TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issue manager
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Meeting the requirement may turn out to be distracting and costly for firms, and may result in odd lots for retail investors
Melissa Tan
06 May 2015
The Singapore Exchange’s (SGX) new minimum trading price (MTP) rule could prove to be more bane than boon for both issuers and investors, analysts say, adding that many firms may be shying from a share consolidation for the moment because of uncertainty over whether it will work.
For firms, having to figure out the best way to meet the MTP could distract them from their business and saddle them with legal fees. And for retail investors, a share consolidation may leave many with odd lots or cancelled share fractions that they might not get paid for.
The MTP rule also leads to artificial selection based on an arbitrary 20-cent level, and may fail to address the local market’s fundamental problem of failing to attract big issuers and being seen as a speculative market, analysts added.
At least 55 mainboard-listed companies have already proposed share consolidations to comply with the MTP rule. However, there are nearly 180 more stocks on which firms may need to take action but have not made a move yet, according to Bloomberg data. Analysts said that some firms may also be waiting to see what the SGX’s new chief executive does first.
A few companies that had been planning a consolidation have postponed it till further notice. Milk product maker China Dairy Group said it was looking for better options since it still had time, while energy equipment firm Federal International (2000) cited share price volatility. IT products distributor Digiland International had proposed a jaw-dropping 500:1 consolidation but later said it would wait till after it had settled the terms of a joint venture.
Firms have until March 1 next year to get their six-month volume-weighted average price (VWAP) above S$0.20. If mainboard-listed firms fail to meet the MTP by then, they go on a watchlist for three years. The ultimate deadline is Feb 28, 2019 - companies that do not meet the MTP by then may be delisted or can opt to move to the junior Catalist board, where there is no such rule.
The SGX is waiving fees for MTP-related share consolidation till March 2017. However, analysts noted that complying with the MTP rule would still come with legal fees and opportunity costs.
“Companies have to spend time and resources figuring out how to keep above the 20-cent mark, rather than trying to improve fundamentals and creating value for shareholders,” said Voyage Research head Roger Tan. “Even after a consolidation they have to worry - if they fall below 20 cents again, do they have to do another consolidation? There’s no guarantee that the price won’t come down again, even if the companies allow some buffer. The role of issuers is to create value for shareholders, not to waste their time on this.”
One example is manufacturer- turned-property developer Amplefield Limited, which finished its MTP-related share consolidation in February. The stock jumped from S$0.007 on Feb 2 to S$0.07 on Feb 3 after a 10:1 consolidation - then dipped. It closed at S$0.06 on Tuesday, nowhere near the S$0.20 level.
Issuers are not the only ones with a headache. Retail investors may also be left holding odd lots, or have their fractional stakes wiped out entirely. The risk of this happening also climbs as the consolidation ratio increases. Digiland has the steepest consolidation ratio, followed by IT service provider S i2i with 400:1.
“Too large a consolidation ratio means there will be many fractional shares, which will ultimately be absorbed into the company’s treasury. Small investors will be the biggest losers as they are flushed out and will lose their stake in the company,” Phillip Futures analyst Howie Lee said.
The only company so far that is giving shareholders a minimum endowment is fuel-saving product maker Acma Limited, which said any shareholder who ends up with less than one consolidated share will still be given one consolidated share.
However, even its good intentions may not pan out in the long run. “It is rare that an endowment will be bestowed as that is almost akin to a stock dividend payout. It not only reduces the company’s net assets, but will also cause the company’s share price to fall due to the additional issuance of shares in the market. Unless you are on the receiving end of further shares, this deal virtually benefits nobody,” Mr Lee said.
Analysts added that although some issuers may decide that they can accept having to move to the Catalist after February 2019, most mainboard-listed stocks will likely try their best to retain that status for image reasons.
“Listing on the mainboard is a matter of pride and a signal of investor confidence, and you can be sure that companies will do their best to keep their position on the mainboard. Moving to the Catalist is the last resort for them, even if it may mean more cost savings and less of an administrative headache,” Mr Lee said.
Companies’ focus on doing whatever it takes to stay on the mainboard means that certain stocks below the MTP may start to attract speculators. “People will say, we should buy because the company needs to push its stock price up. it becomes risky when people start to think of it from that angle,” said CMC Markets analyst Nicholas Teo.
Mr Tan added that short-sellers may be drawn to post-consolidation shares, which would make it even harder for issuers to keep their stock price above S$0.20.
Analysts also pointed out that though the MTP rule is meant to prevent the local bourse from being seen as a penny-stock market, it does not address deeper, more fundamental issues. Some added that it may go against the spirit of fostering the growth of local companies.
“In the past small companies were welcomed to the mainboard, it helped with their branding. Now you’re saying, you guys shouldn’t be here. That spirit of helping local companies grow and mature seems to have been lost,” Mr Tan said. “The Catalist is more flexible for fund-raising, that’s true, but on a perception basis, Catalist companies are not as good as mainboard companies. And if you’re a fund manager, you may not be able to invest in Catalist companies.”
Mr Lee said that the MTP-related share consolidations were likely to be just an “internal restructuring” rather than a way to truly improve the Singapore stock market.
“The onus is still on attracting foreign big names to list on our shores and increasing local M&A (merger and acquisition) activity if the long-term aim is to ultimately create a vibrant trading hub.”
Mr Teo added that the rule may also deter companies from seeking a mainboard listing in future, since it would increase their administrative burden. “In the past listing was prestigious, now it becomes a chore.” The market is also awash in private equity money, which decreases firms’ incentive to list or stay listed, he said.
“Whether the MTP rule is going to work or not, it will not change the impression that the Singapore market is speculative. It’s rules like these, that don’t make sense, that contribute to the deterioration of the market. It’s another nail in the coffin that makes it so difficult for companies here to continue with their listing.”