Introduction

China

China’s proxy season usually runs from early April to the end of June. During the 2015 season, 81 percent of all listed companies under ISS coverage convened their annual general meetings in April and May, the two most meeting-concentrated months, compared with 75 percent in 2014. The meeting concentration for the 2016 season is expected to be similar to that of the 2015 season.

Key Governance Issues

As of the date of this writing, ISS is not tracking any specific significant meetings for the 2016 Chinese proxy season, although an increasing number of companies are seeking shareholder approval for resolutions driven by the following:

Adjustments to Private Share Placement Scheme

Unlike other Asia ex-Japan markets, Chinese companies are not allowed bylaws under which they may request a general mandate for share issuances. Therefore, when the need for equity financing arises, companies are required to submit a share issuance proposal for shareholder approval, which is also mandatory for any subsequent adjustments to an already approved share issuance scheme.

ISS witnessed an increasing number of proposals seeking to lower the share issuance price of equity financing plans which had been previously approved by shareholders. This is likely driven by the lack of placees who are willing to subscribe to a private share placement at a preapproved price that is significantly above the current price of a company’s shares.

Due to another round of equity sell-offs in January 2016, many companies that announced their initial private share placement schemes last November and December are expected to seek shareholder approval for similar downward price adjustments at their upcoming AGMs.

Market and Regulatory Developments

Shenzhen-Hong Kong Stock Connect Scheme

The launch of Shanghai-Hong Kong Stock Connect on Nov. 17, 2014, was a key milestone in the liberalization of the capital market of China. Meanwhile, the establishment of Shenzhen-Hong Kong Stock Connect, a link between the Shenzhen Stock Exchange and the Stock Exchange of Hong Kong, is in progress. The technical preparations for the Shenzhen-Hong Kong stock link were completed in July 2015. According to the media, the Shenzhen-Hong Kong Stock Connect Scheme will be launched in 2016, although no specific timeline for the roll-out has been disclosed.

The Shenzhen Stock Exchange hosts more than 1,700 listed Chinese companies, compared with approximately 1,000 companies on the Shanghai Stock Exchange. The new link with Hong Kong will be beneficial to Shenzhen-listed companies by enabling non-qualified foreign institutional investors, also known as non-QFIIs, access to companies listed on the two stock exchanges in China.

Hong Kong

The Hong Kong proxy season begins in April and concludes in June. It is during this period that companies with fiscal years ending December 31 hold their annual general meetings. In practice, most companies in Hong Kong hold meetings five to six months after the end of their fiscal years.

Key Regulatory Changes

Financial Information Disclosure

In 2015, the Hong Kong Listing Rules were amended regarding financial information disclosure requirements. The changes were made to:

• align financial information disclosure requirements with the provisions contained in the new Companies Ordinance and the Hong Kong Financial Reporting Standards (HKFRS);
• streamline the disclosure requirements; and,
• introduce new requirements for issuers that either revise their published financial reports or include prior period adjustments in their results announcements due to the correction of material errors;

The amendments covering the preliminary announcements of results, interim reports, and annual reports, as well as those covering listing applications, reverse takeovers, major transactions, and very substantial acquisitions, are applicable for accountants’ reports where the latest period reported on in the accountants’ report ends on or after Dec. 31, 2015. The other miscellaneous amendments took effect on April 1, 2015.

Environmental, Social, and Governance Reporting

The Environmental, Social and Governance (ESG) Reporting Guide (ESG Guide) and the related Listing Rules were amended to:

• require issuers to state in their annual reports or ESG reports whether they have complied with the “comply or explain” provisions set out in the ESG Guide for the relevant financial year, and their reasons for any deviations;
• revise the introductory section of the ESG Guide to provide more guidance on reporting and to bring it more in line with international standards;
• rearrange the ESG Guide into two subject areas: Environmental and Social;
• upgrade the General Disclosures under each aspect of the ESG Guide from recommended disclosures to “comply or explain” provisions;
• upgrade the Key Performance Indicators (KPIs) in the “Environmental” subject area of the ESG Guide from recommended disclosures to “comply or explain” provisions; and,
• revise the wording of the recommended disclosures of the ESG Guide to bring it more in line with international standards of ESG reporting by incorporating disclosure of gender diversity.

