Speech by Mrs Lim Hwee Hua, Minister Of State For Finance And Transport, At Official Launch Of The SCCCI-DP Credit Rating Initiative, 3 June 2005, 7.15 Pm At Pan Pacific Hotel06 Jun 2005
Mr Chua Thian Poh, President, Singapore Chinese Chamber of Commerce and Industry
Ms Chen Yew Nah, Managing Director, DP Information Group
Distinguished guests, Ladies and gentlemen
It is my pleasure to be here at the launch of the SCCCI - DP Credit Rating Initiative this evening.
Increasing importance of corporate governance
2. The past couple of years have demonstrated the importance of good corporate governance. Prominent cases of corporate mismanagement, such as Enron, Worldcom, Tyco, Parmalat have undermined investors' confidence in the market. We do not have to look very hard for such cases of corporate misconduct. In the past few months, we have received reports of alleged non-disclosure or improper management of corporate affairs at several companies listed on the SGX.
3. While this is a natural consequence of our rigorous and transparent corporate regulatory framework, it does serve to drive home the importance of corporate governance. Corporate governance is no longer something that companies can choose to ignore. There is growing evidence that investors are more willing to invest in companies with good corporate governance. In a recent survey conducted by PricewaterhouseCoopers, the Investment Management Association of Singapore and the Corporate Governance and Financial Reporting Centre of the National University of Singapore Business School, 81 per cent of institutional investors surveyed said that good corporate governance was an incentive for investment in Singapore. Studies have also shown that companies with good corporate governance generally find it easier, as well as cheaper, to raise funds from capital markets.
The Structure of Corporate Governance in Singapore
4. There are many facets to the corporate governance regime in Singapore. Some of these mechanisms seek to increase the information available to shareholders so that shareholders can monitor corporate managers and enhance market discipline, while others seek to protect shareholders by penalizing their agents, the managers and directors, if they engage in activities counter to their interests.
5. In trying to increase the information available to shareholders, it is important to ensure that the information provided by the company is reliable and of an acceptable quality. Hence, investors must have ready access to day-to-day information affecting a company's share prices. In addition, they must also have the confidence that the published financial statements paint a full and accurate picture of a company's financial performance.
Potential Information Overload
6. Besides allowing investors and shareholders access to the information, another issue that is often overlooked is how the information will be disseminated and, more importantly, whether it can be easily digested. Faced with a deluge of information, the average investor may not be able to process information that is not first filtered through industry analysts and the financial press.
7. Investors may also find it difficult to separate marketing hype from offering fundamentals, and may find themselves seduced by the rosy outlook as well as glowing numbers provided by the company. Figures on a company's balance sheet or profit and loss statement only tell part of the story. A savvy investor needs to look beyond that. While the Government can pursue new ways to enhance access to investment information, for example, by requiring larger listed companies to do quarterly reporting, we need to be mindful that information can only empower investors if they can understand it and effectively apply it. Mere access to information is not and can never be a substitute for knowing how to interpret it. As Albert Einstein once said, "Knowledge is experience --- everything else is just information."
Role of Credit Rating
8. This is where credit rating can play an important role to supplement our corporate governance mechanisms. Credit rating agencies help to interpret financial information and act as gatekeepers to keep companies that failed to measure up from full access to capital markets. Credit rating helps to provide a more holistic picture of a company because it does not only look into the company's financial standing. In addition, it also considers various factors such as industrial risks and volatility of the business. This encourages companies to be more sensitive towards the larger investment environment, and helps local companies strategise against foreseeable risks and turbulence.
9. Across Asia, nations are beginning to realize the importance of credit rating. For instance, Malaysia has recently announced that a corporate governance rating for publicly listed companies will be ready by the end of this year.
The SCCCI & DP Information Group Initiative
10. Hence I am happy to announce that the SCCCI and DP Information Group have taken the lead to introduce a credit rating initiative for the SCCCI members. I am told that for the initial phase, more than 175 companies have been rated 'investment grade' under the credit rating system established by DP Information. This shows that Singapore companies are very competitive and possess the potential to become global brand names in the future. For those interested to know which these companies are, they will be featured on a website jointly created by the SCCCI and DP information Group. For companies that have yet to attain "investment grade", the SCCCI will tap on the expertise resource of DP Information and other consulting firms to provide these companies with advice on how to improve their credit rating.
11. As we move to a disclosure based regime, more information will be directly placed into the hands of investors. Credit rating agencies thus serve a valuable role as the interpreters of this information. I wish the initiative a resounding success and hope to see more companies coming forward to be credit rated.