It says it’s acutely aware of risks presented by companies operating in foreign countries
By CHEW XIANG 4 April 2009
The Singapore Exchange (SGX) yesterday publicly admitted for the first time the risks posed by Chinese companies listed here, or S-chips.
Only last month, SGX held meetings with 14 audit firms, issue managers and independent directors urging them to step up checks on listed companies’ cash holdings, accounts receivable, off balance sheet items and other areas of ‘heightened risk’ following several accounting scandals in recent months.
Yeo Lian Sim, SGX senior executive vice-president and head of risk management and regulation, told BT at that time the exchange was not singling out S-chips or reacting to scandals. ‘This has gone out to all listed companies,’ she informed. ‘The exchange is not targeting one (company) or the other.’ Instead, it was a ‘timely reminder’, ‘it being the end of the year when many of the listed companies do the annual audit’.
In a statement last night, SGX acknowledged that it is ‘acutely aware of the risks presented by companies operating in foreign countries, including Singapore-listed Chinese companies’. It stressed, however, that the market needs to distinguish between companies that are adversely affected by the current crisis and those that resort to fraud and that this should apply no matter where a company came from.
‘I’m pleased that SGX is recognising the higher risks of overseas listings, as I would think this would lead to greater scrutiny of such companies prior to listing and on an ongoing basis, and perhaps even imposing higher corporate governance standards on these companies,’ said Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at NUS Business School.
The hapless S-chip sector has seen investor sentiment fall off a cliff after a spate of high-profile scandals. Ferrochina has gone bankrupt, while Fibrechem Technologies, China Sun Bio-Chem and Oriental Century have been hit by alleged accounting irregularities. Just last month, three independent directors of Guangzhao Industrial Forest Biotechnology quit en masse due to ‘fundamental differences in opinion’, while the husband-and-wife management team of China Printing and Dyeing vanished after its parent company went bust.
Official concern has reached the highest levels of government. Last week, Senior Minister Goh Chok Tong, who is also chairman of the Monetary Authority of Singapore, suggested to officials in China’s south-eastern province of Guangdong that they should work with the Singapore Stock Exchange to ensure ‘stringent supervision of their companies listed overseas’. The wealthy province is home to a substantial minority of the 150 or so S-chips listed in Singapore.
Yesterday, SGX said that while it will ‘do (its) utmost to fulfil (its) responsibility’, other stakeholders such as audit and legal professionals, issue managers and directors should also step up to the plate. It said it is ramping up checks and while that could uncover ‘undesirable detritus’, ‘the exchange is prepared to face this squarely’.
SGX has faced criticism from some quarters that its market-friendly regulations have allowed a flood of poor-quality companies to list here. ‘I think the current crisis creates an opportunity for SGX to re-invent itself - to move from a strategy of getting as many listings as possible to one that focuses on quality listings,’ said Prof Mak.
‘One problem is that SGX is stuck with quite a number of companies - local and foreign, I might add - that may hold back its ability to improve quality.’
SGX said yesterday that attracting foreign companies and upholding ‘stringent listings requirements’ are equally crucial in developing Singapore as a financial centre.
Others say its dual role as a listed company as well as a market regulator presents a potential conflict of interest. SGX has worked hard to assuage such concerns, and this week was ranked third of the 677 listed companies in the Governance and Transparency Index, launched by BT and the Corporate Governance and Financial Reporting Centre.
It has also been increasingly vocal in its role as a regulator. In less than a month, it has published three articles in its Regulator’s Column - used to raise public awareness of listing, trading and governance issues - compared to six for the whole of last year.
Last month, it issued a rare public scolding of Neptune Orient Lines for not giving a ‘sufficiently frank and explicit’ response to rumours in early March that it was seeking to raise US$250 million in a rights issue. It had taken three days for the shipping line to make an explicit denial.
‘I think SGX is starting to do more, but I would like to see it being more active monitoring breaches of its rules, disclosing its actions,’ added Prof Mak. ‘I think we (also) need to strengthen the independence, quality and diligence of our independent directors.’
