27 February 2020
Singapore Exchange (“SGX”) has announced changes to the quarterly reporting (“QR”) framework and has imposed QR requirements only for listed companies associated with higher risks. With this new approach, QR is no longer mandated for the majority of the companies listed on SGX. SGX has also enhanced the continuous disclosure requirements applicable to all listed companies in areas of high investor interest such as rights issue fund raising, interested person transactions (“IPTs”), provision of financial assistance and significant transactions. Revised guidance is also provided on what constitutes material information which must be disclosed on a timely basis. The new approach to QR and the enhancements to the continuous disclosure requirements took effect on 7 February 2020.
Issuers previously performing QR may choose to continue or cease performing QR if their next quarterly report is due on or after 7 February 2020 or provide other forms of voluntary updates at their next first or third quarter. The Mainboard Listing Rules (“Mainboard Rules”) and the Catalist Listing Rules (“Catalist Rules”) (together, “Listing Rules”) have been revised to implement these changes.
Changes to quarterly reporting framework
Previously, an issuer with a market capitalisation exceeding S$75 million was required to conduct QR and announce the financial statements for each of the first three quarters of its financial year not later than 45 days after the end of that quarter. An issuer was required to continue conducting QR even if its market capitalisation subsequently decreased below S$75 million.
SGX has removed the market capitalisation requirements for QR and shifted to a risk-based approach.
When QR is required
Under the risk-based approach, QR is mandatory for an issuer if:
- Modified opinion: Its auditors have issued an adverse opinion, a qualified opinion or a disclaimer of opinion (together, “modified opinion”) on the issuer’s latest financial statements; or
- Material uncertainty: Its auditors have stated that a material uncertainty relating to going concern exists in the issuer’s latest financial statements.
Issuers must immediately make an announcement if they receive a modified opinion or a material uncertainty relating to going concern on their financial statements. These issuers will be given a grace period of one year to commence QR. The one-year grace period recognises the resources that issuers require to set up the necessary reporting infrastructure. If SGX takes the view that QR should commence more urgently in certain situations, it may exercise its discretion to shorten the one-year grace period. On the other hand, if the issuer’s audit issues are resolved within the grace period, its QR obligation will fall away, thus encouraging issuers to resolve the issues expeditiously.
An issuer’s QR obligations continue until its financial statements are no longer subject to a modified opinion and do not indicate a material uncertainty relating to going concern. The QR obligation ceases once the relevant financial statements are announced. In such cases, the issuer may choose to continue with QR voluntarily, or switch to semi-annual reporting.
SGX administrative power to require QR in cases of regulatory concern
SGX may exercise its administrative powers to require QR due to regulatory concerns over an issuer, and will consider two main areas when exercising its powers: (a) where there is a material breach of disclosure rules, or (b) where there are concerns on the issuer which involve material financial impact. In such cases, SGX will generally require an issuer to perform QR until such time that its regulatory issues can be resolved.
Additional disclosure for quarterly reports
An issuer that is required to perform QR must prominently include a statement on the cover page of its announcement of its quarterly financial statements that such an announcement is pursuant to an SGX requirement. This allows the public to differentiate between issuers that are required to perform QR and those that are producing quarterly reports voluntarily.
Further, an issuer which has received a modified opinion on its financial statements is required to provide in each of its quarterly reports (a) updates on the efforts taken to resolve each outstanding audit issue, and (b) confirmation from the Board that the impact of all outstanding audit issues on the financial statements has been adequately disclosed. This is however not required for any audit issue that is a material uncertainty relating to going concern.
Where QR will not apply
QR does not apply to an issuer if it is undergoing judicial management, winding up or provisional liquidation as well as to an issuer whose assets consist wholly or substantially of cash or short-dated securities. As these companies are undergoing restructuring, they are unlikely to have significant ongoing business activity for QR to be meaningfully applied. Any material development is more likely to be released via continuous disclosures. Further, cash companies are required to provide quarterly updates on their milestones in obtaining new business to the market.
QR also does not apply to companies at the point of the initial public offering or reverse takeover unless SGX exercises its administrative powers to require the issuer to do so on the basis of the considerations set out above. However, given that in preparing an applicant for listing, an issue manager or sponsor must have been satisfied that the applicant is suitable to be listed, meets the admission requirements and is set up sufficiently to comply with the continuing listing requirements, QR should not apply to most companies at the point of the initial public offering or reverse takeover.
Enhancements to continuous disclosure requirements
SGX notes that with the risk-based approach for QR, there will be greater reliance on continuous disclosures on material developments on issuers. To this end, SGX is also strengthening the continuous disclosure regime on key areas of concern. The following are the key enhancements to the continuous disclosure requirements to safeguard investors’ interests.
Additional disclosure obligations for rights issues
The Listing Rules previously required issuers to disclose the price, terms and purpose of a rights issue, including the amount of proceeds proposed to be raised from the rights issue and the intended use of such proceeds.
