WHAT does Singapore Inc have to say to the shareholders who put a US$10.8 billion (RM48.13 billion) valuation on commodity trader Noble Group Ltd a few years before it fell into insolvency? 

It sounds an awful lot like “drop dead”.

Four years after it was taken off the Singapore Exchange as part of a debt restructuring, regulators have fined Noble S$12.6 million (RM40.55 million) for publishing misleading financial information and issued “stern warnings” to two former directors of its local unit.

That sum seems paltry given the scale of Noble’s collapse.

Last month alone, the US Securities and Exchange Commission fined an insurer US$50 million for not properly disclosing fees to annuity investors, while the UK Financial Conduct Authority would have imposed a £37.9 million (RM198.31 million) penalty over misleading statements leading to the collapse of Carillion plc, had the firm not already been in liquidation. 

Banks received about US$9 billion in fines over the scandal about rigging the Libor interest-rate benchmark over the past decade, while BNP Paribas SA alone received a US$9 billion penalty in 2015 for violating US sanctions. 

The modest sum levied against Noble is hardly likely to deter other companies on the same path, considering gross profits of more than a billion a year that it was cranking out in its pomp.

Issuing false statements has “no place in Singapore’s capital markets” and risks having “an adverse impact on the integrity of our capital markets”, regulators and law enforcement authorities led by the Monetary Authority of Singapore (MAS) said in a statement announcing the penalty. The MAS didn’t respond to an email seeking comment for this article.

The official words strike the right note, but giving a light nudge to the stable door now, years after the horse has bolted, strikes a discordant tone. As early as February 2015, Iceberg Research, a short seller run by a former Noble credit analyst, was citing issues with the marketing agreements that formed the core of last week’s fine. 

Singapore’s investigation of the issue didn’t begin until November 2018, at a point when shares had already been suspended and 10 months after the company announced a debt restructuring that wiped out stockholders. Noble still operates as separate industrial and trading businesses following the restructuring. 

Consider in general how rare it is for commodity trading houses to be listed companies. With the exception of London-listed Glencore plc and a few agricultural processors (including Singapore’s Olam International Ltd and Wilmar International Ltd), almost the entire sector is closely held by owner-managers and founding families. 

This isn’t an accident. Traders take significant chances with the company balance sheet and expect eye-watering bonuses in return. 

When the people putting up the risk capital are separate from those who benefit from a successful trade, equity investors may end up short-changed by insiders who capture most of the upside for themselves, but pass on the downside to shareholders. Noble’s very existence as an exception to this rule should have been a warning.

That’s not the only sense in which Noble was an odd beast, though. In Singapore, almost all companies on the main Straits Times Index count either the government or regional tycoons like Jardine Matheson Holdings Ltd’s Keswick family as their largest shareholders. Singapore Telecommunications Ltd, CapitaLand Investment Ltd and Singapore Airlines Ltd, are controlled by state investment fund Temasek Holdings Pte Ltd, while the three biggest companies on the index, DBS Group Holdings Ltd, Oversea-Chinese Banking Corp and United Overseas Bank Ltd number, respectively, Temasek and the founding Lee and Wee families as substantial shareholders.

There was a point around the time of Noble’s 1997 IPO when it looked like that might change. Jardines

itself had moved its public listings away from Hong Kong ahead of the city’s handover to China. Singapore could have seen its share market as a foundation stone for its aspirations to be a regional financial centre — a common dream of fast-growing economies, even if they have little need for the capital raising and allocation services that a vibrant stock exchange can bring.

This year, it’s the turn of Saudi Arabia and the United Arab Emirates to kid themselves that a run of major share sales can transform the fundamentals of an economy. But just as it’s delusional now to think that the monarchies of the Persian Gulf are going to be dominated by anything other than petroleum in the coming decade, so it was delusional two decades ago to think that shareholders rather than commodity traders could win out in Singapore. 

Since Shell plc established its first fuel storage facility on Pulau Bukom island in 1891 and through the 1960s, when Prime Minister Lee Kuan Yew made the building of oversized oil refineries a central plank of his development strategy, the fortunes of Singapore and commodities have been intimately intertwined.

In 2001, when Noble’s rise was still in its infancy, the city-state introduced its Global Trader Programme that explicitly set out to turn Singapore into a hub to rival Chicago, London and Geneva by offering corporate tax rates of 5% or 10% for businesses that moved trading desks there. It’s helped draw professionals from across the world: Trafigura Group Pte Ltd abandoned its European roots to incorporate in the city when Noble’s valuation was at its peak in 2012 and major mining companies set up trading arms that prompted long-running disputes with Australia’s tax authorities.

Some 320,000 people are now employed in Singapore’s wholesale trade sector, contributing 17% of GDP. When the Global Trader Programme was set to lapse last year after an initial 20-year run, the government quietly extended it to 2026.

The country made its choice. It’s not alone. For all the energy that an active stock exchange can bring to a city,

Switzerland has done perfectly well combining a somnolent equity market with discreet but lucrative businesses in commodities and private wealth. That’s the path Singapore decided to follow.

Those who feel they’ve been short-changed by investments in Noble stock may as well make the same criticism of Singapore’s share market as a whole. Even investors in the Brexit-ravaged FTSE 100 index have performed better than those who bought the Straits Times index over the past decade. 

Hong Kong’s Hang Seng index is one of the few to match Singapore’s lacklustre performance — but it took the destruction of the territory’s long-held freedoms to achieve that dismal outcome. In terms of market capitalisation, Indonesia and Thailand are bigger share markets these days, and even old rival Malaysia isn’t far behind.

Singapore’s population, which has gone from the world’s ninth-richest in terms of per capita GDP when Noble listed in 1997 to second-richest now, doesn’t seem to mind. Still, with the decline of Hong Kong as a financial centre, the chance to become an equity market for the broader region hasn’t died altogether. 

Singapore may have been able to prioritise shareholders less in the past. It shouldn’t count on always being so lucky. — Bloomberg