Shareholder engagement crucial as listing rules are loosened and financial watch list is retired

[SINGAPORE] When I saw an announcement from Addvalue Technologies late last week about its removal from the financial watch list, I thought it simply had to do with the rule changes that Singapore Exchange Regulation (SGX RegCo) had just implemented.

The announcement turned out to be a bit more interesting than that. While Addvalue was indeed freed from the watch list because SGX RegCo had decided to do away with it, the company said it would have fulfilled the criteria to exit the watch list anyway by the end of the current six-month review period ending on Dec 1, 2025.

In fact, Addvalue reported a big improvement in profitability for its financial year to Mar 31, 2025. The provider of satellite-based communication products achieved a 21.6 per cent rise in revenue to US$15.5 million, and a 547 per cent increase in earnings to almost US$2 million.

Addvalue’s share price, which had been flatlining at around S$0.01 even before it was put on the watch list, has risen significantly since the middle of this year. The stock closed on Friday (Oct 31) at S$0.043, which puts Addvalue’s market capitalisation at more than S$144 million.

SGX RegCo said last week that the proposal to remove the financial watch list, and the wider effort to move towards a more disclosure-based regulatory regime, had received the support of a majority of respondents in a recent public consultation.

Many of them held the view that the “negative stigma” associated with the financial watch list was a hindrance to companies securing funding and attracting customers, noted SGX RegCo. Without the burden of being on the watch list, these companies might be better able to focus on achieving long-term growth, instead of chasing quick profits in order to escape the watch list.

The recovery that Addvalue has charted over the past year suggests that being placed on the financial watch list wasn’t all bad, though. Interestingly, the company seemed quite certain from the outset that its prospects would not be harmed.

“The company is confident that the watch-list status will not derail the momentum of the business improvements that the group has achieved thus far,” Addvalue said, when it notified the market of its inclusion on the watch list back in December 2023.

This wasn’t mere bluster. Only a few months later, it reported positive earnings for the second half of its financial year to Mar 31, 2024, which were strong enough to put it in the black for the full financial year.

Could it be that the financial watch list was only a problem for companies that lacked resilience? Was the negative stigma of the watch list really a problem? Or, was the real problem the fact that many companies on the watch list had weak businesses?

My guess is that the many respondents who believe that the watch list made it harder for struggling companies to turn themselves around will argue that Addvalue is the exception that proves the rule. After all, given the company’s confidence in 2023 that its business was recovering, surely putting it on the watch list was unhelpful and a waste of time.

Less prescriptive regulation

The shift towards a more disclosure-based regulatory regime has been a delicate aspect of the national effort to revitalise the Singapore market, as some of the specific initiatives are seen to favour companies at the expense of investors, and may do more to boost the number of local listings rather than their overall quality.

Besides retiring the financial watch list, SGX RegCo also said last week that it will step up its current approach of engaging companies privately on their continuous disclosures, with public responses required only if the information is materially price-sensitive or trade-sensitive. In addition, trading suspensions will be imposed only when there is clear evidence of going-concern issues.

SGX RegCo added that it had lowered the profit test requirement for companies seeking to list on the mainboard, from S$30 million to S$10 million. “We recognise that companies with strong growth potential in emerging industries may be appropriate listing candidates on the mainboard notwithstanding that they may not meet traditional financial criteria due to the unique circumstances of their industries,” SGX RegCo said.

Public consultations are now also under way on proposals for mainboard listing applications – currently overseen by the Monetary Authority of Singapore (MAS) and SGX RegCo – to be consolidated under SGX RegCo alone. “These proposals will provide prospective issuers with greater clarity on the listing process and timeline, and reduce uncertainty, as they will only have to engage with SGX RegCo going forward,” MAS said last week.

Yet, this move towards less prescriptive regulation is being balanced with efforts to expand institutional investor participation in the local market. Notably, MAS is in the process of allocating S$5 billion under its Equity Market Development Programme to fund management firms with a strong focus on Singapore stocks.

There is also now a strong top-down call for SGX-listed companies to unlock value and strengthen their core businesses in order to boost returns for their shareholders; and to communicate more effectively with the market.

Meanwhile, MAS has also kicked off a public consultation on enhancing the ability of investors to seek civil compensation for losses suffered from market misconduct. The proposals are to facilitate self-organisation, provide access to funding and reduce legal barriers to civil action.

Shareholder engagement crucial

Will these measures, taken together, result in a more vibrant market, and a steady stream of high-quality new listings? What more ought to be done?

This column has previously said that growing uncertainty and relatively high valuations in the US market have led to a flow of capital to Europe and Asia. Yet, New York remains a magnet for the biggest and most exciting listings in the world, with even well-established markets such as London struggling to compete.

Last week, OpenAI was reported to be laying the groundwork for an initial public offering (IPO) that values the company at up to US$1 trillion.

The way I see it, competition for hot new listings around the world is not going to let up. Making it easier for companies to come to market doesn’t necessarily mean that Singapore will attract the best or most suitable listings.

Certainly, the few listings in Singapore this year have not performed uniformly. While NTT DC Real Estate Investment Trust (Reit) and Info-Tech Systems have struggled to stay above their IPO prices, Centurion Accommodation Reit and Lum Chang Creations have shot up.

A close examination of how the enablers of these listings were incentivised might yield some insight into how to ensure that future listings stand the best chance of garnering local investor interest.

Meanwhile, expanding institutional investor participation in the market alone may not improve corporate performance, unless there is active engagement. In my view, minority investors should be encouraged to ask questions, express their views and vote at shareholder meetings.

This brings me back to Addvalue. At the company’s annual general meeting in July, a resolution to authorise the issue of shares under the company’s performance share plan was not passed. The re-election of a non-independent, non-executive director, Chua Chwee Koh, was also only narrowly passed.

The following month, Addvalue said that a group of shareholders, holding more than 11 per cent of the company’s shares, had requested that Chua and independent director Goh Liang Choo resign. The group of shareholders had indicated that they were prepared to requisition an extraordinary general meeting to oust them if they did not resign.

Addvalue’s board expressed surprise at the shareholder action, and said it had full confidence in Chua and Goh. Nevertheless, the two directors chose to voluntarily resign.

While it isn’t clear why the group of shareholders wanted Chua and Goh out, such action can be an important mechanism to promote accountability, and ensure that companies are run for the benefit of all their shareholders.