Wednesday 8 April 2009
Putting S-chips in perspective
The recent slew of scandals involving a string of Chinese companies listed on the Singapore Exchange (SGX) has seriously dented investor confidence in S-chips. It has also sparked furious debate on whether SGX should rethink its strategy of attracting foreign listings, especially those from China.
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Putting S-chips in perspective
8 April 2009
The recent slew of scandals involving a string of Chinese companies listed on the Singapore Exchange (SGX) has seriously dented investor confidence in S-chips. It has also sparked furious debate on whether SGX should rethink its strategy of attracting foreign listings, especially those from China.
This is a pity as these China-linked stocks, with their somewhat lower absolute price and speculative element, have often provided the catalyst for the much-needed momentum and volume on the Singapore bourse. In fact, at the height of the market in 2007, S-chips accounted for more than half the liquidity generated in the market. Then again, the frauds that have afflicted these companies have left many shareholders clutching near-worthless investments in a market which is already volatile and depressed.
To many market watchers, this is confirmation that the Singapore market has attracted too many second-rate foreign companies with poor businesses and even poorer business ethics. That is an unfortunate, and not quite accurate, perception. The vast majority of China companies listed here run good businesses, and are generally coping with the downturn as best as they can. Most remain cash-flow positive, even if profit growth has stalled. Still, as the saying goes, all it takes is a few rotten apples.
The frauds and the eventual collapse of some of these companies could have been prevented if other key players had been more diligent in the discharge of their duties. They should also be held accountable. Last week, SGX again warned companies and market players to uphold standards. It has also stepped up its monitoring and urged auditors to be more vigilant.
Frauds and scandals don’t happen overnight. They are often months in incubation. Often, management is at the centre of the wrongdoing. But key players such as independent directors, audit committees, auditors, lead managers and even financial advisers could have prevented some of these implosions if they had been more vigilant.
All these players have a fiduciary duty to protect the interest of minority shareholders. However, many do not take their responsibilities seriously enough to know what is going on within the firm. Then they often shrug off responsibility when things go wrong, claiming that they rely on the company officials for information.
This cannot go on. The SGX has a responsibility as well. Its final nod for a listing implies that the company meets the minimum standards of disclosure, accountability and transparency here.
Singapore’s listing requirements have moved towards a disclosure-based regime. Yet one cannot completely ignore the need for policing, especially in a difficult economic environment.
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