http://www.todayonline.com/business/sgx-warns-irregularities-some-s-chips

SGX warns of irregularities at some S-chips

Published: 9:04 PM, November 17, 2015

SINGAPORE &ndash The Singapore Exchange (SGX) has raised a red flag over financial irregularities at some listed companies with operations in China, warning investors to take heed of the risks involved in investing in such firms.

&ldquo Several companies with large operations in China have recently announced adverse and significant changes in their financial positions under perplexing circumstances,&rdquo wrote SGX&rsquo s chief regulatory officer Tan Boon Gin in the exchange&rsquo s Regulator&rsquo s Column today (Nov 17).

He did not name the companies but said they spanned a wide range of sectors, including textile and sporting goods, manufacturing, heavy industries, packaging, electrical and electronics, retail and chemicals.

&ldquo In some instances, the companies reported customer claims for compensation more than 10 times the value of the original sales which is the subject to the claim. In others, trade receivables written off ballooned and the explanations offered did not provide clarity or comfort.

&ldquo Others involved the company extending prolonged credit terms to customers and reporting dwindling sales, while making significant prepayments to suppliers for raw materials and deposits for capital expenditure and expansion, only to write off these significant amounts, without any apparent accountability for the significant pre-payments and deposits in the first place.

&ldquo Some companies also made significant loans and advances to business associates, which were not part of the normal course of business. These debts were eventually deemed uncollectible and written off,&rdquo Mr Tan wrote.

As a result of such practices, the companies&rsquo cash, assets or reserves have been being substantially eroded. In turn, these companies made impairment provisions on their fixed assets, including factories, land and real estate property on the basis that discounted cash flow from the business was impaired and the value-in-use negligible, he wrote, warning that some of these impairment decisions may be questionable.

Mr Tan said the SGX is closely monitoring companies reporting adverse financial developments, as well as disclosures of companies, including those which show large swings in financial positions and performance.

He said the SGX expects auditors to undertake procedures to the standards expected for listed companies and will not hesitate to report infractions to relevant authorities. SGX is also monitoring if directors are exercising their fiduciary duties to safeguard the interest and assets of the company, he added, saying the SGX reserves the right to request for a Special Auditor to be appointed to investigate and report on the true state of affairs of the company.

&ldquo Investors should note SGX&rsquo s concerns and monitor these risks closely when making their investment decisions. In addition, SGX may raise questions to the board of these companies, particularly when the steps outlined above have not been adopted.

&ldquo Investors should pay particular attention to these questions and responses from the board. Investors can also band together under the auspices of organisations such as the Securities Investors Association (Singapore) to engage with the company, its directors and management,&rdquo Mr Tan wrote.