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.
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).
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.
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 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.
RAM is by no means a multi-billion-ringgit enterprise. Its financial statements for 2020 show that the company turned a profit of RM8.3 million, and its net tangible assets (NTA) are valued at RM167 million.
That being the case, questions persist as to why CTOS Digital is so excited to take up a controlling position in RAM even to the extent of possibly 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).
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.
Both MoF and SC must move immediately to address these concerns.