To enhance disclosure and transparency standards, the Listing Rules have been amended to require issuers intending to make a rights issue to include additional information in the announcement:
- present on the first page of the announcement in a prescribed format the price, discount (specifying benchmarks and periods), allotment ratio, use of proceeds and purpose of the rights issue;
- where the rights issue is proposed to be used mainly for general working capital purposes, the reasons for such use taking into account its working capital position;
- the issuer’s directors’ opinion on whether, after taking into consideration the group’s present bank facilities, the working capital available to the group is sufficient to meet its present requirements (which includes the transaction which will be funded by the net proceeds of the rights issue) and, if so, the reasons for the rights issue. If not, the issuer must state whether its directors are of the opinion that, after taking into consideration the group’s present bank facilities and the net proceeds of the rights issue, the working capital available to the group is sufficient to meet its present requirements;
- a statement from the issuer’s directors on why the rights issue is in the interests of the issuer and their basis for forming such views, including the factors taken into consideration in arriving at any discount; and
- where the issuer undertakes the rights issue within 12 months from its previous equity fund raising, provide details of each fund raising exercise undertaken in the past 12 months, including a description of the equity funds, the date of issue of new securities, the amount raised, amount used and breakdown of use of proceeds, and amount not used and the intended use of any unutilised amount.
Interested person transactions
- SGX has power to deem a person or entity an “interested person” and aggregate separate IPTs and treat them as if they were one
Chapter 9 of the Listing Rules deals with obligations in respect of IPTs. The Listing Rules provide that IPTs below S$100,000 are excluded when computing the relevant materiality IPT thresholds (“de minimis threshold”). Owing to concerns that this exemption may encourage issuers to abuse the de minimis threshold by structuring their IPTs into multiple IPTs with individual values below S$100,000, SGX had proposed removing it.
Taking into account the feedback received, SGX decided not to remove the de minimis threshold at this point in time. Instead, amended Rules 905(5) and 906(4) of the Listing Rules expressly empower SGX to aggregate separate IPTs (including IPTs below S$100,000) entered into during the same financial year and treat them as if they were one transaction if regard had not been given to the objective of Chapter 9 of the Listing Rules or the economic and commercial substance of the IPT. Issuers are reminded to put in place the relevant processes to track all IPTs, including those below S$100,000.
Further, pursuant to new Rule 904(4A), SGX may deem any person or entity to be an interested person if the person or entity has entered into, or proposes to enter into, a transaction with an entity at risk, and an agreement or arrangement with an interested person in connection with the transaction.
- Identification of relevant director, CEO or controlling shareholder of issuer covered by IPT mandate
The Listing Rules previously required disclosure of the “class of” interested persons which the entity at risk may transact with under their IPT mandates for recurrent transactions.
SGX considers that it is important that all interested persons covered by the IPT mandate be specifically identified and has therefore proceeded to require that any interested person covered by the IPT mandate be identified on a named basis.
In the event of changes relating to interested persons covered by an IPT mandate, e.g. an associate of a director, or a controlling shareholder of the issuer, the IPT mandate will survive vis-à-vis the remaining named interested persons in the IPT mandate. However, should the issuer seek to include a new interested person within the ambit of its IPT mandate, the issuer would need to appoint an independent financial adviser due to the potential change in risk profile brought on by the new interested person.
Following the change on 7 February 2020, an issuer whose existing IPT mandate identifies, for example, “directors” or “controlling shareholders” as a class need only identify the interested persons covered under its IPT mandate on a named basis when the issuer next makes any amendments to its existing IPT general mandate. Any new IPT mandate adopted by an issuer on or after 7 February 2020 will have to identify the interested person on a named basis.
- Inclusion of provision of financial assistance under Chapter 10 of Listing Rules
Chapter 10 of the Listing Rules sets out the rules for significant transactions by issuers, principally acquisitions and realisations. The scope of Chapter 10 has been extended to encompass the provision of financial assistance, except where it is in the ordinary course of the issuer’s business, or where the provision of financial assistance is to the issuer, its subsidiary or associated company. “Financial assistance” within the ambit of Chapter 10 excludes transactions relating to the provision of insurance coverage and indemnities for directors and CEOs against liabilities attaching to them in relation to their duties as officers of the entity at risk as well as defence funding for directors and CEOs.
Appendix 7.1 of the Mainboard Rules and Appendix 7A of the Catalist Rules have been amended to provide that the provision or receipt of significant financial assistance is likely to require immediate disclosure under Rule 703 of the Listing Rules.
- New obligations in respect of valuation of assets acquired or disposed of
Where there is an acquisition or disposal of assets (other than shares) which constitutes a major transaction under Chapter 10 of the Listing Rules and no valuation is available, the issuer is required to provide an explanation on why it did not commission a valuation. In addition, where a disposal of assets is one where any of the relative figures as computed on the bases set out in Rule 1006 exceeds 75%, the issuer must appoint a competent and independent valuer to value the assets to be disposed of.
Revised guidance on continuing disclosure obligations
SGX has also updated the guidelines for issuers on timely disclosure of material information (regardless of whether it is trade-sensitive or materially price-sensitive) to include further discussions on issues that issuers commonly face and explanations on how they may deal with them.
SGX RegCo had consulted on proposed changes to the QR framework and the continuous disclosure requirements in January 2018 and December 2017, respectively. The Responses to feedback received from the two consultation exercises was released on 9 January 2020.
The following materials are available from the SGX website www.sgx.com:
Consultation Papers and Responses
Listing Rules amendments
- Mainboard Rules
- Catalist Rules