Scepticism, independence essential qualities for sponsors, issue managers

THE recent announcement by the Association of Banks in Singapore (ABS) that issue managers and full sponsors will be held to higher due diligence standards is welcome news to those who believe that the present regulatory framework for new listings should be tightened, particularly with regards to Catalist.

With immediate effect, the new rules require firms that assist companies to go public to perform additional tasks in three areas - they will have to assess the viability of their clients' businesses, their internal controls, and their operations in specialised, restricted or niche industries. This is consistent with risk-based regulation, where more regulatory energy is poured into business areas that carry greater risk. It is also a significant step forward especially for second board Catalist, given that a recent study found that although many second-board firms make losses in the short term (which is to be expected for high-growth companies), a higher proportion tend to report losses the longer they are listed (which is contrary to expectations), suggesting that their businesses are not as attractive or promising as might have been portrayed in their offer documents.

However, while imposing higher standards looks good on paper, the key to proper implementation of the new guidelines lies in a statement by Singapore Exchange Regulation's (SGX RegCo) chief executive officer Tan Boon Gin. Issue managers and sponsors, he said, "must emphasise substance over form and exhibit a healthy dose of professional scepticism when conducting listings' due diligence''.