When in doubt, disclose: SGX to listed firms

SINGAPORE — When in doubt, disclose. Regardless of how material a company thinks a certain piece of information is, in times of industry or economic uncertainty, it should err on the side of caution and disclose any information that could be useful to investors.

That is the message that Singapore Exchange (SGX) chief regulatory officer Tan Boon Gin had for directors and corporate leaders gathered at the Singapore Institute of Directors’ State of Corporate Governance Disclosures forum yesterday.

“The fundamental determinant of materiality is whether the information will be useful to your investors in making their decisions. And the cardinal rule is – when in doubt, disclose,” said Mr Tan.

Mr Tan had sent out a strongly-worded statement last month on the need for listed companies to keep shareholders well-informed at all times, after oilfield services firm Swiber Holdings shocked investors by filing an application to wind up the company upon facing letters of demand from creditors.

Swiber subsequently dropped the application and opted for judicial management, which allows it to continue operations under court supervision in a bid to turn around its business.

A company may argue that a certain piece of information is not material because the amount involved is small compared with, for example, its net tangible assets or revenue, Mr Tan said. However, he noted that what might be considered material could be quite different from information investors might need when the industry is going through extreme volatility or a protracted down-cycle such that the financial position of the company is at risk of deteriorating quickly.

“Letters of demand can start small, and escalate quickly, because bankers are over-exposed to a particular sector and due to cross-defaults on other liabilities such as bonds.

“These may all become material developments that will have an adverse impact on the company’s ability to operate as a going concern,” said Mr Tan.

The SGX listing rules require companies to make an immediate announcement where these events lead to them facing a cash flow problem.

While SGX can query companies on disclosures, to wait for such queries, rather than disclose with full transparency, is venturing into dangerous territory, he warned.

“At the initial public offering stage, SGX as the listing authority will scrutinise the company’s financials to ensure that the company is in a healthy financial position, including whether it has a positive cash flow from operating activities.

But after listing, we cannot and do not intervene in a company’s commercial decisions.

Our review of financials post-listing therefore focuses on whether the company has provided the disclosures required under the listing rules rather than the company’s financial health,” Mr Tan said.

SGX will strictly enforce compliance with this requirement as it is fundamental to its disclosure-based regime, he said, adding that there must be an urgency in this pursuit of better standards and in light of recent developments.

“It is not just about making disclosures but also ensuring material information is announced via SGXNet in a timely and clear manner, as completely as possible.

“Ours is a disclosure-based regime. Without proper disclosures, there can be no good governance, no trust in companies and no confidence in our markets,” he said.