The Association of Banks in Singapore (ABS) has recently issued new guidelines in relation to due diligence carried out by its member banks when acting as issue managers or sponsors on prospective issuers seeking a listing on the Singapore Exchange (SGX). The new guidelines became effective from 13 May 2016.

Feedback from various stakeholders and best practices of intermediaries involved in assisting companies seeking SGX listing were considered in formulation of the new guidelines.

The guidelines do not have the force of law and are not legally binding on members of ABS but are recommended as guidance on due diligence procedures in the context of initial public offerings in Singapore. The guidelines acknowledge that the scope and extent of the appropriate due diligence vary between transactions and may be different from the recommended procedures. An issue manager should exercise its judgement to determine what investigations or steps are appropriate or applicable in the case of a particular issuer.

The New Guidelines

The guidelines are divided into two sections. Section I sets out general principles of conducting due diligence on a prospective issuer which cover four areas: (i) a properly structured and documented process, (ii) checks and verifications of important information or representations, (iii) overall control of the due diligence process and (iv) the appointment of and reliance on advisors and experts.

Section II of the guidelines sets out recommended due diligence procedures. It is broadly divided into three aspects: (i) management, directors and controlling shareholders of the issuer, (ii) business of the issuer and (iii) expert sections of the offer document. Key recommended procedures include:

  1. Due diligence on management and directors should include review of their experience and qualifications including background searches and assessment of their character and integrity. Where management, directors and controlling shareholders have recently resigned, the issuer manager should query the reasons for such resignation and whether it raises questions about the issuer, or the remaining management, directors and controlling shareholders.
  2. Diligence on the business of the issuer should go beyond on-site visits to material production facilities, properties and material assets which may include inventory and biological assets such as livestock and crops. Among other things, the issuer manager should assess dependence on major suppliers and customers and review material contracts and outstanding legal proceedings as well as analyse regulation of the industry in which the company operates and the financial health of the issuer. In particular, taxable income and revenue or cost declared in tax filings should be reviewed for consistency with the issuer’s audited financial statements.
  3. With regard to expertised portions of the prospectus, the issue manager should query any material discrepancy or inconsistency against the information the issue manager has obtained. The issue manager should also review and discuss with the expert assumptions or qualifications made in the expert‘s opinion or report.

The appendix to the guidelines contains guidance notes in certain selected situations which provide examples of the application of the guidelines.

Concluding Remarks

The new guidelines aim to be comprehensive as well as address matters deemed important by the SGX at an early stage of the listing process. These guidelines are a welcome step providing broad contours for the due diligence process, which will help issue managers and issuers in planning for and conducting a due diligence exercise.