disclosure regulations are being ignored: aust

You knew this though din't you ZWU?.This Gump company will pay like Commonwealth

Disclosure regulations are being ignored: Australian regulations Andrew Main From: The Australian March 06, 2010 12:00AM


AUSTRALIAN regulators have been looking closely, and uneasily, at a rash of companies dishing up bad news in apparent defiance of the continuous disclosure rules.
"The system's pretty good but there are a few companies that don't seem to be getting it," said Martin Lawrence, senior analyst at Melbourne-based governance consultancy RiskMetrics.

He said that herbicide producer Nufarm had had two "aware letters" sent out by the ASX in the last year. "That must be some sort of record," he said.

Aware letters, also nicknamed Pauline Hansons because they're saying "please explain", are not the same as the price queries that are often called speeding tickets. Experts say they are more fundamental, effectively asking if the company knows how the continuous disclosure regime actually works.

The ASX has sent out four in the last fortnight. The first went to timber group Gunns on February 24, two days after the company's share price had dropped by 22 per cent from 88c to 68.5c thanks to a 98 per cent drop in interim profit to $400,000.


The company blamed a downturn in Asian markets for its woodchips and a rising Australian dollar, both of which had been happening for months.

Australia's continuous disclosure system, which has been compared favourably by international investors to the US quarterly reporting system, obliges listed companies to "immediately" declare any material information that has not yet been released to the sharemarket .

An ASX note clarifying the relevant Listing Rule 3.1 says that a change in likely reported earnings "in excess of 10 per cent to 15 per cent", up or down, from analysts' consensus forecasts is material and must be reported as soon as the company becomes aware of it.

Clearly Gunns' profit crash is a textbook case, but it wasn't alone.

Toll Holdings got a Pauline Hanson on March 1, shortly after declaring a 32 per cent drop in net profit to $107 million for the six months to December 31. Management said the Global Financial Crisis, an event that dominated 2008, had affected trading. Its shares fell 18 per cent, or $1.55, to $7.10.

South Australian pioneer Clean Seas Tuna got one on March 3, after turning in a $14m loss, which managing director Clifford Ashby described as "worse than anticipated". And Nufarm, which had been juggling a cut-back takeover bid from Chinese group Sinochem and a capital injection from Japanese company Sumitomo Chemical, got its second letter in recent months, after revealing that it was likely to report a loss for the first half of the financial year, just before shareholders voted to take up the Japanese proposal and sell a 20 per cent stake in the company.

Of the $40m forecast loss, almost all of it, $33m, is from a loss in trading its number one product, glyphosate herbicide. Glyphosate is traded globally and its price slumped well before the current year began.

The profit warning was part of an address by managing director Doug Rathbone at a meeting called to allow investors to vote on a $14 per share offer from Japan's Sumitomo Chemical for 20 per cent of their stock, $2 above what Sinochem had been offering. Given that the downgrade pushed the Nufarm share price down by 8 per cent to a seven-month low of $8.96, acceptance of the Sumitomo proposal was an overwhelming 99 per cent.

ASX spokesman Matthew Gibbs made it clear yesterday that the ASX is not the policeman in this matter: that role is ASIC's.

"ASX does not investigate if a continuous disclosure breach has occurred," he said. "ASX has no power to impose financial sanctions on companies for listing rule breaches."

But he said that if the ASX "suspects a breach of continuous disclosure may have occurred, we are obliged to refer the matter to ASIC, the regulator". ASIC can prosecute if it believes the Corporations Act, which has similar wording to the Listing Rules, has been broken.

Although the recent outbreak has been worrying regulators, the number of referrals to ASIC is dropping year on year: there were 20 in the 2008-09 year and only six in the first half of the 2009-10 year. The referrals target companies, not individuals.

The last prosecution was of Commonwealth Bank over its bungled $2 billion capital raising in December 2008, when CBA revealed after the raising that its LIE (Loan Impairment Expense) as a percentage of gross loans was around 60 basis points, rather than the 40-50 points announced over a month previously.

The $27 a share rasing was cancelled, to the embarrassment of issue manager Merrill Lynch, and replaced by a similar sized raising by rival investment bank UBS at $26 a share.

Last October, CBA paid a fine of $100,000, the maximum allowable for such a breach, to ASIC to settle the matter.