Investors call for better corporate disclosures

July 19, 2014 - 6:02:07 am

By Satish Kanady

DOHA: Qatar’s capital market stakeholders are increasingly complaining of lack of transparency in corporate disclosures. Given the local bourse’s growing volatility, investors and market experts are pushing for more transparency and better corporate financial reporting.

Investors and fund managers insist this is necessary for them to take timely and informed investment decisions. They also argue that better standards of corporate governance are essential for enhancing value for shareholders.

“For want of adequate market information, we are often unable to determine our clients’ accurate portfolio positioning at a certain point of time. If an advisor is running a client’s portfolio, then accurate and timely information of holdings is important, which we often miss in Qatar,” a top financial advisor told The Peninsula.

During market volatility, it is normal for clients to seek reassurances that they are not exposed to the hard-hit sectors. 

“We received calls from panicking investors on a day when the Qatar index surged to unprecedented levels in May. Honestly, we could not figure out what exactly was going on in the market that day. We took calls from clients wanting to know their exposure to different stocks, but were unable to explain what exactly had triggered the surge,” the advisor said.

It’s not just advisers who want more information. Retail investors, key stakeholders in Qatar’s capital market, are the ones who bear the brunt of market volatility.

“What’s happening now is that those who are well-informed about the market are making money and those who miss the information are at a loss. Institutional investors tend to be well-informed on market movements and monitor their portfolios on a regular basis. Unlike them, retail investors miss the market cues and end up with big losses,” said Bashir Yousef Kahlout, a local market watcher.

“Of late, we have seen the prices of some stocks skyrocketing. The shares of some companies have risen many times over in less than a year. Another set of stocks has suffered a free fall. Market watchers fail to understand the reason behind such dramatic shifts for want of sufficient data on these companies in the public domain,” he said.

“The efficiency of corporate governance is at its lowest ebb in Qatar. Most of the listed companies fail to make a full disclosure of their deals with other entities. They often prefer to limit their disclosures to two-line media statements. The media, which is supposed to be a major source of information for investors, is either not bothered about looking into the details of the deals or does not want to offend companies that are a major source of advertising revenue,” he added.

Kahlout said investors were in the dark about the details of a series of deals sealed by some of the top listed companies on the local bourse. At least three of them are heavily traded stocks. Without knowing the numbers involved in these deals it is difficult for an investor to decide whether they should sell, buy or hold these stocks. These companies include a major lender, a property developer and a telecoms sector firm.

Trading in the shares of a leading conglomerate was suspended for several months on the bourse before it resumed a few months ago. Investors still do not know what trading violation was committed by the company and why they were being allowed to resume trading, said another investor.

Shares of at least one-third of the listed companies are not traded on many days. Few companies hold regular meetings with analysts or say in advance when their earnings results will be released, said another market expert.

Abdallah Al Taher, a Qatari lawyer and financial expert, said there are laws and regulations in place, but they can be interpreted in many ways. It is not clear which interpretation is adhered to in practice, and consequently there is a whole lot of confusion, he added.

The QFMA claims it is serious about market monitoring and its guidelines are in line with internationals standards. 

But it needs to walk the talk, said Al Taher.

The Authority launched investigations into alleged cases of violations by market players in Qatar last year. The market supervisory body conducted 16 inspections at various organisations, including some brokerage companies, in 2013.

The QFMA said it had received a number of reports about suspected trade violations last year. The body recommended appropriate action against the erring companies to the competent authority. It submitted 10 reports against various companies regarding trading violations. In the first quarter of 2013, the body submitted five reports to the authorities on trading violations.

In 2013, QFMA received eight complaints and conducted 25 investigations in suspected cases. Surprise inspections were conducted at some organisations. The authority completed investigations into all complaints except one, which is pending before the investigation committee. The regulatory body referred eight cases to the disciplinary action committee, which imposed fines or issued warnings.

But investment experts ask why the regulatory body is not coming out with the details of its investigations and findings. 

The QFMA report does not explain the nature of trading violations, which is essential for investors and shareholders of these companies to know. 

The experts said they did not know if any of the firms were involved in serious crimes like insider trading. The authorities must publish the names of the companies and the nature of the offences committed by them, they said. 

During the results season, it is interesting to note that some companies whose net profits have dropped distribute high dividends and companies that have delivered better numbers offer relatively low dividends to shareholders. There are companies with accumulated losses equal to 30 percent of their paid-up capital that distribute high dividends. These companies never explain how they manage to offer dividends, and investors do not know whether to hold or sell their stocks, Kahlout said.

Another section of experts said the unprecedented rise and fall of Arabtec, Dubai’s most heavily traded stock, was a warning sign for Qatar. Frenzied trading by local retail investors and weak corporate disclosures make for a toxic mix, they said.

Analysts are of the view that Qatar must take a cue from the UAE’s recent decision to tighten its market monitoring. Its Securities and Commodities Authority said last week that it would set up a technical panel to ensure transparency in share trading and prevent any manipulation of stock prices. The expert committee would also monitor the statements of corporate CEOs and securities analysts to make sure they are truthful. The committee will also review sharp market movements and make suitable recommendations.

“We are not asking the companies to make excessive disclosures in the public domain, which might impair their competitiveness. But providing essential information on the company is key for its shareholders. Only with transparency will it be possible for them to deter market manipulation and foster efficiency in decisions on allocation of resources,” said a fund manager.

THE PENINSULA

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