Market regulators have rolled out consultation exercises as part of the ongoing bid by the Equities Market Review Group to make the local bourse more attractive to IPO applicants.
The market’s front-line regulator, SGX RegCo, is proposing to lower the profitability requirement of mainboard listing aspirants, which, right now, is to have a consolidated pre-tax profit of at least $30 million for the latest financial year with an operating track record of at least three years.
Another way to meet a mainboard listing requirement is to be profitable in the latest financial year and have a market capitalisation of at least $150 million post-listing. This suggests that companies that meet both requirements list at a low P/E ratio. According to SGX RegCo’s CEO Tan Boon Gin, there might be room for mainboard applicants to get the go-ahead by meeting a lower minimum profitability requirement as an alternative way to get listed.
Tan does not agree that this proposal is meant to attract the fast-growing start-ups whose priority is to grow revenue over everything else. “Frankly speaking, if you are talking about companies that are cash burning, then our preference is to have companies that have a larger market cap. If you have cash-burning companies with a smaller market cap, you have less buffer.”
SGX RegCo is also proposing to do away with the watch-list, originally meant as a way for persistently loss-making companies to try and turn around and thereby “exit” this list. Unfortunately, being included in the watch-list is seen by some as consigned to the doghouse, creating the “counter-productive” effect of making it harder for the listcos to deal with customers, tap additional funding, etc.
“We realised that we’re not really helping the company by doing this,” says Tan, adding that without the watch-list, more of these companies will actually find it easier to turn around. Companies with three consecutive years of losses will still have to announce and alert investors, he adds.
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SGX RegCo also plans to be more “targeted” in administering post-listing queries. Even before this, the once-notorious and frequent “trade with caution” public warning is already rare.
Tan points out that the exchange has always kept up with a certain level of surveillance of market and corporate activities. There is a discernible drop in public queries and “trade with caution” alerts so as not to be seen as dampening market activities in an overzealous manner.
However, when need be, there have always been private queries and checks if warrant so. “What we’re trying to do is to reduce the level of unnecessary public interventions,” says Tan. “We will continue issuing our trade with caution alerts, which we find to be the most effective alerts, because they contain the most informational value.”
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The exchange is also addressing another common gripe: that there is no expiry to the validity of the “trade with caution” alerts that have been issued. SGX RegCo is proposing a validity of two weeks. “But of course, if necessary, we will reissue, and if necessary, we will extend the validity date,” says Tan.
Separately, the Monetary Authority of Singapore (MAS) is proposing, among others, more streamlined prospectus disclosures for IPOs, requiring only “core information” that are the “most relevant and material” for investors. For example, IPO applicants are now required to disclose the list of all entities owned by its directors or controlling shareholders in the same business, resulting in “voluminous” details, especially when the IPO applicants are part of a bigger conglomerate. MAS is proposing to require disclosure only on the “core substance” of conflicts faced, instead of purely factual information.
MAS is also loosening restrictions on when the IPO applicants can engage the investing public. They can only do so now after registering their prospectus, which curbs the extent IPO companies can market themselves to retail investors. MAS points out that any party can already access the preliminary prospectuses via its website. “Thus, there is scope to consider recalibrating the publicity restrictions to provide more flexibility to issuers,” says MAS.
In the same vein, MAS is also proposing IPO aspirants to engage potential institutional and accredited investors earlier, so as to better gauge market interest, especially when the issuers are “pursuing concurrent offerings” other than Singapore.
Tan stresses that the changes proposed are meant to complement all the other recommendations of the review. “We need to look at all these measures as a whole,” he says, referring to suggestions such as a $5 billion fund to let fund managers invest in companies outside of the Straits Times Index.
Tan believes that with fund managers wanting a piece of this money in active stock picking, they will be playing a “strong stewardship” role with this stronger institutional participation, encouraging the companies they invest in to do well, keep up market discipline, and unlock value for shareholders. “I believe that this is going to make a big difference, benefiting not just institutional investors but also retail investors,” he says.
Robson Lee, director of Kennedys Legal Solutions, says that in line with the changes, Singapore can set up an institution to financially assist retail investors who are victims of market misconduct, fraud or scams, to institute class actions against and to recover damages from errant persons or companies that are responsible for the losses.
“A full reset of the current market discipline and culture must be complemented with investors’ education, and consistent, robust enforcement of market rules and conduct to enshrine the integrity of the Singapore market. This will go a long way towards fostering a dynamic Singapore bourse,” says Lee.
