Source : Business Times - 2 Feb 2009
A FEW managers of Real Estate Investment Trusts (Reits) may be touted for sale in the market by investment banks. But potential investors in such companies will soon be required to obtain official approval before buying in.
Under an Amendment Bill to the Securities and Futures Act, interested parties must get the nod from the Monetary Authority of Singapore before entering into arrangements that could give them effective control of Reit managers.
Effective control is defined as direct or indirect acquisition of more than 20 per cent of the Reit manager’s shareholdings or voting power.
What’s more, MAS will have powers under certain circumstances - for example where the investor is subsequently found not to be fit and proper - to order such persons to relinquish effective control.
The new rules are laid out in MAS deputy chairman and Trade and Industry Minister Lim Hng Kiang’s speech for the second reading of the Securities and Futures (Amendment) Bill 2008 in Parliament on Jan 19.
The changes affecting control of Reit managers are in a section on potential controllers of capital markets services (CMS) licence holders - which include Reit managers as well as those involved in other regulated activities like fund management, dealing in securities, trading in futures contracts, leveraged foreign exchange trading, corporate finance advising, securities financing, and providing custodial services for securities.
An MAS spokeswoman said the amendments will ‘provide legal certainty to MAS’s current practice to approve all potential controllers’ of CMS licence holders.
‘This requirement is integral to MAS’s gate-keeping role in ensuring that shareholders and controllers of CMS and Financial Advisors licence holders are fit and proper. Similar requirements are in place for banks and insurance companies,’ she added.
Generally, Reit industry players welcome the changes.
‘This is the only way the authorities can apply the same stringent controls they have on existing Reit managers and their key personnel, on new acquirors,’ a senior executive of a major Reit management company told BT. ‘It’s a positive development for the S-Reit market. The changes will make sure people who’ll manage Reits have the necessary experience and qualifications.
‘Through this approval process too, if there is a conflict of interest that may be faced by a potential acquiror - for example, a Reit manager wanting to manage two Reits - MAS can require them to sort this out first before proceeding with the transaction.’
However, some industry players are a tad concerned about the changes. Says Oxley Capital Group’s group general counsel Giam Lay Hoon: ‘This amendment may not be so welcome. It adds another layer to the speedy negotiations and conclusion of contracts for the purchase of controlling stakes of Reit managers.’ Oxley owns a stake in the manager of Cambridge Industrial Trust.
Agreeing, a Reit industry analyst said: ‘Invariably this will slow down negotiations, although MAS should be efficient.’
MAS’s spokeswoman said: ‘The time taken to grant approval (to potential controllers) would depend on the complexity of the case, whether all material information has been provided and whether ‘fit and proper requirements’ are met’ .
The CFO of a Reit suggests ’some transparency’ on how MAS will carry out its powers, particularly in ousting a party with effective control of a Reit manager, and what’s deemed ‘fit and proper’ and ‘good for the industry’ in potential controllers.
BT understands some proposals being floated by some investment banks show potential acquirors why it’s a good time to take over some of the weaker Reits now trading at very low prices, with a view to taking control of the respective Reit managers as well.
‘It adds another layer to the speedy conclusion of contracts for the purchase of controlling stakes of Reit managers.’ - Giam Lay Hoon of Oxley Capital Group
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