SGX proposes to fix weak spots in disclosure rules

Singapore

SINGAPORE'S bourse operator has zoomed in on the weak spots in disclosure requirements under listing rules and - in a move welcomed by observers - has proposed refinements to improve the transparency and accountability of companies.

The Singapore Exchange (SGX) on Thursday said it has suggested three areas to be tweaked: secondary fund-raising, interested-person transactions (IPTs), and significant transactions and loans.

Under secondary fund-raising, SGX has proposed that listed companies provide a more upfront and prominent report on the discount, ratio and other principal terms for rights issues. Companies are also required to put out a directors' statement on why the rights issue is in the best interest of the issuer and the basis for it.

They should further declare the use of proceeds and the intended use of any unutilised amount if a rights issue takes place within a year of another fund-raising, SGX suggested.

It also recommended that interested-person transactions (IPT) that are under S$100,000 no longer be exempted from announcements or a shareholder vote, and that greater clarity be offered on the nature of the relationship with the interested person. The bourse operator proposed that those covered by the IPT mandate - the relevant director, chief executive or controlling shareholder of the issuer - be identified.

SGX is also suggesting additional disclosures for loans that are not part of the issuer's "ordinary course of business".

If no valuation is done for an acquisition or disposal of assets that is a major transaction, it wants companies to explain why; the exception will be if the transaction involves shares.

SGX has also recommended that companies appoint a competent and independent valuer for significant asset disposals.

Tan Boon Gin, the chief executive of Singapore Exchange Regulation, said: "We are proposing to recalibrate the disclosure regime using a risk-based approach, following extensive engagements with investors, companies and other stakeholders. The additional disclosures we are proposing address key areas of concern of the market and the exchange."

The public are invited to offer feedback on the proposed listing rule changes by Jan 12. If the recommendations are accepted, SGX expects to implement the changes next year.

Corporate governance advocate Mak Yuen Teen, an associate professor at the National University of Singapore, said he would like to see further refinements in how ratios are calculated when determining whether an IPT is disclosable or requires shareholders' approval.

"We are rather too reliant on NTA (net tangible assets) for instance, in calculating ratios. Also, I think our disclosures rules on acquisitions and realisations that are dependent on whether they are in the ordinary course of business or change the risk profile of the issuer are too subjective and could be circumvented."

Asked if further disclosures will be onerous on smaller listed companies, he said: "Smaller companies often face greater risk of abuse because it's easier to obtain substantial stakes to influence transactions in one's favour.

"There's also less institutional shareholders' presence and less analyst coverage in smaller companies to provide checks and balances."

Robson Lee, a partner with US law firm Gibson Dunn, noted that the new secondary fund-raising requirements are not unlike when an issuer first raises funds at an initial public offering (IPO). As for the IPT tweaks, he said the new rules will plug current gaps and enable non-interested shareholders to periodically vote on any proposed long term IPT, based on comprehensive public-disclosure rules, with reference to the periodic confirmations and recommendations of the audit committee.

Mr Lee added that all major acquisitions and disposals have potential financial or even business impact on the group. In most instances where a controlling shareholder proposes such a corporate action, the market has inadequate information on the value of such transactions, "which would be a done deal even if an extraordinary general meeting is required for the transaction", he noted.