Doing away with SGX watch list may help the firms focus more on the long term: market watchers

Singapore Law Watch

21 hours ago

Doing away with SGX watch list may help the firms focus more on the long term: market watchers
Source: Business Times
Article Date: 10 Jun 2025
Author: Ranamita Chakraborty
As investors become more sophisticated, the onus remains on them to conduct their own due diligence before investing.
The proposed removal of Singapore Exchange's (SGX) financial watch list could benefit companies by allowing them to focus on business growth without the burden of public stigma.
'This shift moves away from 'name and shame' and encourages a more constructive environment for corporate recovery and transformation,' Yap Wee Kee, partner of the capital markets group at professional services firm KPMG in Singapore, told The Business Times.
Such regulatory measures are expected to steer Singapore more decisively towards a disclosure-based regime. They form part of a broader set of recommendations aimed at revitalising the local market, which were announced by the Monetary Authority of Singapore's (MAS) Equities Market Review Group in February 2025.
Established in August last year, the review group comprises representatives from both the private and public sectors. Its objective is to enhance the competitiveness of Singapore's equities market by attracting investor interest, increasing the supply of quality listings, and streamlining the regulatory process for initial public offerings (IPOs).
The group is seeking to shift the regulatory focus towards ensuring adequate disclosure of material issues, rather than prescribing how issuers should mitigate risks before listing.
In line with this direction, Singapore Exchange Regulation (SGX RegCo) is currently seeking feedback on changes to rules on listing admission and post-listing disclosures.
SGX RegCo last month proposed provisionally suspending the half-yearly reviews used to place issuers on the watch list.
During this period, companies already on the list will remain listed, regardless of whether they meet the exit criteria.
The financial watch list targets mainboard-listed companies with three consecutive years of pre-tax losses and a six-month average market capitalisation below S$40 million.
Companies have 36 months to turn it around or face delisting. Some, like Intraco, managed to exit after financial recovery. Others, such as SMI Vantage, were delisted after failing to meet the exit criteria.
As at Jun 5, 30 companies remain on the list. Notable names include Trek 2000, known for inventing the thumb drive.
Being on the watch list can hurt a company commercially
Nigel Toe, a director of business development at local wealth manager ICH Asset Management (ICHAM), told BT that being placed on the watch list can undermine a company's commercial prospects, as it may erode the confidence of clients and business partners.
This loss of trust can, in turn, hinder the company's ability to raise capital, reducing its chances of achieving a successful turnaround.
Ong Hwee Li, CEO of investment banking firm SAC Capital, said: 'Companies on the watch list often suffer from reduced trading interest as some brokerages may restrict trading for such counters.'
As a result, liquidity for these stocks tends to be minimal, given that firms on the watch list face the risk of delisting if they fail to achieve profitability within a specified timeframe.
Investor due diligence
The need for the watch list appears to be diminishing. Before it was introduced in March 2008 during the global financial crisis, the Singapore market saw several corporate governance lapses.
High-profile cases like Chuan Soon Huat, whose directors were arrested over disclosure failures, and Stratech Systems, which faced legal action over a failed software deal, underscored the need for greater oversight. Both were among the first companies placed on SGX's watch list, which sought to improve transparency and flag financially distressed firms.
Many believe that investors today are more sophisticated and better equipped to assess the financial health and risk profiles of companies on their own.
Investors should exercise the principle of caveat emptor or 'buyer beware' and do their due diligence when investing, said Toe.
'Initially, when you remove a watch list, there will be a bit of apprehension among smaller investors, but they will soon realise that there's no substitute for good due diligence and educating themselves when they invest,' he added.
Ong sees value in the watch list, noting that it has served as a catalyst for underperforming firms to restructure, raise capital, or pursue strategic shifts in order to meet exit requirements.
He said: 'It will be good if being on the watch list doesn't necessarily lead to a delisting. The watch list could be useful as an investor alert and not a deterrent.
'It is most important that we understand what we are investing in and that the issuer is very transparent with any form of potential sensitive or material information.'
While the removal of the watch list may raise concerns about reduced transparency, particularly among less experienced investors, Yap noted that 'the emphasis on timely and quality disclosures can enhance transparency, provided it is well-executed'.
With proper disclosures in place, a watch list becomes unnecessary, Toe said, describing its removal as a 'necessary step to promote market dynamism'.
Ong similarly argued that the removal of the watch list does not inherently reduce transparency.
He said: 'Listed companies will still be required to make timely disclosures, including announcements, if they incur losses for three consecutive years. These disclosures remain available to all investors and continue to provide insight into the company's financial performance.'
This approach, Yap added,'affords transparency and accountability to shareholders while giving management the space to execute long-term plans without market pressure'.
Source: The Business Times © SPH Media Limited. Permission required for reproduction.
Print