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Tuesday, 17 March 2009
Catalist: no major changes needed
It would not be an exaggeration to say that firms currently listed on Catalist are resisting the idea of shifting to a full, sponsor-based regime in about 10 months.
It would not be an exaggeration to say that firms currently listed on Catalist are resisting the idea of shifting to a full, sponsor-based regime in about 10 months.
Although some have already been upgraded to the mainboard and others are in the process of applying for an upgrade, the majority are still dragging their feet and have yet to even appoint a sponsor, claiming that with the economy facing a deep recession, it is unreasonable to expect them to incur the financial burden associated with sponsorship now.
The incremental cost would be about $90,000- $100,000 per year, which for small, cash-strapped Catalist firms operating in a difficult environment, could spell the difference between reporting a profit or a loss. Many small, family-run businesses are also reluctant to have to pay for what they perceive as an additional, unnecessary layer of regulation by an external party who can be expected to provide unwelcome, day-to-day close scrutiny.
Does this mean that the authorities should abandon their sponsor-based governance model? Not at all - the original strategy of allowing small, unknown but possibly promising, companies to list with minimal official regulation but with as much commercial oversight as possible is a sound one.
Not only is it consistent with a disclosure-based framework - the disclosures would then have to be supervised by the sponsor - it is impossible for regulators to monitor the quality and daily corporate practices of hundreds of small companies and to deliver definitive judgements on what is allowable or not. Best to let industry players and the market weed out those that are promising from those that are not, and to let the market then decide on investment merits.
Moreover, some Catalist firms were already unprofitable before the advent of the present economic crisis, their shares having dropped out of sight of the market’s reckoning and were hardly traded. Forcing these zombie firms, whose shares trade at a few cents each, to appoint sponsors or face a delisting thus delivers a much-needed wake-up call - either shape up or ship out. The shift to Catalist can thus appropriately be described as financial Darwinism - firms that can successfully adapt to the rigours of the new regime will survive while those that cannot are probably better off exiting the market.
Still, there may be scope for some flexibility with regards to the February 2010 sponsorship deadline. The current downturn has been described as the worst in 80 years; certainly, the speed and extent of losses in all sectors of the global economy have been extraordinary and painful.
Thus, it may be necessary for the Singapore Exchange (SGX) to extend the cutover deadline or at least adopt a case-by-case approach when it comes to deciding whether a firm without a sponsor in February 2010 should be delisted or not. But other than allowing minor, short-term tweaks, the original model should remain.
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Catalist: no major changes needed
Business Times
17 March 2009
It would not be an exaggeration to say that firms currently listed on Catalist are resisting the idea of shifting to a full, sponsor-based regime in about 10 months.
Although some have already been upgraded to the mainboard and others are in the process of applying for an upgrade, the majority are still dragging their feet and have yet to even appoint a sponsor, claiming that with the economy facing a deep recession, it is unreasonable to expect them to incur the financial burden associated with sponsorship now.
The incremental cost would be about $90,000- $100,000 per year, which for small, cash-strapped Catalist firms operating in a difficult environment, could spell the difference between reporting a profit or a loss. Many small, family-run businesses are also reluctant to have to pay for what they perceive as an additional, unnecessary layer of regulation by an external party who can be expected to provide unwelcome, day-to-day close scrutiny.
Does this mean that the authorities should abandon their sponsor-based governance model? Not at all - the original strategy of allowing small, unknown but possibly promising, companies to list with minimal official regulation but with as much commercial oversight as possible is a sound one.
Not only is it consistent with a disclosure-based framework - the disclosures would then have to be supervised by the sponsor - it is impossible for regulators to monitor the quality and daily corporate practices of hundreds of small companies and to deliver definitive judgements on what is allowable or not. Best to let industry players and the market weed out those that are promising from those that are not, and to let the market then decide on investment merits.
Moreover, some Catalist firms were already unprofitable before the advent of the present economic crisis, their shares having dropped out of sight of the market’s reckoning and were hardly traded. Forcing these zombie firms, whose shares trade at a few cents each, to appoint sponsors or face a delisting thus delivers a much-needed wake-up call - either shape up or ship out. The shift to Catalist can thus appropriately be described as financial Darwinism - firms that can successfully adapt to the rigours of the new regime will survive while those that cannot are probably better off exiting the market.
Still, there may be scope for some flexibility with regards to the February 2010 sponsorship deadline. The current downturn has been described as the worst in 80 years; certainly, the speed and extent of losses in all sectors of the global economy have been extraordinary and painful.
Thus, it may be necessary for the Singapore Exchange (SGX) to extend the cutover deadline or at least adopt a case-by-case approach when it comes to deciding whether a firm without a sponsor in February 2010 should be delisted or not. But other than allowing minor, short-term tweaks, the original model should remain.
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