LAST week's report, calling for a review of Singapore's Catalist board (BT, Jan 16, "Catalist: A platform for growth firms or ICU for mainboard patients?"), sparked a lively debate among stakeholders.
But, for all of their enthusiasm, some of the comments may have fallen wide of the mark.
The issue at hand is not about whether this regime ought to be more "forgiving" towards troubled companies, but whether the raison d'etre of Catalist needs to be reformulated - with the needs of its constituents and investors having evolved in the 10 years since the board's inception.
The report, "Where to, Catalist?" - by corporate governance advocate and NUS associate professor of accounting Mak Yuen Teen and final-year NUS accountancy honours student Mark Lai - focused on the transfer of companies between the Singapore Exchange's (SGX) mainboard and Catalist.
It suggested that, should companies be transferring from the mainboard to Catalist for the express aims of avoiding the close scrutiny that comes with being on the Watch-list of the mainboard and of taking advantage of the more lax rules on Catalist, the end result would be more poorly governed companies that would hurt the overall quality of the board, its listings and its investors.
It purported that transfers from the mainboard to Catalist be disallowed, unless the SGX is of the view that the move would be beneficial for both company and shareholders alike, with this being decided on a case-by-case basis. It added that troubled companies with poor corporate governance records be closely monitored for a period after their transfer.
Corporate lawyers and Catalist sponsors - who determine the suitability of a company to list on Catalist and supervise listed companies' compliance with their continuing listing obligations - tended to disagree with the report's recommendations.
Many said that troubled companies should be given some room to breathe and time to get back on their feet, with the option of transferring to Catalist with its more lax rules. Some felt it would be better for companies to move to Catalist than to delist altogether, which would likely leave their shareholders worse off.
One corporate lawyer said that Catalist would provide better environmental support for these companies, allowing them to restructure their businesses and refinance through private placements.
There have been those who have likened the transfer from the mainboard to Catalist to the demotion of an English football club from the Premier League to the First Division. In the same vein, others have called for a more forgiving approach towards troubled companies, allowing them the opportunity to learn from their mistakes and pick themselves up again.
I am not disagreeing with these arguments - in fact, I agree with some - but, the issue at hand, is not Singapore's attitude towards troubled companies; rather, it is about the setting-up of the right platform to meet the needs of its capital markets.
When Catalist was first established in 2008, it was the successor to Singapore's second board, Sesdaq. It was set up to "cater to the needs of fast-growing companies" by giving them access to capital, along with greater flexibility and less-stringent rules.
Should the Exchange now feel that there is a need for Catalist to evolve into a board that also houses companies that need the "breathing room" to improve their financials, it will have to go further than merely re-wording Catalist's mission statement; it would need to institutionalise measures that would bring about this evolution/transformation, while safeguarding the interests of investors.
The SGX does already recognise this. In its response to the Catalist report last week, its spokesman said: "The study raises the question of whether Catalist should be strictly reserved for growth companies, or if the platform should also be supportive even when companies have fallen on hard times and are seeking an opportunity to rebound or recover.
"We believe a balance needs to be struck to take into account the long-term interests of shareholders, throughout the life cycle of a company. We will review the findings and recommendations in this light."
Altering its infrastructure
Should the Exchange decide that Catalist needs to evolve to also cater to the needs of troubled companies, it might need to alter its infrastructure in the following broad ways (at the very least):
- It would need to spell out clearly the circumstances under which a company is allowed to transfer from the mainboard to Catalist; if the purpose is to allow companies which are ailing because of their environment - rather than because of poor corporate governance - some breathing room to rehabilitate, then the Exchange needs to ensure that transferring companies fulfil the right criteria (through a proper assessment) before being allowed to make the move.
- It then needs to decide if transferees would be subject to the same continuous listing obligations as growth companies; it could decide to place transferees under special scrutiny for a period of time, or change Catalist rules to take into account the new nature of such listings.
- That brings us to this next point: having two sets of rules, on the one hand, could confuse and complicate matters; on the other, having the same set of rules (which would effectively protect investors) would mean raising the bar for growth companies - which could affect the attractiveness of Catalist as a listing destination; this is an argument the SGX would need to work through.
Clearly, this is a matter that requires much deliberation and warrants a thorough review - which Hong Kong undertook, when it looked at repositioning its GEM market.
Again, the issue at hand isn't one of how forgiving the Exchange wants to be with ailing companies, but rather if it wants Catalist to be the platform on which these companies are given the chance to rehabilitate.
It would need to balance its own needs, those of the companies and the investors, in what one hopes would be a conscientious deliberation on the matter.