THE Singapore Exchange Regulation (SGX RegCo) will be reviewing its listing rules to ensure they complement the nation' s plans to be an international restructuring hub, Tan Boon Gin, chief executive officer of the frontline regulator, says.

 

In an interview with The Business Times, Mr Tan shared a glimpse into what' s in store on the regulatory front for 2021.

 

" We will of course look to continue supporting the market and be sensitive to the needs of market participants, as the impact of Covid-19 will continue to be felt by companies.

 

" Related to this, we will carry out a review to ensure that our rules are able to complement the Insolvency, Restructuring and Dissolution Act (IRDA) that came into effect earlier this year," Mr Tan said.

 

The IRDA, which came into effect on July 30, 2020, is a consolidation of all personal and corporate insolvency and debt restructuring legislation into a single statute, along with other legislative changes. It is aimed at strengthening Singapore' s position as a debt restructuring hub.

 

Currently, there are many laws and frameworks that will facilitate company-led restructuring as opposed to judicial management.

 

" The question is how can we complement this?" Mr Tan asked. SGX rules, he reckoned, have to complement the IRDA in three areas - disclosures, shareholder approval and how its listing rules were written.

 

SGX listing rules were written with the premise that the company is a going concern. However, in a restructuring, the company is not a going concern. It will apply to the court for a moratorium, by which time share trading will have been suspended. Everything that is tied to the firm is suspended, including the ability to issue new shares.

 

" As you know in restructuring exercises even if the white knight comes along or the controlling shareholders inject equity, they will want new shares in return. If we want to go through this exercise, we could but I think to result in good outcomes for shareholders, should we still be so fixated with the idea because the company is not a going concern it cannot issue new shares? This thinking should change," Mr Tan noted.

 

While the SGX whistleblowing office has enabled it to get better market intelligence, 2021 will see more emphasis on corporate surveillance to look out for companies that are showing signs of financial distress.

 

" My suspicion is that the full effect of Covid-19 on companies will be seen in the full-year results of companies with year-end Dec 31, 2020. I am not saying it will be bad. We will see the full impact of the pandemic. We will certainly be keeping an eye on this space," Mr Tan added.

 

Sustainability will be another area of focus. Here, the SGX RegCo sees itself playing three roles.

 

First, as a repository of resources, knowledge and data, where it equips companies with the skills to produce quality sustainability reports and educate investors on how to use the reports to make their investment decisions.

 

Second, as a curator of data on environmental, social and corporate governance (ESG) matters.

 

Lastly, as a translator of the data being produced into actionable things. These include working with data companies to translate sustainability reports into ratings or scores that are more usable for investors, or more usable investment products such as exchange traded funds (ETFs) or futures contracts.

 

This year has seen many firsts on the regulatory front here. When the Covid-19 hit Singapore, the annual general meeting (AGM) season was fast approaching. SGX RegCo and the authorities had to act fast. They eventually allowed virtual AGMs to take place amid health concerns.

 

" This was really a Singapore Inc effort. We had to work with government agencies such as Ministry of Law, the Accounting and Corporate Regulatory Authority, and the Monetary Authority of Singapore to push out these changes," Mr Tan shared.

 

Noting that the Covid-19 has put many companies under financial stress, with many needing to raise funds quickly, SGX RegCo enhanced the general share issue mandate to up to 100 per cent of share capital until Dec 31, 2021, up from 50 per cent before. By Oct, 34 companies have made use of this provision.

 

It also helped companies shorten the time to market by prioritising fund-raising applications such as rights issues. Entry into the watch-list was suspended until Dec 2020 to allow companies to focus their attention on meeting business and economic challenges.

 

In terms of irregularities, the spotlight has been on real estate investment trusts (Reits), with issues involving directors' independence and the high degree of concentration risk for a Reit where the sponsor is also the master lessee of properties in its portfolio.

 

On concentration risks, SGX RegCo is exploring possible solutions. These include introducing a cap on the numbers of hotel properties to be leased to the sponsor and tightening the criteria for master lessees, and requiring more comprehensive disclosures on the financials of the sponsor.

 

" The traditional way of managing this concentration risk is to require a higher security deposit so that in the event of a master lessee default the Reit can still fulfil its obligations while it searches for a new master lessee," Mr Tan said.

 

It has suggested ideas to improve the enforceability of security deposits, such as better ring-fencing by requiring the security deposits to be held by independent financial institutions and requiring additional due diligence to ensure that the Reit is able to freely draw on the security deposits when it needs it the most.

 

As for the independence of Reit manager independent directors (IDs) and perceived conflicts of interest, the SGX RegCo has spoken directly to the Reit manager IDs and urged them to boost the confidence of unitholders that their interests are being protected. Some Reits have already done this by voluntarily letting unitholders vote on the election of IDs.

