance the quality of independent advice as well as to protect shareholder interests, an initiative it first embarked on two years ago.
This is scheduled to take effect on Nov 1.
When contacted, Minority Shareholders Watchdog Group chief executive officer Rita Benoy Bushon said the enhanced rules were still “not clear enough” as she had expected more certainty on the need for a company facing an acquisition to have its assets valued.
“We were hoping to see something closer to the Australian regulations which state that an independent valuation report must be commissioned when the 20% threshold is crossed,” she explained.
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