On 20 January 2022 at 9.20 pm, Nutryfarm International (Nutryfarm) provided an update about certain developments in the Company. It also explained its earlier response to  an SGX query about unusual trading of the Company’s shares on 10 January 2022.

The update disclosed for the first time that the Company has been in discussions about possible restructuring of corporate loans provided by two third-party companies which are due to expire between March 2022 and November 2022. The Company did not disclose when the discussions commenced. The discussions were to explore the possibility of restructuring the corporate loans to convertible bonds with a new maturity date beyond 2022, with the possibility of the convertible bonds being converted to equity.

The second matter in the update was about pre-action discovery proceedings commenced against the Company on 14 December 2021. The Company had been served with an application to the Singapore High Court for a Court order that the Company disclose certain documents relating to the corporate loans and the transfer of the corporate loans from one of the two third-party lenders by novation to another company. The application was made by an individual alleging, inter alia, that he had provided funding for those third-party loans that were transferred. The Company said no claim or demand has been initiated by the individual against the Company at this time.

The update also provided information about its response to a trading query it received from SGX on 10 January 2022 in relation to unusual price movements. On that day, Nutryfarm’s share price had fallen to S$0.14 from S$0.22 at close the day before – a fall of 36.4%.

Readers may be familiar with the questions posed. The first question was as follows: “Are you (the issuer) aware of any information not previously announced concerning you, your subsidiaries or associated companies which, if known, might explain the trading? Such information may include events that are potentially material and price-sensitive, such as discussions and negotiations that may lead to joint ventures, mergers, acquisitions or purchase or sale of a significant asset. You may refer to paragraph 8 in Appendix 7.1 of the Mainboard Rules for further examples. If yes, the information shall be announced immediately”(emphasis mine).

Paragraph 8 in Appendix 7.1 only provides examples and it is clearly stated that it is not a complete list.

Nutryfarm’s response was: “The Company is not aware of any material information not previously announced concerning the Company, its subsidiaries and associated companies that might explain the unusual price movements in the Company’s shares.”

Question 2 was: “Are you aware of any possible explanation for the trading? Such information may include public circulation of information by rumours or reports.”

The response was: “The Company is not aware of any other possible explanation for the trading.

Question 3 asked: “Can you confirm your compliance with listing rules and, in particular, Mainboard Rule 703? (this relates to the disclosure of material information)

The Company said: “The Company confirms that it has complied with the listing rules of the SGX-ST and, in particular, Mainboard Rule 703.”

It added: “The Company is not aware of any undisclosed recent developments affecting the Company or its affairs which would account for the unusual trading activity. The Board of Directors collectively and individually takes responsibility for the accuracy of the aforesaid replies to the queries raised by SGX-ST.”

The current market cap of the Company as at 1.40 pm today, 21 January, is S$11.818 million (having fallen another 13.13% since it opened this morning, which is hardly surprising given the bombshell it just disclosed last night). On 10 January, when it responded to the SGX query, it was about S$19.239 million. The amount of the corporate loans was approximately HK$126.9 million as at 30 June 2021. Based on the exchange rate on 10 January, it was about S$22.04 million. In other words, the amount of the loans was more than the market cap of the company. The financial statements for the third quarter ending 30 June 2021 show that the total current assets of the Group was HK$190.5 million and total assets was HK$239.7 million. Using those numbers, the loans were equivalent to two-thirds of current assets and 52.9% of total assets. Whichever way one looks at it, the amount is highly material.

Yet, the Company said it was not aware of any material information. In its update on 20 January, it said:”At that time, the Company replied in the negative to the SGX to the SGX Query, inter alia, as the Board was of the view that it was premature to disclose the information relating to the Possible Restructuring of the Corpbond Loans and the pre-action discovery proceedings, for reasons as elaborated above, and such information was not material or likely to have been the cause of the trading activity and unusual price movements.”

