By Mak Yuen Teen
On August 15, Chew Yi Hong and I released our report on Catalist sponsors titled “Who’s Sponsoring Who? Challenges of the Catalist Board”. The study looked at non-sponsor fees and services, relationships between sponsors and companies they sponsored, and changes in sponsors, among other issues.
We focused on the top 10 sponsors for most of the report, which did not include Novus Corporate Finance, the continuing sponsor for Axington, Inc. Axington is of course linked to the now infamous Bellagraph Nova Group. Novus is the second most recently authorised sponsor, having only been authorised on June 21, 2018 and had only four clients when we completed our initial data collection in May 2019. The newest sponsor is W Capital Markets, authorised on April 5, 2019. W Capital Markets recently picked up its first continuing sponsorship job at Liongold Corp on August 12, when the latter dropped Stamford Corporate Services.
As we were finalising our report in July, we decided to look at recent changes in sponsor from January 2018 to July 2020, and Novus was prominent. Of the 42 changes in sponsor during this period, Novus was the most successful in picking up new clients, with nine out of the 42 that changed sponsor – or 21% – choosing Novus. In fact, since Novus was only authorised in June 2018, if we exclude the period when it was not yet authorised, it picked up 29% of all companies that switched. Since there are 20 continuing sponsors on Catalist, we were somewhat intrigued by the popularity of Novus.
In our report, we raised the concern that competition amongst sponsors for business may lead certain sponsors to lower their pricing and compromise quality of their work to gain more clients, or to pursue non-sponsor work with issuers under their supervision, thereby creating conflicts, This is because there are 20 continuing sponsors and 216 Catalist companies, so each continuing sponsoring will on average have fewer than 11 clients, and sponsors have to meet certain minimum requirements in terms of manpower and resources to be registered.
Our report mentioned that a change of sponsor is a possible red flag, especially where there are multiple changes. We noticed that a company which was among those with the most number of changes in sponsor since its listing – Sunrise Shares Holding – which had four different sponsors, switched to Novus as the fifth sponsor on October 1, 2019, after keeping its previous sponsor, ZICO Capital, for just over a year. Axington had switched from UOB Kay Hian to Novus on July 14, 2020 citing “commercial reasons”.
Occasionally, we find a company switching from one sponsor to another citing, for example, that the new sponsor has a stronger background in corporate finance. In the case of Sunrise Shares and Axington, both ZICO Capital and UOB Kay Hian are sponsors with corporate finance backgrounds. What could Novus as a relatively new sponsor offer that the others could not? Better expertise? Lower cost? Or something else?
It is a concern that a sponsor which is essentially the “frontline regulator” on Catalist can be changed without much good reason, and companies can keep doing this. It is almost akin to being able to choose your “regulator”. It seems important that such changes are closely scrutinised by SGX Regco – and we certainly recommend that investors be alert to changes in sponsor and possible problems ahead.
In Axington’s case, SGX Regco should look into what “commercial reasons” could have led to the change in sponsor, as part of its review into whether Novus discharged its responsibilities.
