SINGAPORE (Apr 22): The COVID-19 outbreak has given rise to high levels of volatility in the global financial markets. COVID-19 and the resultant actions taken by the governments and businesses around the world to protect public health and safety are unprecedented on many fronts. Companies and individuals alike have had to make major adjustments amid the current challenges.

Issuers, for example are facing pressures such as difficulties with organising annual general meetings because most events and gatherings can no longer take place. Companies have struggled to produce annual reports with the shutting of most workplaces and staff working from home. In recognition of the challenges that issuers are facing from these contingencies, SGX RegCo has recently announced measures to support issuers, including providing an extension of time to publish their annual reports and hold annual general meetings1, as well as enhanced flexibility in fundraising.

Shareholders too face pressures in their investment decision-making; the current business and economic uncertainty and market volatility make it absolutely necessary for shareholders to have up-to-date information concerning material changes in issuers’ business and operations. We are consequently issuing this column to remind issuers that reliance on broad-stroke explanations pinned on a decline in general economic activity to explain away their outlook would be deemed inadequate and of little utility to their shareholders.

Many companies have shut stores, outlets, plants and offices, and curtailed business activities. The impact of these decisions, for example, may be quantifiable and should be disclosed such as proportion of retail units in a mall that are shut due to COVID-19 measures or capacity at which plants are operating. At the very least, companies must be transparent about such decisions including providing data on operations that have been suspended or curtailed.

Making disclosures during uncertain times We recognise that the inherent unpredictability in the rapidly evolving situation makes it difficult for issuers to react and hence update shareholders, who need information that is both timely and accurate. While the Listing Rules provide exceptions to disclosure if the information in question comprises matters of supposition or is insufficiently definite to warrant disclosure, there are specific scenarios where SGX RegCo explicitly requires material information to be disclosed.

In February this year, the Listing Rules were enhanced to make explicit that immediate disclosure is required for material changes to an issuer’s near-term earnings prospects caused by general trading trends or by specific events or developments. The Listing Rules also provide guidance to issuers on what to do where there are ongoing developments, or where there is insufficient information for the issuer to disclose financial impact with certainty.

On ongoing developments, where matters are still developing or undergoing further assessment and issuers are not able to quantify the impact, issuers should still make disclosures which would reflect its current state of affairs and outlook and in particular, assessment of the strategy or steps taken to address the effects of COVID-19 and how its operating and financial conditions may change. This will help investors to understand the potential impact on the issuer’s prospects. The issuer can provide updates when there are subsequent material developments.

When information is insufficient for issuers to disclose the financial impact with certainty, issuers should provide a detailed explanation of the non-disclosure and sufficient information to enable investors to independently assess the financial impact after taking into consideration the variables disclosed. Issuers should avoid giving generic statements on the current economic environment that do not give any clarity of the specific areas of impact on their operations and financial situation. For example, issuers should not publish a generic statement that they expect their financial results to be materially impacted due to COVID-19 without providing a detailed assessment on how their operations would be affected.

Board oversight As they make plans to deal with the wide-ranging effects of COVID-19 on their businesses, issuers’ Boards should keep in mind whether these plans will give rise to material information that must be disclosed.

Boards and auditors should have heightened vigilance on the possible effects of global developments on the issuer’s financials. This includes a review of the effectiveness of internal controls including close scrutiny on high-risk areas such as cash balances and accounts receivables. Boards should also ensure that robust systems are put in place so they are promptly alerted of changes to the issuer’s business and financial condition amid the rapidly evolving situation.

Some questions to consider Developments surrounding COVID-19 are likely to be considered material for investors to make informed decisions. To serve as a guide, issuers should consider the following areas in determining if disclosure is required.

Impact of COVID-19 on the issuers’ operations: Has there been material disruption to the issuer’s supply chains and/or a material impact to demand for the issuer’s goods and services? Are there material operational constraints and has the issuer put in place measures to overcome these challenges?

Compliance with COVID-19 restrictions: Has the issuer been in breach of any COVID-19 restrictions which may lead to penalties by the relevant authorities?

Impact of COVID-19 on the issuer’s earning prospects: Does the issuer expect material change to previous prospect statements, or significant improvement or deterioration to its near-term financial results? Has it revised its prospects statement in view of the highly uncertain situation? If so, the issuer must provide detailed explanations as to the reasons for revising its prospects statement and explain how COVID-19 has impacted the relevant quarter or half yearly performance. Given the heightened volatility, the issuer should review if its prospects statement remains relevant with greater regularity. We have recently observed issuers starting to withdraw their previous earnings guidance (i.e. profit estimates or projections). Issuers must provide detailed explanation on the reasons and impact to performance for the relevant period leading to the withdrawal.

Impact of COVID-19 on issuers’ liquidity: Are there any material uncertainty concerning the issuer’s ability to fulfill its near-term obligations? Are there any material adverse impact to the issuer’s sources of cash or liquidity (e.g. deferral of a significant payment from a major customer)? Are there material uncertainty on the issuer’s ability to meet its debt covenants or to service its debt obligations? Does the issuer plan to take any material action to raise funds or conserve its liquidity? Is the issuer making any changes to its dividend policy?

Impact of COVID-19 on issuers’ balance sheet: Does the issuer expect material impairments to its assets? How is the issuer safeguarding its key assets and value drivers? Are there material changes to capital expenditure previously planned for? Are there changes in accounting estimates or assumptions that would materially affect previously disclosed forecast or estimates as well as financial results?

Impact of COVID-19 on issuers’ contractual obligations: Has the issuer or any of its counter-parties exercised temporary relief, force majeure clauses or termination of contractual obligations for material contracts? Are there any threats to the issuer’s contractual rights or ability to fulfill its obligations for material contracts? Are there material contractual terms that have been waived or newly imposed?

Threats to viability: Are there significant threats to the issuer’s ability to operate as a going concern? Does the issuer anticipate making significant changes to its business plans in order to manage its near-term costs?

Impact of governmental measures: How have the issuer’s key businesses been affected by national and/or international measures taken by countries to address the impact of COVID-19? Do budgetary support measures have an impact on the operations and business plans of the issuer?

This list of key areas is not exhaustive. Issuers should consider the necessary disclosures that are relevant for their industry and circumstances.

Business updates With the extension of time granted to publish issuers’ annual reports, issuers should take steps to minimise information gaps regarding their state of affairs. In this regard, SGX RegCo urges issuers to publish regular business updates during this period to provide the market with prompt updates on their performance. Such business updates can contain key operating metrics or top-line financials.

These financial or non-financial indicators would allow issuers to communicate with investors the impact of COVID-19 on the issuers’ current performance and future plans, as well as mitigating measures to manage emerging threats arising from the COVID-19 situation.

Conclusion Providing prompt and high-quality information will not only benefit investors, but will also benefit issuers during this period. Timely disclosures help manage investors’ expectations and avoid shocks when the financial results are released. It is also evidence of sound governance and management, and would strengthen investors’ confidence in the issuer and its business strategy, which facilitates fundraising from the market should the need later arise.

The flip side is equally true. If issuers do not come clean, investors will assume the worst. In today’s market, the consequences of late or poor-quality disclosure could be dire.

Tan Boon Gin is CEO of Singapore Exchange Regulation

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