Don’t exempt govt-backed securities issuance from governance process

KUALA LUMPUR: Government and government-related entities should not be exempted from issuing a prospectus and disseminating proper information ahead of any securities issuance for fund-raising activities, said Bank Muamalat Malaysia Bhd chief executive officer Datuk Mohd Redza Shah Abdul Wahid.

The banking industry should take hold of its governance process to acquire as much information as possible and deliberate before granting any possible financing, said the head of the Islamic bank owned by DRB-Hicom Bhd and Khazanah Nasional Bhd.

“How do you then issue a bond when there is no transparency? This was the fundamen- tal issue (besetting) 1Malaysia Development Bhd (1MDB) as information such as cashflows was not provided, yet (financial) institutions chose to issue the bond because it was government guaranteed.

“So it is probably time for us to rethink that sometimes – when you look at a particular issuance of securities – do you exempt an organisation just because it is government or government-related?” he said.

Redza was speaking to reporters on the sidelines of the General Council for Islamic Banks and Financial Institutions – World Bank Conference on Corporate Governance of Islamic Financial Institutions: Overcoming Challenges and Implementing Best Practices.

He said it was proven that 1MDB should not be exempted from producing information on its securities issuance, as a result of which the normal governance process did not go through.

“This is where I think the boards of various banks need to really rethink and look at this issue, as it is their right to reject such transactions if the information given is not sufficient based on what we have learnt from the 1MDB case,” said Redza.

Earlier in his opening remarks at the conference, he said governance structures were being strengthened and political appointees were being removed following the 14th General Election in May. He noted that 1MDB would be at the heart of many case studies at many business schools in terms of what happened and what could be learnt from it.

“I, myself, have read deeply on the subject and it is very clear that governance structures should not look at rank or position in its implementation. No one is above the law and everyone must play their part,” he said.

Redza pointed out that tangibility and transparency lay at the core of Islamic finance; however, information and cashflows took a back seat in the 1MDB case as the defunct state fund was a government-related company and government guarantees were heavily relied on.