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30 March 2022

On 2 March 2022, Singapore Exchange Regulation (“SGX RegCo”) posted an article titled “What SGX RegCo expects of business valuations for significant transactions” on its Regulator’s Column on the SGX website www.sgx.com.

The SGX Listing Rules require independent valuations to be conducted for transactions including acquisitions or disposals that meet the Listing Rule thresholds for very substantial acquisitions and reverse takeovers. Valuations must be undertaken subject to a robust procedure surrounding the assumptions and methodologies. The valuation report provides transparency and forms an important basis for shareholders and the investing public to assess the commercial merits of a transaction.

The article sets out SGX RegCo’s expectations of valuations and the companies that disclose them.

Matters to be disclosed about a valuation

The article states that, in order for investors to understand the merits of a specific transaction, companies should explain how the transaction will contribute to the company’s long-term business strategy. The Board must apply rigour in assessing if the proposed transaction, including the commercial terms, are in
the best interest of the company and shareholders.

Details that companies are obliged to disclose under the Listing Rules include:

  • The value ascribed to the assets;
  • The party who commissioned the valuation;
  • The basis including the underlying methodologies and assumptions in arriving at the valuation; and
  • The date of such valuation.

In addition, the following are expected of the Board:

  • Whether the key assumptions and estimates used for the valuation, such as forward-looking earnings or cash flow projections, and peer or reference companies are reasonable;
  • Where material uncertainties belie the projections, these uncertainties must be fully disclosed; and
  • Whether the valuation conclusion and limitation(s) as disclosed in the valuation reports are acceptable.

Matters that Boards should pay attention to

The article stresses that it is incumbent upon Boards to scrutinise projections to ensure they are realistic and sound.

In reviewing the valuation, Boards should examine if it was conducted independently by qualified and competent valuation professionals. They should consider the valuers’ track record in any questionable past transactions as well as the valuers’ credentials. Such considerations include whether the valuers are members of a professional business valuation body or authority, such as whether they are registered with the Institute of Valuers and Appraisers, Singapore (“IVAS”) as a Chartered Valuer and Appraiser, and have the relevant experience in performing valuations for the assets under consideration. Boards should also assess if the valuation is performed in line with recognised valuation standards, such as the International Valuation Standards. 

Two new trends affecting valuations

The article highlights two emerging trends in the field of valuation:

  • Growing significance of intangibles assets: With transactions increasingly involving businesses with new or disruptive technologies, companies should assess if the intangible assets and intellectual property under consideration are valued using appropriate methods and ensure that the basis of such valuation are adequately disclosed.
  • Environmental, social and governance (“ESG”) matters in business valuation: Companies should consider the ESG benefits and risks of their transactions and articulate how these drivers could affect the companies’ long-term prospects. SGX notes that these are growing areas in the business valuation space and companies should seek professional advice to ensure that the valuation methodologies and disclosures are up to date and reflect best practices in this regard.

Public market summary valuation letters should conform with acceptable disclosure requirements

IVAS has issued a “Practice Note on Minimum Disclosure Requirements for Summary Valuation Letters” providing guidance on what should be contained in summary valuation letters. Companies should refer to the Practice Note in preparing their valuations disclosures to assist with making consistent disclosures of business valuations and to ensure the Board provides the necessary information to the valuers they engage.

Review of Listing Rules

SGX RegCo is reviewing if the Listing Rules should be further strengthened to raise the standards of business valuations, in line with the previous review by SGX for property valuations. In this regard, SGX RegCo will consider mandating the application of the IVAS Practice Note in appropriate circumstances.