The Singapore market is now at record levels with trading activity finally picking up. In an ongoing bid to make SGX a more attractive listing destination, the authorities plan to introduce a series of measures that will make this a more efficient process.
Currently, the listing process for SGX Mainboard involves reviews by both MAS and SGX RegCo. MAS reviews the issuer’s prospectus for compliance with the statutory disclosure requirements under the Securities and Futures Act 2001, while SGX RegCo assesses the issuer’s suitability to list in accordance with SGX’s listing rules.
As part of the proposed changes, SGX RegCo will take over various functions in processing mainboard listings. They range from accepting the lodgement of required documents including the prospectus, product highlights sheet; help publish the prospectus and if and when issues pop up, give the offerors a notice of an opportunity to be heard, grant extensions and so on. And of course, SGX RegCo has the power to refuse to register the prospectuses and even serve a stop order.
"The aim is to enable SGX RegCo to exercise its frontline supervision in a risk-proportionate manner that is responsive to market participants’ needs, while maintaining strong standards and independence to foster investor confidence," says MAS in its consultation paper, where interested parties are to provide their feedback by Nov 29.
"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. SGX RegCo will continue to maintain its focus on the admission of quality issuers, and ensure that the relevant and decision-useful information is disclosed," says MAS.
This regulatory shift was first mooted when the Equities Market Review Group led by MAS announced its first set of measures to revive the local market.
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As part of the new measures, the Listing Advisory Committee will be stood down.
The proposed removal of the LAC, according to Tan, will help remove another regulatory touch point. The current existence of three regulatory touch points - SGX RegCo, the LAC, and MAS - has made Singapore as a listing venue “uncompetitive” as it perpetuates too much regulatory uncertainty which then lengthens time to market.
“We now have to take into consideration that we are in very, very volatile times, and so time to market is very important, because the IPO windows can open and shut very quickly,” says Tan.
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In some cases previously, the whole regulatory process for IPOs can take up to numerous months. With the proposed changes, the approval process can be more efficient as essentially the regulators involved are now “under one roof”.
This means the aspiration to process applications in just six to eight weeks can have a better certainty. “With the changes, we will be able to achieve this much more often and more importantly, be able to commit to companies that we are going to be able to achieve this timeline more often and with much more confidence,” says Tan.
In conjunction and following consultation with the industry, SGX will lower the pre-tax profit requirement of Mainboard listings from at least $30 million to $10 million. Companies can apply for a Mainboard listing if they meet other requirements, such as being profitable in its most recent financial year, and will have a market value of at least $150 million post IPO.
This change is in line with SGX RegCo’s recognition that so-called “pre-revenue” companies with strong growth potential in emerging industries may not meet traditional Mainboard listing requirements. Companies that fall under this flavour are often those in the biotechnology or medical technology industries.
Under revised rules, new issuers need to have profit of just $10 million, which SGX says is in line with several other exchanges. For example, Hong Kong requires a total profit of HK$80 million over three years; and the most recent full year got to be at least HK$35 million and the two preceding years at HK$45 million. New York requires a total of at least US$10 million over three years, and in those years, the companies need to be profitable every year and in the most recent two years, make more than US$2 million each.
Under current rules, one of the requirements is to have a post listing market cap of at least $150 million. A company that earns at least $30 million will presumably far exceed this number if not, that means the company is pricing itself at just 5x historical earnings. Citing responses to the consultation, SGX says that the lower profit requirement is preferred and therefore put in place.
Tan explains the moves are so that market efficiency can be improved and price discovery more transparent. In tandem, institutional investors are nudged to play a more active role. As they put in more money, potentially generating better returns for themselves, they are seen to help improve overall standards – be it operational or governance - of the companies they invest in.
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“We are progressing with our initiatives to strengthen Singapore’s position as a leading international capital markets hub,” says Tan.
“The Review Group’s measures are holistic. Enterprise efforts improve liquidity and valuations, while regulatory efforts enhance market efficiency and price discovery. This complementary approach drives market discipline and raises governance standards, ensuring that high regulatory standards are maintained,” he adds.
Among other changes, trading suspensions will only be considered where there is clear evidence of going concern issues, so as to minimise market disruption and provide certainty.
Issuers, whose securities are suspended from trading only because their ability to continue as a going concern is in doubt, may apply to resume trading provided they are not undergoing formal insolvency or restructuring proceedings, and their boards confirm, with basis stated, that they can continue as going concerns, says SGX RegCo.
Where possible, the frontline regulator will engage privately with issuers on their disclosures to “avoid a chilling effect” on the market.
However, the listed entities must continue to publicly disclose materially price-sensitive or trade-sensitive information.
If unusual trading is detected and there is reason to believe that the market is not fair, orderly or transparent, SGX RegCo will immediately issue trade-with-caution (TWC) alerts.
TWC alerts, which now do not have an expiry date – which means such “warnings” are perceived to be hanging over the listcos – the latest versions of the TWCs will be valid for two weeks. However, new alerts will be issued as required, says SGX RegCo.
In what might be a popular move, the financial watch-list will be removed in view of unintended negative effects on business confidence and access to financing by the issuers.
Companies that are persistently loss-making are included in the watch-list, or, if their market value drop below $40 million.
More companies are included in this list than those that have managed to exit from the list, with Telechoice International the latest to do so.