 

" If confidence in IDs is being questioned, it is important that Reits should not shy away from giving more transparency by going deeper into details or addressing concerns head-on. But once this has been done, Reits should draw a line under it and move on to focus on the real issues at hand and stop the questions of independence from being a distraction," Mr Tan said.

 

Sharing the centre stage were a few cases related to directors under investigation, and the inevitable questions over whether a company should disclose such investigations and whether the directors should continue to be on the board.

 

According to Mr Tan, the onus is on the board to decide if the information is material and needs to be disclosed, and for the Nominating Committee to justify why a director under investigation remains suitable to be on the board.

 

" Many companies say: ' Don' t prejudge the situation.' But I feel the right question is: ' What is in the best interest of the company and shareholders for the director to continue to be on the board while the investigation is ongoing?' "

 

Mr Tan explained: " It is not about prejudging. Does the fact that this person is under investigation prejudice the company? Will it affect the confidence of shareholders? Will it affect the confidence of the market? These are the questions the board should be asking themselves rather than saying the issue should not be prejudged."

 

THE Singapore Exchange (SGX) is investing S$20 million to expand sustainability capabilities and initiatives as environmental, social and governance (ESG) considerations come into greater focus even as the Covid-19 pandemic takes a toll on the economy.

 

Loh Boon Chye, chief executive officer of SGX, said in a media briefing on Tuesday that the challenge of driving economic growth and reversing climate change should be seen as an " undeniable need" and collective effort is required to seek solutions.

 

While economic recovery will be uneven across sectors, there are still opportunities for companies to seek sustainable growth, he said.

 

To ramp up ESG solutions for customers as they build sustainable businesses and to encourage greater adoption of sustainable business practices, half of the investment will be allocated to new ESG-focused products services and platforms. The other half will be channelled into capacity building for the financial ecosystem, strengthening internal capabilities and increasing corporate social responsiblity (CSR) commitments.

 

These initiatives will be housed under the newly launched platform SGX First (Future in Reshaping Sustainability Together) - Asia' s only multi-partner, multi-asset exchange-led sustainability platform.

 

" These initiatives capitalise on our assets, expertise and capabilities, and span across asset classes including fixed income, equities, commodities and indices," said Mr Loh.

 

On the fixed income front, SGX plans to increase accessibility and transparency of sustainable bonds data in the Asia-Pacific by bringing more regional issuers on board the Nasdaq Sustainable Bond Network Initiative, with which SGX is in an exclusive partnership.

 

The network currently covers over 4,500 bonds predominantly from the United States and Europe.

 

" This network aims to be the leading source of information on green, social and sustainability bonds - both listed and unlisted - to help global investors conduct due diligence, selection and monitoring of these bonds," said SGX in its press statement on Tuesday.

 

Similarly, for equities, the local bourse plans to give investors access to a more comprehensive view of companies' ESG efforts and to encourage companies to incorporate sustainability as an integral part of their business.

 

Against this backdrop, SGX has expanded its existing indexing partnership with FTSE Russell, Morningstar Sustainalytics and MSCI. It also plans to expand its coverage beyond the current 30 most recognisable SGX-listed companies in 2021.

 

By January 2021, subject to regulatory approvals, SGX will also launch four futures contracts in partnership with FTSE Russell, based on the FTSE Emerging Markets, FTSE Asia ex-Japan, FTSE Emerging Markets Asia and FTSE Blossom Japan ESG-themed indices.

 

These indices have risk-return characteristics similar to benchmark market-cap weighted indexes with the added benefit of improved ESG metrics. These will help facilitate ESG integration into investment strategies and provide a hedging instrument for ESG-tracking investments.

 

New sustainability benchmarks and ESG-related indices will also be layered alongside existing flagship multi-factor indices offered by the SGX Group including Scientific Beta and Index Edge products.

 

Currently, over 30 per cent of assets tracking Scientific Beta' s indices already have ESG options and all its indices have advanced ESG and climate risk reporting.

 

In the next 12 months, Scientific Beta will develop new climate change risk solutions that align with the Paris agreement climate change goals for institutional investors.

 

Asked if retail investors will stand a chance to benefit from SGX' s initiatives, Mr Loh said: " Retail investors will have the opportunity to participate in this global trend in terms of focus on sustainability."

 

He added that SGX will look towards working with the ecosystem, issue mangers, companies to explore options to issue retail tranches of sustainable and green bonds or exchange-traded funds (ETFs) to gain exposure to ESG investments.

 

Meanwhile, SGX will continue to boost internal sustainability efforts. It will be appointing its first head of sustainability and sustainable finance, and has embarked on a corporate carbon profiling exercise across all its offices and subsidiaries worldwide.

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