MORE than half the business noted on the Catalist board of the Singapore Exchange (SGX) incurred losses for fiscal year 2019, with those having been noted longer most likely to underperform.
A research study that observed this has actually raised issues about the quality of the listings on the secondary board set up to deal with fast-growth companies. The study also questioned the independence of Catalist sponsors, in particular the two top players.
Co-authored by Associate Teacher Mak Yuen Teenager of the National University of Singapore (NUS) Service School and Chew Yi Hong, an investor and researcher, the research study looked at Catalist companies with fiscal year 2019 earnings readily available.
Of 214 companies, 56.5 percent or 121 business made losses for FY2019 Among those noted for under seven years, 37 per cent were making losses; amongst those listed for longer than that, nevertheless, 71 percent were making losses.
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The authors of the study stated: “While not definitive, this contrasts expectations, as one would anticipate growth business to begin as fairly unprofitable, and after that become more profitable with time.”
The weak aggregate financial performance contrasts with the strong performance of numerous Catalist-listed stocks this year.
The FTSE ST Catalist Index, for instance, has gained 13.9 per cent year to date; the benchmark Straits Times Index is down 20.5 per cent.
However Prof Mak stated the performance of the Catalist index constituents, which would be the largest of the Catalist-listed companies, are not representative of the board.
He included that a long-lasting research study is needed to evaluate the performance of Catalist business considering that the very first listing in2008 “A research study of all the stocks that have actually been noted over the 12 years will tell us how Catalist has truly done.”
The research study, which likewise took a look at all 20 Catalist sponsors, prompted an evaluation of the Catalist board, citing concerns over the conflicts of interest in the sponsors routine. Sponsors and their affiliates may provide monetary advisory, corporate secretarial, share transfer representative and legal services to the companies they sponsor.
” A robust sponsor-based regime requires higher transparency in sponsor and non-sponsor charges; greater restrictions on other work that can be undertaken by sponsors; higher constraints on relationships between sponsors and issuers; and additional safeguards where the fees made from non-sponsor work by the sponsor or its affiliates are significant,” the report stated.
Unlike a Mainboard listing, which goes through review and approval by the SGX and the Monetary Authority of Singapore (MAS), a Catalist listing is supervised and authorized by its designated sponsor. Sponsors are answerable to the SGX under the Catalist rules, and are subject to SGX reviews.
Prof Mak and Mr Chew argued that sponsors might hesitate to report disclosure or compliance breaches by companies since they do not wish to lose earnings from the charges companies pay them.
Companies are free to change sponsors after three years of listing on Catalist, and may, for example, choose to drop sponsors that they do not agree with.
Prof Mak informed The Business Times that it is time to relook the 12- year old Catalist, which was set up in November 2007 as the follower of Sesdaq and modelled after the Alternative Financial Investment Market (GOAL) in the United Kingdom. GOAL is now struggling.
” There are questions over the quality of Catalist listings, especially those over the last three years, consisting of accounting and corporate-governance problems emerging soon after listing,” Prof Mak said.
” The sustainability of the Catalist board in its present type is highly depending on the capability of the exchange to attend to the concern of the self-reliance of sponsors. The tension in between expense of listing and effectiveness of the sponsor-based regime is hard to fix up.”
As of May 2020, there were 215 business listed on Catalist and 20 sponsors – 16 full sponsors and 4 continuing sponsors. The leading three sponsors are PrimePartners Corporate Finance (PPCF), SAC Capital (SACC) and RHT Capital (RHTC), sponsoring 55 business (25 per cent), 35 (16 per cent) and 25 (about 12 per cent), respectively.
Nearly a 5th or 38 providers revealed that they paid non-sponsor costs to their sponsor for the fiscal year covered, including one that divulged non-sponsor charges paid to an affiliate. Another 5 companies revealed other charges – not consisted of in non-sponsor charges – paid to an affiliate of the sponsor.
PPCF was most commonly paid costs for non-sponsor services by business it sponsored. About 30 per cent, or 17, of its sponsored providers did so just for the one year studied. The nature of the advisory services was not disclosed. Even when they were, info was scant.
The largest quantity of non-sponsor charges paid was S$ 1.12 million to PPCF, by DLF Holdings for functioning as sponsor, issuer supervisor and positioning agent. PPCF also received an additional $0.6 million through the issue of 2.6 million brand-new show a three-month moratorium, as part of its management cost for functioning as sponsor and concern supervisor.
The nature of the non-sponsor services was divulged in all cases including big amounts paid to sponsors, except for issuers sponsored by PPCF.
The study also found that RHT affiliates often provided other services to providers sponsored by RHTC. Of the 25 companies under RHTC, 10 received business secretarial, financier relations and/or share registrar services from affiliate firms of RHTC.
There were also cases of directors of RHTC-sponsored companies who serve or had just recently served on boards of RHT affiliates or who do other work for RHT affiliates. Comparable relationships were rare for other sponsors.
The study likewise found that 102 out of the 261 companies had changed their sponsor a minimum of once, with 37 having actually had at least 3 various sponsors given that their listing on Catalist; nine have had four sponsors and 2 have actually had five.
Companies sponsored by Asian Corporate Advisors (ACA), RHTC, Stamford Corporate Services (SCS) and ZICO under-performed the total average for corporate-governance and financial efficiency signs.
On the other hand, issuers under CIMB Bank and UOB Bank out-performed the average. The authors warned that this was based on only single-year indications.
Reacting to the research study, SGX Policy (SGX RegCo) stated the procedure of enhancing the Singapore markets, consisting of Catalist, is a continuous one that needs the involvement of all stakeholders.
” SGX RegCo invites the active participation of the market community, consisting of insights from academic research, that assists us in this journey.
” Such feedback has aided in enhancing our existing regulatory steps such as the close tracking of sponsors through examinations and regulatory reporting, constant dialogues and compliance standards, as well as our upcoming inaugural “Findings and Recommendations on Continuing Sponsorship Work”, which we will publish soon.”
LEARN MORE: A more robust sponsor-based program for Catalist is needed