What SGX expects of issuers' disclosures during Covid-19

THE Covid-19 outbreak has given rise to high levels of volatility in the global financial markets. Covid-19 and the resultant actions taken by the governments and businesses around the world to protect public health and safety are unprecedented on many fronts. Companies and individuals alike have had to make major adjustments amid the current challenges.

Issuers, for example, are facing pressures such as difficulties with organising annual general meetings because most events and gatherings can no longer take place. Companies have struggled to produce annual reports with the shutting of most workplaces and staff working from home. In recognition of the challenges that issuers are facing from these contingencies, SGX RegCo has recently announced measures to support issuers, including providing an extension of time to publish their annual reports and hold annual general meetings, as well as enhanced flexibility in fundraising.

Shareholders too face pressures in their investment decision-making; the current business and economic uncertainty and market volatility make it absolutely necessary for shareholders to have up-to-date information concerning material changes in issuers' business and operations. We are consequently issuing this column to remind 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. Many companies have shut stores, outlets, plants and offices, and curtailed business activities. The impact of these decisions, for example, may be quantifiable and should be disclosed, such as proportion of retail units in a mall that are shut due to Covid-19 measures or 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.

Making disclosures during uncertain times

We recognise 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.

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. The Listing Rules 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.

On ongoing developments, where matters are still developing or undergoing further assessment and issuers are not able to quantify the impact, issuers should still make disclosures which 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.

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. Issuers should avoid giving generic statements on the current economic environment that do not give any clarity of the specific areas of impact on their operations and financial situation. For example, issuers should not publish a generic statement that they expect their financial results to be materially impacted due to Covid-19 without providing a detailed assessment on how their operations would be affected.

Board oversight

As they make plans to deal with the wide-ranging effects of Covid-19 on their businesses, issuers' boards should keep in mind whether these plans will give rise to material information that must be 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. Boards should also ensure that robust systems are put in place so they are promptly alerted to changes to the issuer's business and financial condition amid the rapidly evolving situation.

Some questions to consider

Developments surrounding Covid-19 are likely to be considered material for investors to make informed decisions. To serve as a guide, issuers should consider the following areas in determining if disclosure is required.

This list of key areas is not exhaustive. Issuers should consider the necessary disclosures that are relevant for their industry and circumstances.

Business updates

With the extension of time granted to publish issuers' annual reports, issuers should take steps to minimise information gaps regarding their state of affairs. In this regard, SGX RegCo urges issuers to publish regular business updates promptly during this period. Such business updates can contain key operating metrics or top-line financials.

These financial or non-financial indicators would allow issuers to communicate with investors the impact of Covid-19 on the issuers' current performance and future plans, as well as mitigating measures to manage emerging threats arising from the Covid-19 situation.

Conclusion

Providing prompt and high-quality information will not only benefit investors, but will also benefit issuers during this period. Timely disclosure will help manage investors' expectations and avoid shocks when the financial results are released. It is also evidence of sound governance and management, and will strengthen investors' confidence in the issuer and its business strategy, which in turn facilitates fundraising from the market should the need later arise.

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.

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