SGX RegCo lays down expectations on valuations

THE Singapore Exchange Regulation Company (SGX RegCO) has laid out expectations of what needs to be disclosed about a valuation of an asset for significant transactions.

SGX-listed companies should explain how the transaction will benefit the company's long-term business strategy and its merits to investors.

Companies are reminded that they must disclose:

• The value ascribed to the assets
• The party who commissioned the valuation
• The basis including the underlying methodologies and assumptions in arriving at the valuation
• The date of the valuation

The board of directors are also to apply rigour in assessing a proposed transaction on whether it is in the best interest of the company and shareholders. SGX RegCo expects boards to determine if key assumptions and estimates used for valuation are reasonable, disclose material uncertainties that belie projections and whether the valuation conclusion and limitations in the reports are acceptable.

SGX RegCo reminded companies to be mindful of market and regulatory scrutiny in pursuing acquisitions or disposals of assets. The regulator has noted transactions with valuation practices that are open to doubt, from erroneous inputs to deficient disclosures to failure to understand or challenge management on the assumptions provided.

"We understand that making projections especially during uncertain times is difficult. Nevertheless, it is incumbent upon boards to scrutinise projections to ensure they are realistic and sound," it said.

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign Up

Sign Up

A valuer's track record in questionable past transactions as well as their credentials should be considered by the board. Other considerations such as whether they are members of a professional business valuation body or authority and have the relevant experience in performing the valuations for the assets have been flagged by the regulator.

Two trends in valuation have emerged according to SGX RegCo, the significance of intangible assets and environmental, social and governance (ESG) matters. Companies should assess if the intangible assets and intellectual property of businesses with new or disruptive technologies are valued with appropriate methods and the basis disclosed. ESG impact on a company's long-term prospects could also be clearly articulated.

"SGX notes that these are growing areas in the business valuation space; companies should seek professional advice to ensure that the valuation methodologies and disclosures are up to date and reflect best practices in this regard," said RegCo.

Companies are also reminded that they should consult with the Institute of Valuers and Appraisers, Singapore's issued Practice Note 2: Minimum Disclosure Requirements for Summary Valuation Letters on what should be contained in valuation letters.

"SGX RegCo is reviewing if the listing rules should be further strengthened to raise the standards of business valuations, in line with our previous review for property valuations. In this regard, we will also consider mandating the application of the IVAS Practice Note 2 in appropriate circumstances," it said.