The Listing Rule amendments and the upgrade of the General Disclosures in the ESG Guide from recommended disclosures to “comply or explain” provisions, as well as the revised recommended disclosures, are effective for issuers with financial years commencing on or after Jan. 1, 2016. The upgrade of the KPIs in the “Environmental” subject area of the ESG Guide from recommended disclosures to “comply or explain” provisions will be effective for issuers with financial years commencing on or after Jan. 1, 2017.

Principles of Responsible Ownership

The Securities and Futures Commission (SFC) launched a three-month public consultation on March 2, 2015, on the Principles of Responsible Ownership (Principles), which are aimed at providing guidance for investors to fulfill their ownership responsibilities in relation to their investments in Hong Kong-listed companies. The Principles call on investors to:

• establish and report to their stakeholders their policies for discharging their ownership responsibilities;
• monitor and engage with their investee companies;
• establish clear policies on when to escalate their engagement activities;
• have clear policies on voting;
• be willing to act collectively with other investors when appropriate;
• report to their stakeholders on how they have discharged their ownership responsibilities; and
• have policies on managing conflicts of interests when investing on behalf of clients.

On March 7, 2016, the SFC published the consultation conclusions together with the amended Principles. The Principles are non-binding and voluntary. Investors are encouraged to disclose the adoption of the Principles, and, if applicable, clearly explain why the Principles have not been adopted or what alternative measures the investors have put in place.

Singapore

Singapore proxy season is concentrated in April, when most companies with fiscal years ending December 31 hold their annual general meetings. Singapore companies are required to provide meeting notices a minimum of 14 days before the meetings; accounts presented at the AGMs must be made available not less than four months before the AGMs.

Key Governance Issues

Board Composition and Independence

The Corporate Governance Code recommends that at least one-third of the board should be independent directors. Independent directors, however, should make up at least half of the board, where the chairman and CEO is the same person, the chairman and the CEO are immediate family members, the chairman is part of the management team, or the chairman is not an independent director. The Monetary Authority of Singapore (MAS) has provided a transition period of five years to allow for these changes to be made. Board composition changes necessary to comply with this recommendation will only need to be made at AGMs following the financial years commencing May 1, 2016.

The table below sets out the independence level of the boards of directors based on a sample of large and widely held SGX-listed companies for the years ended Dec. 31, 2013, to Dec. 31, 2015:

Board Diversity

Guideline 2.6 of the Corporate Governance Code recommends that the board and its committees be composed of directors who, as a group, provide balance and a diversity of skills, experience, gender, and knowledge of the company.

The percentage of company boards with at least one female director increased from 48 percent in 2014 to 55 percent in 2015. However, female representation on company boards has remained low for the past three years:

Notable Meetings

Downgrade of Company Credit Ratings – Noble Group

After its accounting practices came under fire in February 2015, Noble Group undertook a series of corporate actions in an effort to fend off the short-seller attacking its shares and to address criticism of its accounting practices. While much of the attention was focused on the company’s accounting practices, on Dec. 23, 2015, the company announced the sale of its 49-percent equity interest in Noble Agri Limited (Noble Agri), a major subsidiary of the company. The proceeds from this disposal would be utilized by the company for the repayment of its existing debts, with the goal of a stronger balance sheet and a material positive impact on the company’s credit metrics.

However, the announcement of the disposal did not prevent Moody’s from downgrading the company’s credit rating on Dec. 29, 2015. The Moody’s downgrade was followed a Standard & Poor downgrade in January 2016. Despite the two downgrades, the company firmly believes that once the proposed disposal is complete, the company’s rating metrics will substantially exceed those required for an investment grade rating.

According to ISS Voting Analytics data, at the company’s EGM held on Jan. 28, 2016, the sale of the company’s 49-percent stake in Noble Agri passed with 90 percent of votes cast.

For the full year 2015, the price of Noble share slid 65.2 percent. Noble is expected to hold its AGM in the second half of April. — Elaine Zhu, Eddy Gan, Wai Yin Wong, Amanda Marga Asa, Johanne Villacorte, Lorenzo Montecillo, Johann Jin Chan, and Mary Frances Lozada – ISS Asia Research

The foregoing is taken from ISS’ 2016 Proxy Season Previews for China, Hong Kong, and Singapore. For the full reports, Governance Exchange members may go here for China, here for Hong Kong, andhere for Singapore.