Locally listed companies and their controlling shareholders will need to disclose more of their loan exposure under the new rule introduced by the stock exchange next month. The exchange yesterday announced a new practice note will be introduced from December 1 to close the loophole revealed in the collapsed of the Peregrine Investment Holdings earlier this year. Peregrine had offered US$265 million in loans to Indonesian Steady Safe. The rupiah's collapse and the ensuing defaults on loan repayments led to Peregrine's failure. Peregrine never disclosed such loans before it collapsed. The Government's financial market review report released in April has pointed out this loophole, and proposed tightening up disclosure rules for listed companies' loan exposure. Under the new rule, all listed companies need to disclose in their interim or annual reports their loans exposure when the loans or guarantee made to any other companies are more than 25 per cent of its own net asset value. The companies must disclose when the loan size further increases for any amount worth more than 10 per cent of the listed companies' net assets. They also need to disclose when the listed companies offer financial assistance or guarantees to its affiliated companies worth more than 25 per cent of the listed companies' net assets. The new rule will also tighten up disclosure requirements for controlling shareholders of the listed companies, who hold more than 35 per cent of the company. The listed companies must disclose when they enter into a loan agreement that includes a condition imposing specific performance obligations on the controlling shareholders and where a breach of such obligations will result in a default of the loans. It also requires the controlling shareholders to make disclosures when they have pledged interests in the listed companies to secure debts of the listed companies. However, when the controlling shareholders pledge their shares for their own financial uses and where such loans will not affect the performance of the listed companies, the controlling shareholders do not need to make the disclosure. The existing listing rules do not require shareholders to make a disclosure on their lending activities while pledging their share interests with banks. Dozens of cases have been reported this year where shareholders could not repay loans and banks sold the shares, resulting in sharp share price falls. In some cases, such falls have led to financial crises at companies.
