As shareholders, we would have seen this section on “Shareholding statistics” or “Unitholding statistics” in the final pages of any company’s annual report. Generally it shows the number of shareholders, the breakdown of their size of shareholdings and sometimes additional information on location breakdown of shareholders, percentage of publicly / privately-held shares, number of treasury shares etc.
What I am more interested in is the subsection on Substantial Shareholders; or major shareholders who have controlling interest over the way the company is run or making of major decisions. This is further broken down into Direct and Deemed interests for clarity.
Large shareholders usually form a very important element of the companies’ corporate governance system. When it comes to major corporate decisions, large shareholders also display their importance and influence in approving or blocking them. As a minority shareholder, you would be interested to follow up on positive/negative news concerning substantial shareholders which may otherwise or subsequently affect the owned-company in question.
Variations in the types of large owners
Is the company or business largely Government-backed or owned? Institution or employee ownership? Is it a family-run business whose is owned by blood-related persons? Is power or control largely by a single individual?
From DBS FY19/20 Annual Report, it is simple enough to see that Temasek Holdings, an investment company owned by the Government of Singapore, has a direct interest of 11.10% and deemed interest of 29.91% (when including it’s subsidiary Maju Holdings direct interest of 17.92%).
From Thomson Medical FY18/19 Annual Report, Lim Eng Hock (or Peter Lim) is a Singaporean business magnate that owns the majority (81.50%) shares in Thomson Medical as an individual. Would your vote matter, as an ordinary shareholder, if a resolution is raised for a decision?
From UOB FY19/20 Annual Report, we can see that the Wee family has a sizable direct and deemed interest; UOB remains the only Singapore bank still run by a family after OCBC Bank and others chose outsiders as their CEO or merged.
Direct interest Versus Deemed interest
So what is the difference between Direct and Deemed interests?
Direct interest is pretty clear-cut. If you buy shares in a company, you have a direct interest in the company. Similarly, if a Company B owns shares in another Company A, it has a direct interest. If Company A owns shares in Company Y, then Company B has an indirect or deemed interest in Company Y as well.
Deemed interest — A more complicated example of deemed interest by Temasek Holdings on Mapletree Commercial Trust
We can see that Temasek Holdings is missing from the Top 20 shareholders list — the company does not have any shares (or direct interest) in Mapletree Commercial Trust. However, it has a deemed interest (34.12%) through its subsidiaries (Fullerton Management and Mapletree Investment) and through its substantial (deemed) interest in DBS Group Holdings.
We had seen the latter example from our earlier reference: DBS FY19/20 Annual Report for Temasek Holdings deemed interest (>20%) on DBS Bank.
In text format, we can see how Temasek Holdings derived its deemed interest in Mapletree Commercial Trust.
Pictorially, this is how the deemed interest percentages are derived through its subsidiaries and through its substantial (deemed) interest in DBS Group Holdings. Annex 1 and Annex 2 shows a clearer breakdown.
In short, deemed interest provide a better overview of the control and influence that a shareholder has over the company. While it may not be a major shareholder (or even own shares), it may still exert a clout by having substantial interests in other companies or subsidiaries who have ownership in that particular company.