SGX: Olam practice not used for listing

PHOTO: SGX: Olam practice not used for listing

SINGAPORE - The contentious accounting practice at the centre of Olam International's clash with Muddy Waters has not been used by firms to meet qualifying criteria for a share market listing here.

The practice, which books unrealised fair value gains on biological assets like crops and stock, could give an inflated picture of a firm's financial health.

A wheat producer may take six months to grow its crop, for example.

But every three months, it would have to estimate the crop's value, based on certain assumptions, so there is plenty of scope for rubbery numbers.

But no firm that has sought to list here since 2003, when the biological gains rule came in, has needed to employ it to meet listing criteria, said the Singapore Exchange (SGX).

The SGX has also said it is undecided if it will ban unrealised gains on biological assets being booked for listings.

The practice hit the headlines after short-seller Muddy Waters criticised Olam for the way it accounts for future increases in the value of crops.

Muddy Waters said this gave an inflated view of Olam's profits, and accused the firm of "incompetent accounting, at best".

Analysts have previously said that they have discounted Olam's unrealised gains on its biological assets and that the accusation is not new.

Olam chief executive Sunny Verghese shot back at Muddy Waters, saying the practice of booking unrealised fair value biological gains was in line with Singapore accounting standards. 

But in an apparent swipe at its Asian rival, the Hong Kong Stock Exchange said last week that it has outlawed companies looking to list from using this same accounting practice.

It said that agricultural firms could not rely on "unrealised fair value gains on valuation of biological assets" to demonstrate the trading and profitability track record needed before listing approval is given.

The SGX noted yesterday that listed firms here prepare financial statements according to international standards recognised across the world.

"In terms of interpreting listing rules for initial public offering applications, SGX will not respond hastily to recent issues on accounting for biological assets," it said in a statement yesterday.

It also said that since the rule was introduced 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," it added.

SGX said it did not rule out changing the rule in future.

Instead, it simply said that "whether we should make a blanket ruling that unrealised gains on biological assets be excluded in all circumstances has not been determined".