Editorial
At the heart of the business fraternity’s concern with regard to the change in RAM Holding Berhad’s shareholding structure is how it may impact the rating agency’s independence.
The original conditions
It was to allay such fears that regulators originally imposed a condition that no single shareholder should hold more than a 20% stake in any ratings firm. The condition applied not only to RAM but also to the nation’s second domestic ratings agency, Malaysian Rating Corporation Berhad (MARC).
SC’s approval
The recent approval granted by the Securities Commission (SC) for RAM to deviate from this condition has the market puzzled. By a letter dated April 28, the SC granted CTOS Digital permission to increase its shareholding in the ratings agency to more than 51%. The SC also waived any need for the company to secure further approval for subsequent cumulative increases of 10% or more.
RAM’s constitutional amendment
Last Thursday, RAM’s shareholders overwhelmingly passed a motion to amend the company’s constitution, a move which paves the way for CTOS Digital, either on its own or with parties acting in concert, to own a majority stake in the ratings firm.
Market concerns
Market watchers are asking whether the approval granted to CTOS Digital was the sole decision of the SC or whether it also had the consent of the Ministry of Finance (MoF), and are now looking to both to justify their decision. Questions persist as to why CTOS Digital is so excited to take up a controlling position in RAM, even if it means sacrificing the independence of the entity. Market watchers are also concerned that CTOS Digital, which is in the business of credit and data gathering, will by virtue of its dominant stake in RAM be in a position to fast-track its collection by accessing data on RAM’s clientele, which include public-listed corporations and government-linked companies (GLCs).
Concerns over data access
It also goes without saying that almost all aspects of ratings work will likely involve disclosure of privileged information. This in turn gives rise to another concern that by virtue of its dominant position, CTOS Digital will have easy access to such information which in turn may allow for its abuse. CTOS Digital’s assurance last Thursday that it intends to act with safeguards and the utmost integrity is laudable, but ultimately, may not be sufficient to allay market fears.
Conclusion
Both the Ministry of Finance and the Securities Commission must move immediately to address these concerns and provide clarity to the market.
FAQs
Q: Why did the Securities Commission allow CTOS Digital to increase its stake in RAM Holding Berhad to more than 51%?
A: The SC granted CTOS Digital permission to increase its shareholding in RAM, waiving any need for further approval for subsequent cumulative increases of 10% or more.
Q: Why are market watchers concerned about CTOS Digital’s increasing stake in RAM Holding Berhad?
A: Market watchers are concerned that CTOS Digital’s dominant position in RAM will compromise the independence of the ratings agency and give it access to sensitive information on RAM’s clientele.
Q: What are the potential consequences of CTOS Digital’s increasing stake in RAM Holding Berhad?
A: The potential consequences include the abuse of privileged information and the compromise of RAM’s independence.