SGX treading cautiously over biological assets

Even as concerns about accounting standards for biological assets are raised in the wake of the Olam-Muddy Waters saga, the Singapore Exchange (SGX) plans to be cautious in its response.

Whether it should follow in the Hong Kong exchange's footsteps and ban companies seeking a listing from including unrealised gains on biological assets is yet to be determined, SGX head of issuer regulation Mohamed Nasser Ismail said yesterday in response to BT queries.

"In terms of interpreting listing rules for IPO applications, SGX will not respond hastily to recent issues on accounting for biological assets."

The exchange requires listed companies to prepare their financial statements according to "acceptable accounting standards", such as IFRS, Singapore Financial Reporting Standards (SFRS) and US Generally Accepted Accounting Principles.

"SGX considers every listing application in context and on its own merits," said Mr Nasser.

"Since the introduction of accounting standards relating to biological assets in 2003, our IPOs have been able to qualify for listing without taking into account unrealised fair value gains on biological assets."

However, this is not a comment on the merits or demerits of the accounting treatment."

This accounting practice is at the heart of accusations levelled by short-seller Muddy Waters against Olam.

The US research firm has accused the agri-commodities firm of relying on non-cash accounting gains, such as gains in biological valuation and negative goodwill, to boost its bottom line.

In response, Olam had said that its accounting was in line with Singapore financial standards, which are in turn based on International Financial Reporting Standards (IFRS). 

These require agricultural companies to factor in the value of their biological assets, such as wheat crops and livestock, in financial statements.

In a guidance note released last Friday, the Hong Kong exchange said that agricultural companies could not rely on "unrealised fair value gains on valuation of biological assets" to demonstrate a trading and profitability track record when listing on the exchange.

This, however, does not apply to companies already listed on the bourse.

Said Mr Nasser: "Going forward, whether we should make a blanket ruling that unrealised gains on biological assets be excluded in all circumstances has not been determined."

"We will continue to closely monitor international developments and listen to informed opinion. If rule changes are required, we will consult the market."

Meanwhile, despite an announcement by Olam's largest shareholder, Kewalram Singapore, on Tuesday that it will back the company's proposed rights issue of bonds and warrants, the firm's stock continued its downward trajectory yesterday, dropping 2.5 cents, or 1.7 per cent, to $1.415. Olam shares have fallen 19 per cent since Muddy Waters first issued its criticism against the company.

 
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