From their Q4 2024 13F filing, Temasek had 9 ADRs worth US$1,099m and 1 non-ADR worth US$164m while GIC had 2 ADRs worth .US$8,146m and 1 non-ADR worth US$1,044m.
ADRs often use a Variable Interest Entity (VIE) which is a special legal workaround structure to circumvent Chinese restrictions on foreign ownership in sensitive sectors. Investors in ADRs do not own shares in the actual operating company in China. Instead they own shares in an offshore shell company which has contractual rights to the cash flows of the real business in China. These VIEs are often domiciled in Cayman Islands. There's growing concern over the VIE structure's legal framework. Technically, investors do not own equity in the Chinese operating companies.
In the case of Chinese companies listed directly in US exchanges, investors own direct equity stakes with voting rights, dividend rights and better legal standing. However enforcement of rights across US-China borders may be challenging.
What happens in a forced delisting?
Some counters have dual listings, a primary listing in US and a secondary listing in Hongkong or Shenzen Exchange. (Alibaba, JD Com and Net Ease). Investors may convert ADRs to actual shares to trade in HKEX but this requires heavy legal processes and conversion fees subject to agreements by brokers or custodians. It's not that straightforward.
ADRs or shares may move to OTC (over-the-counter) but this will result in huge discounts due to loss in liquidity. Wholesale investors like mutual funds or pension funds that have rules prohibiting trading in OTCs will be forced to dispose at deep discounts. This brings more gloom and doom.
It is not known if Temasek and GIC has internal rules that forbid OTC trades. Most probably not, but if they do, they need to dispose of them in private buyouts which will be at very deep discounts.
Investors may bring the shares private and list elsewhere. A very lengthy and expensive proposition.
Whatever way the investors chose to proceed, a delisting means loss of liquidity, serious valuation losses, heavy legal and other expenses ahead, and narrow exit paths guaranteed.
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Temasek's & GIC's revenue, loss or profit is far removed from the man in the street.
ReplyDeleteThe next layer is MAS and
the next is CPF.
Regardless of how GIC, Temasek performs is not immediately felt by any ordinary person in Singapore with a CPF account.
Their money in CPF is still available for deductions for HDB housing loans, pay for Medishield etc.
Perhaps it is intended and designed for.
99% of people are not the least concerned.
If people are supposed to be concerned, how does it work?
Perhaps a simulated scenario can be help?