What is happening to our disclosure-based regime? From “bound to fail” as a reason for not disclosing writs that involved highly material amounts, now to “premature to disclose” and the board deciding that discussions of restructuring of loans that exceeded the market cap of the Company was “not material” . When asked specifically by SGX whether it was aware of any material information not previously announced, the Company categorically answered that it was not aware, and confirmed that it was not aware of any undisclosed recent developments.

It would appear that there is a need to investigate not only possible breaches of Chapter 7 of the Mainboard Rulebook, but also sections 199 (false or misleading statements), 203 (continuous disclosure) and 330 (provision of false statements to the exchange) under the Securities and Futures Act.

On 29 November 2021 – or the day the Company was supposed to announce its full year results for the year ending 30 September 2021 – the Company announced that it has applied for an extension of time from SGX-ST to release its full year results. So, did the board and management only realised on that day that it would not be able to announce its results on time? A delay in announcing results is a red flag and arguably material information by itself. Why did the Company not announce the possible delay and apply for the extension earlier?

Unfortunately, Nutryfarm is far from the only company that only disclosed that it is applying for an extension of time to announce results, release its annual report or hold its AGM on the day of the deadline itself, or one to two days before the deadline. Since other companies have apparently not faced any action, it is hardly surprising if it becomes common market practice.

There has been no further announcement as to whether the application for extension of time has been approved, so Nutryfarm is technically in breach of the 60-day deadline to announce its full-year results. It is now close to two months since the annual results were supposed to have been announced. Nutryfarm shares continue to trade as if nothing has happened and the lack of information about its full-year results does not really matter for investors to make informed trading decisions.

Contrast this with what Bursa Malaysia recently did with regards to Sarawak Consolidated Industries Berhad (SCIB),  as reported in The Star on 3 November 2021. SCIB was supposed to release its 2021 annual report by 31 October 2021. On 8 October, it sought an extension of time to issue its annual report by 31 December 2021. SCIB cited “change in external auditor and impact of the movement restrictions in Malaysia and overseas arising from the Covid-19 pandemic.” Bursa rejected the application. There are quite a number of companies here which have been granted extensions of time for reasons that would not be accepted by Bursa .

Under Bursa rules, if an issuer fails to issue the outstanding financial statements within 5 market days after the relevant timeframes (this includes both quarterly and annual reports for listed companies), Bursa shall suspend trading in the securities of the issuer on the next market day after the suspension deadline. Bursa may also take enforcement action against the issuer and its directors.

Issuers seeking extensions must apply to Bursa at least 15 days before the expiry of the relevant timeframe. SCIB applied within the stipulated timeframe but its application was nevertheless rejected because Bursa is strict about  granting extensions.

Bursa duly suspended trading in SCIB shares on 9 November 2021. Trading in SCIB shares only resumed on 19 January 2022 after the company submitted its annual report.

According to Bursa Malaysia’s website, it generally takes enforcement actions for breaches pertaining to:-

  • financial reporting (i.e. timely submission as well as accurate reporting of financial statements);
  • delay in making material announcement (e.g. material default of credit facilities, material litigation, inaccurate responses to Unusual Market Activity queries as well as announcement of triggering classification as a company with inadequate financial condition/financially distressed company);
  • failure to comply with corporate governance requirements (e.g. failure to establish an internal audit function), foreign listing requirements, Bursa Malaysia Securities Berhad’s directives; and
  • related party transaction requirements.

It said that it views “financial reporting breaches (i.e. timely submission as well as accurate reporting of financial statements) strictly as the requirement for companies to submit timely and accurate financial statements is of paramount importance to aid investment decisions and ensure a fair and orderly market for securities that are traded on Bursa Malaysia.” Over here, SGX does not seem to take the same view.

Interestingly, it notes that “there has been significant improvement in compliance by PLCs in ensuring timely and accurate reporting of financial information as evident from the reduction of breaches in this area by more than 50% since 2008 (the year where we commenced stricter director enforcement action).” This is hardly surprising because of Bursa’s strict enforcement of these requirements, including imposing sanctions on directors. Where there is strict enforcement, one would expect market practices to improve.

Until SGX Regco and other regulators step up their enforcement in this and other areas, we will continue to see flagrant breaches of listing rules and regulations.