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Singapore bourse targets errant Chinese firms in bid to boost governance

[SINGAPORE] Chinese companies on the Singapore Exchange (SGX) are facing extra scrutiny from the bourse as its new management attempts to improve corporate governance that could help boost flagging volumes and revive listings.

With the mid-year appointments of a new CEO and a former white-collar crime police chief as its top regulatory officer, and armed with enhanced regulatory powers since October, SGX is focusing on so-called 'S-chips' for problems such as questionable accounting and inadequate disclosures, and has vowed to whip them into shape.

A review by Reuters of regulatory filings showed that more than 40 per cent of SGX's queries so far in 2015 were directed at Chinese companies, even though they only make up 16 per cent of the 771 firms listed on the exchange.

The focus on governance reflects SGX's attempt to bolster its reputation as a tough front-line regulator amid an outcry by investors suffering from the blowup of some S-chips. The move could help the exchange, whose revenue from the securities business has fallen for two straight years. "The real issue for SGX, and the investing community here, is the very negative sentiment around S-chips. If SGX wants to attract more (good quality) listings from China, it needs to address this perception," said David Smith, head of corporate governance at Aberdeen Asset Management Asia, which owns SGX shares.

SGX's reputation took a hit after several Chinese companies were embroiled in accounting scandals in 2008 and 2011. A group of non-Chinese companies suffered a market crash in 2013 that wiped out billions of dollars of market capitalisation within days, further dampening trading interest on the market.

As a result, Southeast Asia's biggest bourse has seen daily average trading value in the 2015 financial year that ended on June 30 fall to its lowest since 2006.

SGX attracted just one listing on its main board for calendar year 2015. The $322 million raised through initial public offerings in Singapore so far this year is just 1.5 per cent of what Hong Kong has raised in the same period, Thomson Reuters data showed.

NEW PRIORITY New CEO Loh Boon Chye and regulatory officer Tan Boon Gin have made cleaning up the house a priority.

Tan detailed puzzling accounting in some S-chips in a column posted last month, a highly unusual move aimed at signalling the SGX's focus on quality of accounts of listed companies.

"We are highlighting a trend we have observed based on publicly disclosed information," Tan told Reuters in an email. "Enforcement powers under SGX's rules were recently strengthened. These enforcement powers will be used where necessary," he said.

The SGX has taken disciplinary actions, including reprimands, fines and warnings, against eight companies or individuals in 2015, making this year the busiest for regulatory action since 2011. "I've never seen so much focus on regulatory initiatives and action over such a short period," said Mak Yuen Teen, associate professor at the National University of Singapore. "Hopefully SGX is realising that investor protection must be the first consideration in building any strong capital market."