Thai insider trading row lays bare governance concerns
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Leading fund managers have vowed to freeze investments in CP All, part of the multinational Charoen Pokphand Group agribusiness, food and retail conglomerate, until it takes further action against three directors fined by the stock market regulator.
The unusual public spat has highlighted what critics say are soft penalties for financial market wrongdoing in Thailand, which risk further hurting investor confidence already hit by domestic political turmoil and fears of global crises.
Jamie Allen, secretary-general of the Asian Corporate Governance Association, a non-profit group that works with investors, companies and regulators, said of the CP All case: “This is unprecedented in Thai corporate governance. We have not seen domestic institutional investors show this level of public concern before about insider trading.”
The case has also tapped into concerns about corporate governance in the broader Asian region, where many companies — such as CP Group — are still wholly or partly controlled by their founding families.
Bandid Nijathaworn, chief executive of the Thai Institute of Directors, said the CP All dispute showed both companies and regulators still needed to improve compliance with market rules and norms, despite progress made since the 1990s Asian financial crisis.
“This debate is a reflection of the heightened awareness and recognition of the importance of corporate governance,” he said. “We support the [regulator] to tighten up to make the punishments much tougher than we see.”
This debate is a reflection of the heightened awareness and recognition of the importance of corporate governance– Bandid Nijathaworn, chief executive, Thai Institute of Directors
Thai financial institutions managing more than $170bn in funds this week said they would boycott new investment in CP All, which is the operator of the 7-Eleven convenience store chain and is 42 per cent owned by CP Group companies. Among them were the Association of Investment Management Companies and Thailand’s two largest pension fund managers. They want CP All to impose unspecified further sanctions on executives who were among a group of six people fined a total of Bt33.3m ($930,000) for insider share trading in December, under a settlement with Thailand’s Securities and Exchange Commission.
CP All’s shares tumbled 8.5 per cent between the regulatory announcement and the end of last week, more than three times the fall in the broader benchmark SET index. But the company’s stock rallied more than 5 per cent on Friday, in what some analysts suggested was relief that the fund managers stopped short of announcing they would cut their holdings.
“This debate is a reflection of the heightened awareness and recognition of the importance of corporate governance,”
The SEC fined Korsak Chairasmisak, CP All’s executive chairman, along with fellow directors Piyawat Titasattavorakul and Pittaya Jearavisitkul, over purchases of shares in Siam Makro, the retailer, when CP All was in talks to take the company over in 2013. Mr Korsak, who accounted for more than 90 per cent of the fine, has acknowledged buying the shares, but said he did not mean to commit insider trading.
CP All said in a stock exchange announcement this month that the directors had not intended wrongdoing, although they had acted with “imprudence” and “limited understanding” of the rules. The company said it would strengthen its corporate governance committee and formally admonish the executives, but would allow them to stay in their posts because they had settled the case quickly and had “track records of ethical practice”.
The dispute has also raised questions about the enforcement of insider trading rules by the Thai authorities. The regulator’s notice of penalties for the case gave few details about how the offence was carried out or of the profit made by perpetrators, who in two instances were fined as little as Bt333,333 ($9,340).
Critics say light penalties not only fail to deter wrongdoing, but actually encourage it by making it a risk worth taking. The SEC and the Stock Exchange of Thailand did not respond to requests for comment.
Corporate governance at Asian companies slipped between 2010 and 2014 after steady improvement since the 1997-98 financial crisis, according to a report published in late 2014 by CLSA, the Asia-focused brokerage, and the Asian Corporate Governance Association. While some countries, including Thailand, had not fallen back, CLSA said the overall picture was still a “warning flag for investors”.
Questions & Answers
Q.What action have leading fund managers taken regarding CP All?
What action have leading fund managers taken regarding CP All?
Leading fund managers, including two largest pension funds, have vowed to freeze new investments in CP All. They manage over $170bn in funds and want the company to impose further sanctions on the executives involved.
Q.Why are CP All’s executives being scrutinised?
Why are CP All’s executives being scrutinised?
Three executives were fined by the stock market regulator for insider share trading in December. They bought shares in Siam Makro in 2013 when CP All was negotiating to acquire the company.
Q.What is the broader concern raised by this CP All case?
What is the broader concern raised by this CP All case?
The case has highlighted wider worries about corporate governance and regulatory enforcement in Asian emerging markets. Critics suggest Thailand's soft penalties for financial wrongdoing hurt investor confidence.
Q.What was CP All’s response to the regulatory fines?
What was CP All’s response to the regulatory fines?
CP All announced it would strengthen its corporate governance committee and formally admonish the executives. However, the company allowed them to remain in their posts, citing their quick settlement and ethical track records.
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