Improve disclosure when SGX rejects transfers to Catalist

THE SINGAPORE equity market now has clarity on how the Singapore Exchange (SGX) will assess applications from Mainboard companies seeking to transfer to the Catalist board.

The good news is that the market regulator is taking steps to protect the quality of the Catalist board. What SGX needs to add is that issuers must also disclose the reasons that their transfer applications are rejected.

Mainboard companies are placed on a watch-list if they fail to meet requirements either for minimum trading price or for profitability and market capitalisation, and such companies will be delisted if they are not able to get off the watch-list within certain time limits. The Catalist board, however, has no such listing requirements, making a transfer to the Catalist board a potentially desirable option for some companies on a watch-list. The existence of that alternative, however, creates a risk that Catalist, which was intended as a listing venue for less mature but potentially faster growing companies, will be seen as a dumping ground for Mainboard rejects.

In Monday's "Regulator's Column", SGX sought to address that risk by laying out broad guidelines on when it will approve a transfer for watch-list companies. The general principle is that companies on a watch-list that hope to shift to Catalist may do so only if they can find a sponsor which is satisfied that the company is able to continue doing business and has a plan to improve value for shareholders. In other words, a rotten Mainboard company that has no viable plan to get better will not be allowed to move to Catalist.

What SGX left out, however, is that denied transfer applicants should also fully disclose the reasons why they were rejected by SGX.

The recent case of Ley Choon Group Holdings illustrates the need for better disclosure by rejected applicants.

Ley Choon, a specialist in underground infrastructure engineering projects, had on Oct 28 announced its intention to seek a transfer to Catalist in order to comply with the coming requirement that all Mainboard-listed companies have a six-month average-weighted trading price of at least 20 Singapore cents. Ley Choon's current stock price hovers around four Singapore cents. Failure to meet the minimum trading price will earn a spot on the watch-list and a three-year window to raise the share price sufficiently or face delisting.

On Dec 18, Ley Choon announced that SGX had rejected its transfer. The company then abandoned the plans to transfer to Catalist, and said it would be looking at other options.

Traders at the time expressed surprise and confusion. Why would SGX not allow a company to move to Catalist to avoid the minimum trading price requirements, unless there was a red flag that raised problems?

If there was a red flag, nobody outside of Ley Choon's circle and SGX knew, because Ley Choon did not disclose the reasons for the rejection.

There is good reason to let the investment public know why applications are denied.

For investors, such disclosure would clarify whether there are matters of concern about an issuer that may not have been apparent to the public. If a rejection is merely a procedural triviality, then investors would not be as alarmed. That knowledge will reduce the amount of confusion and blind speculation in a stock.

For other issuers and market professionals, such disclosures will create a comprehensive understanding of the rules and how SGX applies them. Regulations are easy to read on paper, but it is not always clear how they translate into practice. More details in announcements will improve the quality of advice that issuers receive, and ensure that precious time and resources are not wasted on what might eventually become fruitless endeavours.

Over the past year, SGX has taken a number of commendable steps to increase the transparency of its regulatory process, and the recent regulatory column was the latest example of that. On occasion, SGX also needs to extend its drive for transparency to its issuers as well.

This article was first published on January 7, 2016.
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