Singapore Exchange Limited Just Signaled to the S-Chips: We Are Watching You Closely

Singapore’s bourse operator, Singapore Exchange Limited (SGX: S68), has a Regulator’s Column to share its thoughts on regulatory issues in the financial markets.

The column had published its most recent piece just yesterday. In it, Singapore Exchange’s Chief Regulatory Officer, Tan Boon Gin, highlighted that a number of Singapore-listed firms from China (basically the S-Chips) had recently announced “adverse and significant changes in their financial positions under perplexing circumstances.”

There was no mention of names by Tan, but he did point out that the S-Chips involved were in sectors such as textile and sporting goods, manufacturing, heavy industries, packaging, electrical and electronics, retail, and chemical.

Some of the concerns that Singapore Exchange have with the S-chips are shown below:

  1. Some companies have reported compensation claims from customers that are in excess of 10 times the original value of the sales that are the subject of the claims.
  2. Some companies have written off huge amounts of trade receivables without providing proper explanations.
  3. Some firms with declining revenues had increased prepayments to their suppliers while lengthening credit terms for their customers.
  4. ”Significant loans” and advances were also made by some companies to their business associates that are outside the norm of business practices; these loans and advances were then subsequently deemed to be uncollectible and written off.

In the recent column, Tan went on to list some things these companies’ Boards and Audit Committees could do to resolve some of the aforementioned issues. Tan also prompted a company’s Board to consider if the firm’s Executive Officers and/or legal representatives need to be changed in the event that concerns over possible wrong-doings are to emerge.

The piece also pointed out that the Singapore Exchange is (1) keeping a close eye on companies that “show large swings in financial positions and performance” and (2) is also keeping tabs on listed companies’ auditors and directors to ensure that they are doing their jobs.

It’s worth noting that enforcement powers under the SGX Listing Rules have been strengthened since October 2015. Regulators now have the power to take punitive action, such as “fines and the denial of access to market facilities,” on any Singapore-listed company that is not meeting the rules.

This development is, in my opinion, a great step forward for individual investors.

The bad reputation of S-Chips and the questionable accounting practices of some companies have plagued investors’ confidence in the Singapore stock market. Now that Singapore Exchange has the ability to punish companies that have breached listing rules, investors may be able to look forward to a stronger financial market here in Singapore that protects and looks after the interests of minority shareholders.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.