Don’t let Catalist become a graveyard for dying companies
When stock exchanges introduce a second board, it is often
targeted at attracting companies with nil or limited profit records but with
growth potential. The acronyms used reflect the exchanges’ optimism or
aspirations about these companies, such as Catalist in Singapore, AIM
(Alternative Investment Market) in the United Kingdom, and GEM (Growth
Enterprise Market) in Hong Kong. Unfortunately, companies aiming to be catalysed
into gems through access to public capital may not fulfil their promise.
Comments
Mak Yuen Teen
02 December 2015
When stock exchanges introduce a second board, it is often targeted at attracting companies with nil or limited profit records but with growth potential. The acronyms used reflect the exchanges’ optimism or aspirations about these companies, such as Catalist in Singapore, AIM (Alternative Investment Market) in the United Kingdom, and GEM (Growth Enterprise Market) in Hong Kong. Unfortunately, companies aiming to be catalysed into gems through access to public capital may not fulfil their promise.
When the Singapore Exchange (SGX) overhauled Sesdaq in 2007 and introduced Catalist, the hope must have been that many of these Catalist companies would fulfil their growth potential and get upgraded to the Mainboard. Although some companies have indeed moved up, we now have the situation of companies being advised by SGX to consider transferring from the Mainboard to Catalist if they are unable to meet the Minimum Trading Price (MTP) requirement.
It is likely that many companies which are unable to meet the MTP requirement suffer from poor business fundamentals that threaten their long-term viability. We may also have a situation of companies with recurring losses seeking to transfer to Catalist when they are on the verge of being placed on the Watchlist.
A case in point is MMP Resources (formerly Sino Construction), which announced its intention to do so on Nov 2. In February 2014, it announced that it had recorded losses for three successive financial years. Its share price has fallen from around 26 cents in February this year to about one cent. In an earlier commentary (“Loss of market confidence here - just look at cases such as Sino Construction”, BT, March 18, 2015), I catalogued the litany of issues with the company, including questionable disclosures, repeated SGX queries, clarifications, disclaimers of opinion from auditors, auditor changes, discrepancies between audited and unaudited results, delays in announcing results and holding AGMs, and high turnover of directors and key officers.
The risk of problematic companies transferring to Catalist is that rather than being a platform for companies with growth potential, Catalist also becomes a graveyard for dying companies. Over time, this may affect confidence in Catalist companies and the attractiveness of the second board as a listing platform for growth companies.
To ensure the integrity of Catalist and safeguard the interests of companies on that board that are well governed and have good business fundamentals, eligibility to transfer to Catalist should not just be a matter of being able to find a sponsor (since that is more likely to be based on whether the companies can afford the fees of a sponsor). They should be assessed as being suitable for a listing on Catalist as if they are applying for a listing for the first time. This means that they should be able to demonstrate the potential for a turnaround.
A better solution for a company facing mandatory delisting or that is unable to satisfy Catalist requirements is an over-the-counter or “pink sheet” system. If the company does get its house in order, it can then apply to re-enter the exchange platforms like the Mainboard and Catalist.