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Risks and S-chips on SGX’s mind
It says it’s acutely aware of risks presented by companies operating in foreign countries
By CHEW XIANG
4 April 2009
The Singapore Exchange (SGX) yesterday publicly admitted for the first time the risks posed by Chinese companies listed here, or S-chips.
Only last month, SGX held meetings with 14 audit firms, issue managers and independent directors urging them to step up checks on listed companies’ cash holdings, accounts receivable, off balance sheet items and other areas of ‘heightened risk’ following several accounting scandals in recent months.
Yeo Lian Sim, SGX senior executive vice-president and head of risk management and regulation, told BT at that time the exchange was not singling out S-chips or reacting to scandals. ‘This has gone out to all listed companies,’ she informed. ‘The exchange is not targeting one (company) or the other.’ Instead, it was a ‘timely reminder’, ‘it being the end of the year when many of the listed companies do the annual audit’.
In a statement last night, SGX acknowledged that it is ‘acutely aware of the risks presented by companies operating in foreign countries, including Singapore-listed Chinese companies’. It stressed, however, that the market needs to distinguish between companies that are adversely affected by the current crisis and those that resort to fraud and that this should apply no matter where a company came from.
‘I’m pleased that SGX is recognising the higher risks of overseas listings, as I would think this would lead to greater scrutiny of such companies prior to listing and on an ongoing basis, and perhaps even imposing higher corporate governance standards on these companies,’ said Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at NUS Business School.
The hapless S-chip sector has seen investor sentiment fall off a cliff after a spate of high-profile scandals. Ferrochina has gone bankrupt, while Fibrechem Technologies, China Sun Bio-Chem and Oriental Century have been hit by alleged accounting irregularities. Just last month, three independent directors of Guangzhao Industrial Forest Biotechnology quit en masse due to ‘fundamental differences in opinion’, while the husband-and-wife management team of China Printing and Dyeing vanished after its parent company went bust.
Official concern has reached the highest levels of government. Last week, Senior Minister Goh Chok Tong, who is also chairman of the Monetary Authority of Singapore, suggested to officials in China’s south-eastern province of Guangdong that they should work with the Singapore Stock Exchange to ensure ‘stringent supervision of their companies listed overseas’. The wealthy province is home to a substantial minority of the 150 or so S-chips listed in Singapore.
Yesterday, SGX said that while it will ‘do (its) utmost to fulfil (its) responsibility’, other stakeholders such as audit and legal professionals, issue managers and directors should also step up to the plate. It said it is ramping up checks and while that could uncover ‘undesirable detritus’, ‘the exchange is prepared to face this squarely’.
SGX has faced criticism from some quarters that its market-friendly regulations have allowed a flood of poor-quality companies to list here. ‘I think the current crisis creates an opportunity for SGX to re-invent itself - to move from a strategy of getting as many listings as possible to one that focuses on quality listings,’ said Prof Mak.
‘One problem is that SGX is stuck with quite a number of companies - local and foreign, I might add - that may hold back its ability to improve quality.’
SGX said yesterday that attracting foreign companies and upholding ‘stringent listings requirements’ are equally crucial in developing Singapore as a financial centre.
Others say its dual role as a listed company as well as a market regulator presents a potential conflict of interest. SGX has worked hard to assuage such concerns, and this week was ranked third of the 677 listed companies in the Governance and Transparency Index, launched by BT and the Corporate Governance and Financial Reporting Centre.
It has also been increasingly vocal in its role as a regulator. In less than a month, it has published three articles in its Regulator’s Column - used to raise public awareness of listing, trading and governance issues - compared to six for the whole of last year.
Last month, it issued a rare public scolding of Neptune Orient Lines for not giving a ‘sufficiently frank and explicit’ response to rumours in early March that it was seeking to raise US$250 million in a rights issue. It had taken three days for the shipping line to make an explicit denial.
‘I think SGX is starting to do more, but I would like to see it being more active monitoring breaches of its rules, disclosing its actions,’ added Prof Mak. ‘I think we (also) need to strengthen the independence, quality and diligence of our independent directors.’
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