No buying SGX watchlist shares with CPF savings

Move takes effect next year, following 20-cent minimum trading price rule
By Yasmine Yahya,  Assistant Money Editor, The Straits Times, 11 Feb 2015

CENTRAL Provident Fund (CPF) savings under the CPF Investment Scheme (CPFIS) will not be able to be invested in firms on the Singapore Exchange (SGX) watchlist from March next year.

The move "serves to safeguard members' CPF savings as securities placed on the SGX watchlist could potentially be delisted", said the CPF Board in a statement yesterday.

The restriction will apply to ordinary or preference shares and property funds included in the CPFIS.

Imposing a March 1, 2016, deadline is in line with a new SGX rule that requires listed companies to have a minimum trading price of 20 cents. This rule comes into effect on March 2 this year.

After a one-year transition, a mainboard-listed company with a six-month average share price below 20 cents will be placed on the SGX watchlist.

They will then have up to three years to get the price above that cut-off level or face delisting.

Many firms whose share prices are now at or below 20 cents are expected to consolidate their shares, transfer to the Catalist board, where the rule does not apply, or undergo a reverse takeover in order to boost their stock prices.

CPF members who have invested in securities before they are placed on the SGX watchlist can choose to hold or sell them or participate in corporate actions, the CPF Board said.

Remisier Alvin Yong was concerned that the CPF Board's move could hurt trading liquidity. Currently the watchlist includes firms that have been mismanaged or are loss-making. "But firms that end up falling into the watchlist because their share price goes below 20 cents may not have any fundamental problems," he noted.

By lumping together all the companies, the "CPF (Board) is failing to distinguish companies placed on the watchlist for technical rather than fundamental reasons".

The move will likely further dampen trading liquidity in the market, Mr Yong added.

"Already you can see that stocks which are trading at or near 20 cents are now being shunned by investors who fear these firms could end up on the watchlist. Now that they know their CPF savings cannot be used to buy such shares in future, they will likely avoid them even more."

In a separate statement yesterday, the SGX said the introduction of a minimum trading price for mainboard-listed firms is "aimed at improving the quality of the Singapore stock market; higher-priced shares have better liquidity, lowering transaction cost for investors".

Such shares are also less susceptible to speculation and market manipulation, the bourse operator added.

The SGX said it has actively engaged companies to help them prepare for compliance with the new rule. More than 80 per cent of the companies that may be affected have indicated that they were prepared to undertake some form of corporate action, including share consolidation, it added.

The SGX will waive fees for minimum trading price-related share consolidation for two years starting from March 2. It has also developed a comprehensive checklist, a guide to the new rule and a list of frequently asked questions. All are available at www.sgx.com/mtp for companies and retail investors.