4 Points Investors Should See About Singapore Post Limited’s Special Audit Report

Singapore Post Limited (SGX: S08) has been making the business headlines lately.

First, there was the abrupt resignation in December 2015 of its chief executive, Dr Wolfgang Baier. Baier, who assumed leadership of the company in October 2011, is credited for the transformation of SingPost from a traditional postal services provider to a significant e-Commerce player.

Then, only weeks after Baier’s resignation, SingPost announced that it would be appointing a special auditor to investigate corporate governance matters. Initially, Pricewaterhouse Coopers (PWC) was selected as the only special auditor in January 2016. But, Drew & Napier was added in February 2016 after questions were raised on the former’s independence.

Furthermore, the special audit was expected to be completed in March 2016 but it was not until 3 May 2016 that SingPost released the special audit report.

Here are four important points about the special audit that investors may want to know.

1. The “Famous Acquisitions”

Shortly after he became CEO, Baier had pushed for the transformation of SingPost. Part of the change involved the acquisitions of three freight forwarding companies, namely, Famous Holdings Pte Ltd, F.S.Mackenzie, and Famous Pacific Shipping New Zealand Limited on January 2013, July 2014, and January 2015 respectively.

Collectively, these three acquisitions were named as the “Famous Acquisitions” by the special auditors and they were all arranged by Sterling Coleman Capital Limited.

2. Potential conflicts of interest involving a director

Besides being a director of SingPost since 1998, Keith Tay Ah Kee was also the non-executive chairman of Sterling Coleman Capital with a 34.5% stake in it.

In May 2012, Sterling Coleman Capital was engaged by Quincy Tan, owner of Famous Holdings, to sell his 100% stake in the company. In August 2012, SingPost Chairman Lim Ho Kee, Dr. Baier and Keith Tay all signed off on the due diligence for Famous Holdings.

Ang Kay Tong, who is the chief executive of Sterling Coleman Capital, said that he knew of SingPost’s decision to acquire the companies in question through its annual reports and other media outlets.

Hence Ang sent the financial position of Famous Holdings to Keith Tay who is both the chairman of Sterling Coleman Capital and a director of SingPost. Keith abstained from the final approval of Famous Holdings, as well as F.S. Mackenzie and Famous Pacific Shipping, which were purchased through Famous Holdings.

SingPost also made an administrative error when it did not declare Keith Tay’s indirect interest in F.S. Mckenzie in filings related to the acqusition.

3. No prescribed policy, process, or procedure for mergers & acquisitions

According to the special audit report, “SingPost has no prescribed policy, process or procedure for the evaluation and approval of M&A transactions.”

Instead, SingPost depends on broad internal guidelines and the experience of its mergers & acquisitions team. The team would also consult SingPost’s chairman and chief executive as part of its process for acquisitions.

4. New era for SingPost

 SingPost is entering a new era after this audit. The current chairman of Singapore Telecommunications Limited (SGX: Z74), Simon Israel, would be taking over as chairman of SingPost on 11 May 2016. This comes after Lim had announced his decision to step down as SingPost’s chairman on 10 May.

Meanwhile, Keith Tay has resigned from his role as SingPost’s lead independent director earlier this month.

Israel has stated that his immediate priorities are to “lead the board through the completion of the corporate governance review, review board composition and appoint a new group chief executive.”

Israel’s appointment was commended by Mak Yuen Teen, a National University of Singapore business school associate professor and SingPost investor; Mak had publicly shared his views on SingPost’s corporate governance issues these past few months and those views were an important driver for the conduct of the special audit.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat doesn't own shares in any companies mentioned.