From The Business Times, Singapore 7th March 2000

Clob investors have to send bank draft, together with acceptance forms, by March 31 if they accept Effective's proposal - By Ven Sreenivasan

Holders of frozen Malaysian Clob shares saw red yesterday on learning that they will have to pay upfront the 1.5 per cent migration fees if they accept Effective Capital Sdn Bhd's proposal for a staggered release of their shares.

In its latest proposal mailed out to shareholders, Effective said Clob shareholders should send their bank draft together with their acceptance forms, before March 31. Effective's 56-page proposal, signed by its director Mohd Moiz bin JM Ali Moiz, was mailed out to the 172,000 Clob shareholders over the weekend. It detailed the migration procedures for the 156 securities which have been frozen since Malaysia imposed capital controls in September 1998. It also listed the Feb 15 prices of the shares upon which its 1.5 per cent fees will be based.

It is estimated that Effective will rake in some 300 million Malaysian ringgit (S$135 million) in gross fees through its 1.5 per cent charge. The package sent to Clob shareholders also included a letter from Singapore's Central Depository Pte Ltd (CDP) which said the Singapore Exchange (SGX) would not be liable for any loss or damage sustained as a result of accepting or rejecting Effective's proposal.

Not surprisingly, many Clob shareholders greeted all this with anger. "This is nonsense," said Denis Distant, who holds "several thousand dollars worth" of Clob securities.

"How can Effective collect the money upfront even before migrating the shares? What if things go wrong? And how can SGX say they will not be responsible? Here we are looking to them to make sure everything goes all right, and they are saying it is not their responsibility? This is a real shocker."

Also enclosed was a letter from law firm Allen & Gledhill (A&G) to CDP which outlined its independent opinion on Effective's proposal. A&G noted that besides paying the 1.5 per cent fee to Effective and having their shares suspended for a specified period, the proposal document also limited Effective's liability to Clob shareholders should the release of the shares not be completed. A&G raised the possibility that although the MCD and the Kuala Lumpur Stock Exchange (KLSE) had agreed to the deal, other governmental agencies could prevent Effective from carrying out its obligations under the proposal.

Referring to individual provisions in Effective's proposal, A&G said: "The effect of these provisions is that if Effective is prevented by any governmental agencies or acts from implementing the proposal, Effective's obligations will be limited to the refund of the fees to the holders of the Clob securities.

"Such refund will include any interest accrued on the fees if none of the Clob securities have been migrated in accordance with the proposal; if some, but not all, of these Clob securities have been migrated, Effective will refund the fees for those Clob securities which were not migrated but will not refund any interest."

It advised Clob shareholders to note that if their shares were successfully migrated to their CDS (Central Depository System operated by MCD) accounts but not released according to Effective's timetable, the terms of the proposal document did not expressly confer any rights or remedies on Clob shareholders.

"In particular, the document does not provide for any refund of the fees paid to Effective."

Clob shareholders have until the end of this month to accept the Effective offer. Those who do not want to accept the offer (known as Scheme A) have a second option, called Scheme B, where CDP and Malaysia's Securities Clearing Automated Network Services (Scans) have hammered out a deal to allow investors to trade their shares at the end of 42 months from now for an "administrative" fee of one per cent based on average prices on the last five trading days of the 31st month.

Meanwhile, in a separate statement to the press yesterday, the Securities Investors Association (Singapore) (SIAS) president David Gerald said that he personally preferred Scheme B.

"I have always subscribed strongly to the view that the Clob issue is a matter strictly for the two exchanges to settle," he said. But he conceded that given the "mindset and adamant attitude of the KLSE", Effective's scheme was the best available for those who could not wait much longer to have the issue settled.

But he added that many Clob shareholders felt strongly that stockbrokers should help defray the 1.5 per cent fee payable to Effective.

"SIAS feels that such an expectation is not unreasonable and that it is only fair that members of SGX who have made handsome profits for nine years from the fees collected from Clob investors should consider this call favourably," SIAS said.

Under Effective's staggered release proposal, Clob shares would be released in batches of 50 units per week over a period of 56 weeks after an initial set-up period of 13 weeks from the March 31 IRA deadline.

The 13-week set-up period is for the verification of information and to allow time for Clob investors to open individual accounts with the MCD through their chosen ADAs.

Non-share securities (warrants, etc) will be released in batches of 50 units per week over a period of 16 months after the initial set-up period of 13 weeks.

The latest proposal is an amended version of an earlier one sent out by Effective in late December which received a poor response and lapsed on Feb 22.

While the 1.5 per cent fee now being charged is a reduction from the 2 per cent proposed by Effective under its earlier offer, it is now based on Feb 15 prices -- unlike the earlier scheme based on prices on Dec 22.

The KLSE Index on Feb 15 was some 26 per cent higher at 995.52 points compared to the Dec 22 level of 787.91. The KLCI was at 389.08 points on Sept 15, 1998, when the trading of Malaysian securities came to an abrupt halt on Clob International.