18-05-2025
MAS, SGX RegCo propose listing rule changes in pursuit of a vibrant, disclosure-based market
[SINGAPORE] Here's how Warren Buffett described the purpose of his annual letter to shareholders of Berkshire Hathaway earlier this year: 'As a public company, we are required to periodically tell you many specific facts and figures,' said the billionaire chairman and chief executive of Berkshire.
'In addition to the mandated data, we believe we owe you additional commentary about what you own and how we think. Our goal is to communicate with you in a manner that we would wish you to use if our positions were reversed – that is, if you were Berkshire's CEO while I and my family were passive investors, trusting you with our savings.'
Berkshire has garnered a global investor following by delivering strong returns over a long period of time. Buffett's clear and consistent communication of Berkshire's objectives and its performance – on top of the disclosures it is legally required to make – have also undoubtedly helped build up the market's trust and confidence in the company.
This past week, the Monetary Authority of Singapore (MAS) and Singapore Exchange Regulation (SGX RegCo) launched public consultations on a number of proposals to better foster a disclosure-based regime, and make it easier for companies to list in the local market.
MAS is proposing to streamline prospectus disclosure requirements for primary listings in order to allow issuers more latitude in providing material information, and to make it possible for issuers seeking secondary listings in Singapore to prepare their prospectuses based on disclosure documents lodged in their home markets, with minimal adaptation.
MAS is also proposing to allow issuers more flexibility and scope for engaging investors as they make their way through the initial public offering (IPO) process.
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Meanwhile, SGX RegCo is proposing to ease a number of criteria for listing applicants – for instance, by requiring them to simply disclose any material weaknesses of internal controls and steps taken to address them, instead of having to confirm the non-materiality of those weaknesses.
It is also proposing to do away with the Financial Watch-list; and adopt a more judicious use of public queries so as not to unnecessarily alarm the market.
These proposals are among the slew of recommendations made in February by the MAS-led equities market review group. Other initiatives announced at the time were that MAS will allocate S$5 billion to fund managers investing in the local market.
The review group also said that it is studying initiatives to encourage companies to focus on shareholder value, and better enable investors to seek recourse and recompense for losses due to market misconduct.
The MAS review group's big vision seems to be that institutional investors will play a key stewardship role in the Singapore market, engaging with companies and pushing them to lift their standards. Combined with more streamlined listing rules, this could create a more conducive environment for promising new listings.
Investors need to be alert
Are less-prescriptive listing standards really the appropriate remedy for the Singapore market now? Could the proposals just end up facilitating the entry of low-quality issuers?
Some market watchers pointed out last week that companies seeking secondary listings in Singapore might be subject to disclosure requirements in their home market that do not sit well with local investors.
Notably, DFI Retail Group made headlines in March for not announcing via SGX the sale of its Cold Storage and Giant stores in Singapore for S$125 million. The company – which has a primary listing in London and secondary listings in Bermuda and Singapore – only made a press statement about the deal.
DFI's explanation was that the listing rules in the UK did not require it to make a regulatory announcement, as the sale was not price-sensitive and did not constitute a significant transaction.
Yet, news reports at the time noted that DFI's share price surged after the market got wind of the sale.
The way I see it, investors will have to be alert as Singapore's listing standards shift. IPO prospectuses may be less voluminous in the future, but they should be scrutinised just as carefully. With fewer public queries about unusual trading activity, those market signals could become more potent drivers of sentiment.
As for DFI's decision to not announce the sale of its Cold Storage and Giant stores via SGX, my sense is that it probably won't do any lasting damage to its investor following. Much like the rest of the Jardine Matheson group, DFI does a good job of providing useful information about its business strategy and performance.
More to the point, DFI appears to be in the midst of a big turnaround. Indeed, the sale of its Cold Storage and Giant stores dovetailed with its broad strategy of pruning its business portfolio while investing in technology and harnessing data to drive its overall profitability.
DFI's shares are up 18.2 per cent this year, versus the Straits Times Index's 2.9 per cent gain.
Coming conflicts?
This brings me to the stewardship role that institutional investors are expected to play.
As this column previously asserted, one consequence of the chronic undervaluation of locally-listed stocks is that controlling shareholders may have less incentive to ensure their companies are run for the benefit of minority investors.
What is the point of striving for higher earnings if this often does not result in a company's shares trading at a richer valuation? Why not just try to take the company private for less than the book value of its assets?
Boards of such companies may do only the bare minimum for minority investors when they push for value unlocking initiatives, or when they baulk at lowball privatisation offers.
In theory, a well-resourced institutional investor would be in a better position than a small-time minority shareholder to press a company to reposition its business and unlock value. The question is whether there are enough institutional investors focused on the Singapore market to make a difference.
Keep in mind that the boards of companies with dominant shareholders will not easily be persuaded to take the side of minority shareholders in a fight. The institutional investors themselves might not have the stomach for such a conflict, if it potentially threatens their larger business interests.
We can only hope that MAS carefully chooses the firms to which it allocates the S$5 billion of funds to reinvigorate the market.
In the meantime, investors hunting for opportunities in the local market should perhaps narrow their search to companies that are not only priced attractively and have solid businesses, but that also have the same inclusive attitude towards minority investors as Buffett's Berkshire.
Companies win trust not by disclosing what regulators require, but by revealing everything investors should know about what they own.
