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SGX RegCo teams up with professional body of valuers to tackle problem of questionable valuations

SINGAPORE (Jan 28): The Singapore Exchange Regulation has enlisted the help of the professional body of valuers, to bring its expertise to bear when listed companies face questions over the value of assets in potential deals.

Under a memorandum of understanding signed between SGX RegCo and the Institute of Valuers and Appraisals, Singapore (IVAS), which is part of the Singapore Accountancy Commission, the exchange can turn to the institute for expert advice and support on matters related to business valuation.

IVAS, according to SGX RegCo, can help check if valuaton reports are conducted and prepared in compliance with applicable codes and standards. “It is important that investors have confidence in valuations,” says SGX RegCo CEO Tan Boon Gin.


The MOU between SGX RegCo and IVAS follows an earlier tie-up between SGX RegCo and the Singapore Institute of Surveyors and Valuers (SISV), which focuses on real estate valuations. Last June, both parties jointly launched a valuation reporting guide for listed companies and REITs.

SGX’s partnership with SISV is to help address potential concerns in the valuation of properties – an increasingly important element in Singapore’s REIT-heavy stock market.

The latest collaboration with IVAS, on the other hand, addresses concerns over valuations of business assets. Similarly, this could be a growing problem as SGX tries to add to the variety of companies listed here.

Even with certain commonly-accepted parameters, valuation is an art that has an inevitable subjective element, as different valuers or analysts use different assumptions for their forecast. These might include utilisation rate of an asset and cost of funding. Depending on the timeframe involved, this can lead to significant differences in the final appraised figure of an asset.

Over the past few years, there had been a string of transactions undertaken or attempted by SGX listed entities based on doubtful valuations.

In 2017, a group of minority unitholders of Sabanah REIT took issue with the price at which the REIT manager acquired new properties. The minorities’ attempt to oust the board failed, but the REIT manager’s CEO quit eventually.

See: Disgruntled Sabana REIT unitholder lodges complaint with CAD over valuation of Changi South property

There were also several questionable deals done by companies in the mining, oil and gas sector where it is common to inflate the valuation of an asset in deals, using correspondingly inflated share prices.

In 2016, ISR Capital commissioned two valuation reports that each tacked a valuation of more than US$1 billion to a mining asset it tried to buy. Upon several rounds of scrutiny by SGX and other concerned parties, a third report valued the asset at just US$48 million.

See: Third independent assessment puts 'most likely value' of ISR Capital's Madagascar concession at US$48 mil

In an episode with far wider ramifications than ISR, Hong Kong-based commodities giant Noble Group had been criticised, for years, by a former employee and other parties for over-stating the value of its assets while understating the value of its liabilities. Last November, Singapore authorities finally announced a formal investigation on the company.

See: Noble's auditors come under fire

In Noble’s case, the auditor for the company, EY Hong Kong, has maintained the accounts are proper. Even with SGX’s specific request to go through the books again, EY Hong Kong said it has reviewed at least 80% of the contracts under scrutiny and found nothing amiss. Yet, substantial write-down followed. “The auditor nailed his colours to the mast,” says Tan.

Tackling audits
In addition, to address the roles of auditors and audit committees, SGX RegCo plans to continue with its more “interventionist” approach.

For one, SGX RegCo plans to be more active in determining the scope of the year-end statutory audit of certain companies, to include specific issues to be addressed, based on SGX RegCo’s own review of those companies in the prior year.

SGX RegCo also wants to make it compulsory for a Singapore-based auditor is required to sign off on year-end audits. Currently, the listed companies, citing their extensive overseas operations outside Singapore, can engage overseas auditors, like Noble hiring EY Hong Kong, to take on this responsibility alone.

“A Singapore-based auditor can give us more regulatory traction, or access. If they are based in Singapore, they will come under ACRA’s purview,” says Tan, referring to the Accounting and Corporate Regulatory Authority.

Tan adds that thus far, only around 20 Singapore-listed companies do not have a Singapore-based auditor signing off. New listings almost always have a Singapore-based auditor.

SGX RegCo is also signalling a tougher stance when it comes to the scope and responsibility of special auditors appointed when companies fall foul of certain deals or their books are questioned.

It can already appoint special auditors and SGX RegCo has done so several times when detailed probes have to be made. In the recent case of SBI Offshore, SGX RegCo has also made the company appoint a special auditor that has to report “exclusively” to SGX RegCo. Other special audits tend to go to the company boards first.

See: SGX RegCo orders Mirzan Mahathir-linked SBI Offshore to make special audit

As the worldwide auditing industry is dominated by the so-called Big Four, Tan urges the community not to “close ranks”, and instead have the “gumption to take a professional stance” when laws and regulations are breached.

He urges them not to hide behind terms of engagement, or expressing themselves in a language so vague that there is nothing specific enough for SGX RegCo to act on.

Tan reminds the auditing profession that appointments as special auditors oblige them to carry out the tasks in a “credible manner”.