Need for disclosure should account for current conditions: SGX

LISTED companies should consider current economic conditions in determining whether a piece of information is material and should be announced, and boards should err on the side of disclosure when there is doubt, Singapore Exchange (SGX) chief regulatory officer Tan Boon Gin said on Tuesday.

"The fundamental determinant of materiality is whether the information will be useful to your investors in making their decisions. And the cardinal rule is - when in doubt, disclose," Mr Tan said in prepared remarks at an event organised by the Singapore Institute of Directors.

In the wake of criticisms about Swiber Holdings' disclosures leading up to its winding-up application, which Mr Tan alluded to but did not specifically mention, Shenton Way's sheriff said companies should not adopt an overly narrow or prescriptive definition of materiality.

"When the industry is humming along, the macroeconomic environment is stable, and there is no real volatility in your business, what might be considered material could be quite different from information investors might need when your industry is going through extreme volatility and/or a protracted down-cycle, such that the financial position of your company is at risk of deteriorating quickly," he noted.

In adverse economic conditions, companies may need to inform shareholders about delays in large projects on their order books.

Letters of demand may start at small amounts, but could escalate quickly if banks are over-exposed to a particular sector or if cross-defaults are triggered. Timely disclosure is, therefore, important.

Mr Tan sought to clarify SGX's role with regards to companies' financial health. While SGX can and does ensure that companies are in a healthy financial position when they are seeking to make an initial public offering on the exchange, once a company is listed its financial strength is a matter for the company, its board and its shareholders to look after.

SGX's role after a company has listed is mostly in terms of ensuring that the issuer meets disclosure requirements.

"Our review of financials post-listing therefore focuses on whether the company has provided the disclosures required under the listing rules rather than the company's financial health," Mr Tan pointed out. "I want to state in no uncertain terms that SGX will strictly enforce compliance with this requirement as it is fundamental to our disclosure-based regime."

While SGX will strictly enforce disclosure rules, the exchange's preference is to prevent lapses before they happen, Mr Tan explained. "Our preference as always is to take preventive measures. SGX will query the company and require a public response to tease out material information where necessary."

Nevertheless, companies should not depend on SGX's nudges to fulfil their obligations. "The listing rules require companies to make an immediate announcement where these events lead to them facing a cash-flow problem," Mr Tan added. "While SGX can, and indeed has, posed queries to companies on disclosures, to wait for such queries, rather than disclose with full transparency, is venturing into dangerous territory."