Generic disclosures ascribed to Covid-19 not good enough: SGX RegCo

Singapore

ISSUERS should avoid generic statements that they expect their financial results to be materially impacted due to Covid-19 without providing detailed assessment on how their operations would be affected, Tan Boon Gin, chief executive of the Singapore Exchange Regulation (SGX RegCo), said.

In his latest regulator's column, Mr Tan reminded issuers that reliance on broad-stroke explanations pinned on a decline in general economic activity to explain away their outlook would be "deemed inadequate and of little utility to their shareholders".

"Timely disclosures help manage investors' expectations and avoid shocks when the financial results are released," he advised.

"It is also evidence of sound governance and management, and would strengthen investors' confidence in the issuer and its business strategy, which facilitates fundraising from the market should the need later arise."

Mr Tan noted that the flip side is equally true.

"If issuers do not come clean, investors will assume the worst. In today's market, the consequences of late or poor-quality disclosure could be dire."

With many businesses shuttered during the Covid-19 pandemic, Mr Tan reckoned the impact of these decisions may be quantifiable and should be disclosed. For example, disclosure should include the proportion of retail units in a mall that have been shut due to Covid-19 measures and the capacity at which plants are operating.

"At the very least, companies must be transparent about such decisions including providing data on operations that have been suspended or curtailed,'' he said.

The frontline stock market regulator recognises that the inherent unpredictability in the rapidly evolving situation makes it difficult for issuers to react and hence update shareholders, who need information that is both timely and accurate.

"While the Listing Rules provide exceptions to disclosure if the information in question comprises matters of supposition or is insufficiently definite to warrant disclosure, there are specific scenarios where SGX RegCo explicitly requires material information to be disclosed,'' he said.

In February this year, the Listing Rules were enhanced to make explicit that immediate disclosure is required for material changes to an issuer's near-term earnings prospects caused by general trading trends or by specific events or developments.

They also provide guidance to issuers on what to do where there are ongoing developments, or where there is insufficient information for the issuer to disclose financial impact with certainty.

Where matters are still developing or undergoing further assessment and issuers are unable to quantify the impact, issuers should still make disclosures that would reflect its current state of affairs and outlook and in particular, assessment of the strategy or steps taken to address the effects of Covid-19 and how its operating and financial conditions may change.

"This will help investors to understand the potential impact on the issuer's prospects. The issuer can provide updates when there are subsequent material developments,'' Mr Tan explained.

When information is insufficient for issuers to disclose the financial impact with certainty, issuers should provide a detailed explanation of the non-disclosure and sufficient information to enable investors to independently assess the financial impact after taking into consideration the variables disclosed.

Boards and auditors should have heightened vigilance on the possible effects of global developments on the issuer's financials.

"This includes a review of the effectiveness of internal controls including close scrutiny on high-risk areas such as cash balances and accounts receivables,'' Mr Tan said.

Boards should also ensure that robust systems are put in place so they are promptly alerted of changes to the issuer's business and financial condition amid the rapidly evolving situation.

As a guide on whether a disclosure is warranted, issuers should consider the impact of Covid-19 on their operations, earnings prospects, liquidity, debt covenants, debt obligations, dividend policies, balance sheets, contractual obligations, and ability to operate as a going concern, among others.

Issuers are encouraged to publish regular business updates - which can include key operating metrics, topline financials, or even measures to manage emerging threats - during this period to provide the market with prompt updates on their performances.

READ MORE: Opinion: What SGX expects of issuers' disclosures during Covid-19