16 October 1999 ... Brandes Investment Partners, LP ("BIP"), a fund manager, informed DBS Bank in a letter dated 19 Aug 99 that as at 6 Aug 99, it had become a substantial shareholder of DBS Bank by holding 6.9% of the shares of DBS Bank on behalf of its clients.
2 Under section 17 of the Banking Act, no person shall acquire 5% interest in the voting shares of a Singapore incorporated-bank without the prior approval of the Monetary Authority of Singapore (the "Authority"). A person is deemed to have an interest in a share if he, among other things, is entitled to exercise or control the exercise of a right attached to a share. BIP did not obtain such approval, and had thus breached section 17 of the Banking Act.
3 On 17 Sept 99, BIP applied for the Authority's retrospective approval to become a substantial shareholder of DBS Bank. It informed the Authority that as at 10 Sep 99 it held 7.1% of the shares of DBS Bank, and may increase this shareholding. In its Notification to DBS, BIP stated that it had discretionary authority to vote these shares. In view of the imminent restructuring of DBS Group, wherein shares of DBS Bank would be swapped for shares in DBS Group Holdings Ltd (DBSH), BIP also applied to become a substantial shareholder of DBSH.
4 The share swap of DBS Bank for DBSH was completed on 18 Sep 99. BIP became a substantial shareholder of DBSH with 7.1% interest in DBSH. Article 3(B) of DBSH's Articles of Association ("the Articles") requires a shareholder to obtain the Authority's prior approval before holding a substantial shareholding in DBSH. BIP had thus also breached the Articles of DBSH.
5 After considering all the facts, the Authority has rejected BIP's retrospective application to be a substantial shareholder of DBS Bank prior to 18 Sep 99. However, the Authority has decided not to charge BIP for contravening section 17 of the Banking Act.
6 MAS has also rejected BIP's application to become a substantial shareholder of DBSH. Pursuant to section 28(3) of the MAS Act, the Authority has issued directions to DBSH requiring it to act in accordance with its Articles of Association to:
(a) Require BIP to dispose of its holding of DBSH shares in excess of 5% (the Affected Shares as defined in Article 40A). The disposal of the Affected Shares shall be as follows:
within 30 calendar days from today, BIP shall reduce its shareholding in DBSH by at least 1% (of DBSH's share capital); and
in any event, within 3 months from today, BIP shall reduce its shareholding in DBSH to less than 5% (being the Prescribed Limit).
(b) Suspend immediately the voting rights in respect of the Affected Shares pending their disposal.
7 The Authority takes a serious view of any breach of the shareholding limits on Singa-pore-incorporated banks, and indeed any breach of the Banking Act. Investors who intend to acquire shares of Singapore-incorporated banks, and who are uncertain of their obligations under the Banking Act, are advised to seek legal advice. The Authority will not consider applications for retrospective approvals to exceed the shareholding limits of 5%, 12% and 20% of a Singapore-incorporated bank.
8 The Authority's policy is to approve an increase in shareholding or interest in a Singapore-incorporated bank beyond these thresholds only for strategic transactions that are beneficial to the bank and to Singapore. Fund managers, trustees and nominee companies who are not bare trustees must seek the Authority's prior approval if they expect to acquire 5% or more of the shares of a Singa-pore-incorporated bank, or to acquire discretionary authority to exercise (or control the exercise of) 5% or more of the total voting rights in a Singapore-incorporated bank. This is regardless of whether they have beneficial ownership of the shares, or whether they hold or acquire the shares on behalf of their clients and funds under their management.