CP All is bracing for tough times ahead as its "poor" corporate governance practices have alienated institutional investors.
Institutional investors yesterday threatened to freeze future subscriptions in the company’s shares and debentures if CP All fails to take actions in line with good governance practices.
An ethical issue is the latest headache the company has endured as it struggles with a high leverage ratio amid an anticipated fall in profitability in 2015.
CP All is attempting to bring down its debt-to-equity ratio, which was boosted by the acquisition of Siam Makro in 2013. Tisco Securities said in a research note that deteriorating trust in the company might reduce the chance of divestiture and hence CP All’s debt would remain above the level promised to creditors: 3.5 times equity in 2016 and 2.5 times in 2017.
The company’s share price declined yesterday. At the close, it was traded at Bt40.75, down by Bt0.25 or 0.61 per cent from Wednesday.
The share price has steadily declined since the Securities and Exchange Commission announced on December 2 that three executives – including executive chairman Korsak Chairasmisak – had been fined for insider trading. From the December 1 close of Bt47, the share price has fallen by 13.3 per cent.
Institutional investors including members of the Association of Investment Management Companies (AIMC), the Government Pension Fund, the Social Security Fund and insurance companies yesterday agreed to throw more weight put more pressure on the company’s board of directors ahead of the annual shareholders meeting in April. Their combined investment portfolio is now over Bt4 trillion.
After the investors’ meeting, AIMC chairwoman Voravan Tarapoom said they all would attend the CP All shareholders’ meeting and propose the dismissal of the senior executives in question. Action will be taken if no change happens. Each company will then decide for itself what to do with the shares and debentures currently in their investment portfolios.
The decision would not be extended to other companies under Charoen Pokphand Group’s umbrella. Earlier, there were fears that this decision would be extended to cover True Corp, which is raising funds for its investment in fourth-generation wireless broadband.
Dhanin Chearavanont, the big boss of CP Group, chairs CP All’s board of directors.
The board this month decided that the three executives would maintain their titles, saying they had already been punished for their wrongdoing. This induced harsh criticism from the Thai Institute of Directors. Voravan said the investors’ decision yesterday would put significant pressure on CP All’s board of directors.
"Though the major shareholders’ votes will outdo ours, we believe our action is enough to pressure CP All towards a management change," she said.
Waratchya Srimachand, senior assistant secretary-general of the SEC, supported the decision, saying this reflects investors’ opinion that their investment targets’ governance practices are more important than operating results.
Insider trading is not one of the wrongdoings that disqualify listed companies’ directors. The SEC is in the process of drafting a new investment code for institutional investors, expected to be in place this year.