As stock markets around the world tumble, many issuers are looking at the silver lining – a golden opportunity to undertake share buybacks, which offer multiple benefits, including: presenting the market a confident outlook as the company takes the lead on signalling “buy”, bulking up the company’s treasury shares reserve for quick capitalisation on future upturns, and improved EPS numbers. 

Issuers interested in share buybacks must have a mandate from shareholders.

Some tips to stay on SGX’s right side when executing share buybacks:

1.      Maximum number of shares that can be repurchased: 10% of issued shares as at date buyback approval was obtained (often the share capital as at the last AGM)

2.      Do not pay more than 105% of average closing market price over the last 5 consecutive active trading days for on-market purchases

3.      Do not undertake share buybacks when there is unannounced material information – the issuer itself may get in hot water for insider trading

4.      Best practice, according to SGX, is not to undertake share buybacks 2 weeks before quarterly financials are released & 4 weeks before full year financials are released

5. Be aware that certain methods of repurchasing shares have been flagged by SGX as problematic and may be viewed as misconduct, including:

a. Purchasing a few shares near or at market close, resulting in the impression that the share price is on a rising trend

b. Purchasing shares despite increasingly higher prices, which may be viewed as being meant to influence closing prices

c. Purchasing “excessively” e.g. share buybacks constituting more than 30% of the daily on-market traded volume, which may be viewed as artificial inflation of trading volume and price

Dividend announcements

An issuer must not announce dividends for 1Q or 3Q without the quarterly financial statements unless:

1. the issuer has a committed dividend policy to announce dividends on a quarterly basis which has been communicated to shareholders;

2. the issuer confirms for a 1Q or 3Q dividend that it has sufficient financial resources to fulfill its liabilities as and when they fall due, after paying the dividend; and

3. an issuer which is a corporation confirms for a 1Q or 3Q dividend that it complies with Section 403 of the Companies Act (i.e. dividends may only be paid out of profits) or equivalent requirements in its place of incorporation.

Blackout periods for bonus issues, rights issues, records date (fka books closure date) & capital returns

Two categories of issuers & blackout periods:

1. Issuers announcing financials on half year and full year bases – blackout periods start from end of half year/ full year until financial statements announced

2. Issuers announcing financials on quarterly basis – blackout periods start from end of each quarter until financial statements announced

Reference materials:

SGX Practice Note 7.7 (Announcement of dividends and other corporation actions)
SGX Catalist Practice Note 7G (Announcement of dividends and other corporate actions)

On 9 January 2020, SGX announced new amendments to both the Mainboard and Catalist Rules. This marks a shift towards a more targeted, risk-based approach for governance of listed issuers.

The 5 key amendments are:

1.     Most companies can stop quarterly reporting

2. New continuous disclosure requirements, including immediate disclosures for directors’ conduct and deviations from financial information

3.     More disclosure required if “general working capital” is the reason for a rights issue

4.     SGX will have discretionary powers to designate “interested persons” and aggregate Interested Person Transactions (IPTs). An interested person covered by an IPT mandate must be disclosed on a named basis.

5.     New rules for financial assistance, ordinary course of business transactions, and transactions which present “negative” computations under Listing Rule 1006.

#1: Quarterly reporting

Most issuers will only have to announce half and full year financial results. An issuer will no longer be required to report its financial results on a quarterly basis, unless its auditor (i) issues an adverse, qualified or disclaimer of opinion based on the financial statements; or (ii) states that there is material uncertainty relating to going concern in the financial statements. 

Where an adverse, qualified or disclaimer of opinion is issued, the issuer must announce (i) the efforts taken to resolve each outstanding audit issue; and (ii) a confirmation from the Board’s directors that the impact of all outstanding audit issues have been adequately disclosed.

Periodic announcements regarding performance must be balanced and fair, should avoid selective presentation of information, and sufficiently compare financial data across periods. SGX also encourages issuers to provide voluntary disclosures as appropriate.

#2: Enhanced disclosure

Issuers must announce information necessary to avoid the establishment of a false market in its securities (trade-sensitive information) or which would likely materially affect the price or value of its securities (materially price-sensitive information).

SGX has provided the following guidelines, amongst others, on continuous disclosures:

1.     “trade-sensitive information” is wider than “materially price-sensitive information”. Trade-sensitive information may not necessarily have a material impact on an issuer’s share price.

2.     Immediate disclosure is required if a director’s action or conduct would (i) materially affect information previously disclosed about him/ her (under Appendix 7.4.1 of the Mainboard Rules or Appendix 7F of the Catalist Rules); or (ii) bring into question such director’s character and integrity. The issuer should not wait until re-appointment of such director.

3.     Immediate disclosure is also required if an issuer becomes aware of information that significantly deviates from its previous reported financial results. The issuer should not wait until the subsequent scheduled release of its financial results.

4.     Announcements must disclose, without bias, both positive and negative aspects of the issuer’s development or prospects. Issuers should not emphasise favourable information or omit unfavourable information.

#3: rights issues

For a rights issue, issuers must, in addition to announcing the price terms and purpose, also announce the following:

1.     if the proceeds will be used mainly for general working capital, the reasons for such use, taking into account the issuer’s present working capital position;

2.     whether the issuer’s directors are of the opinion that the issuer’s available working capital is sufficient to meet its present requirements after taking into consideration the issuer’s present bank facilities, and if yes, the reasons for the issue;

3.     a statement from the issuer’s directors as to (i) why the rights issue is in the issuer’s interest; (ii) the bases for the directors’ views; and (iii) the factors considered in arriving at the discount, if any;

4.     details of each equity fund-raising exercise undertaken by the issuer in the past 12 months, or a negative statement that there has not been any equity fund-raising exercise in the past 12 months.

#4: Interested person transactions

SGX will have the discretion to (i) designate any person or entity as an interested person if such person or entity enters into, or proposes to enter into, a transaction with an entity at risk; and (ii) aggregate any exempted IPTs (even if less than S$100,000) within a financial year.

An issuer must disclose in the annual report the nature of the relationship between the issuer and the interested person in respect of each IPT. An interested person covered by an IPT mandate must be disclosed on a named basis.

#5: Mergers and acquisitions, financial assistance, and valuations

Financial assistance transactions by an issuer will be subject to Chapter 10, unless such transaction (i) is part of the issuer’s ordinary course of business or of a revenue nature; (ii) is provided to the issuer, its subsidiaries or associated companies; or (iii) relates to insurance coverage, indemnities and defence funding for directors and CEOs of the issuer in relation to their duties as issuer officers.

Independent valuations will be required for asset disposals and acquisitions which constitute major transactions, failing which the issuer will be required to provide an explanation as to why the valuation was not conducted.

Ordinary course of business transactions are transactions where (i) the asset to be acquired is part of the issuer’s existing principal business; and (ii) the acquisition does not change the issuer’s risk profile (e.g. an acquisition that reduces an issuer’s net profits/ NAV by more than 20% would change its risk profile).

Finally, an exemption may be sought from announcing/ seeking shareholder approval for transactions which result in a negative computation result under Listing Rule 1006 if (i) the issuer has a negative asset value or is loss-making; and/ or (ii) the asset has negative NAV or is loss-making.

Amendments to the SGX rules can be accessed here.