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Covid-19 outbreak tests materiality threshold for continuous disclosure

Covid-19 outbreak tests materiality threshold for continuous disclosure

Source: Business Times
Article Date: 24 Mar 2020
Author: Angela Tan

Given the gravity of the situation, issuers should be even more forthcoming in their communications with shareholders and consider going beyond the minimum regulatory disclosure requirement.

It is hard to imagine another event that has gripped the world's attention this year more than the Covid-19 outbreak, which has been declared a pandemic by the World Health Organization (WHO).

The profound impact of the measures being taken by governments, corporates and individuals to contain the spread of the novel coronavirus is creating a host of issues for businesses and their employees. Concerns range from corporate governance, disclosure, contracts, financing, strategic transactions and employment to a host of other legal issues.

As the world's stock markets crash, rebound and sink again into bearish territory on fears of economic fallout from border controls to contain the virus's spread, anxious investors need more information from issuers on the impact of the Covid-19 outbreak on operations and bottom lines.

For some Singapore firms, the nightmare worsened following Malaysia's movement control order (MCO) that kicked in on March 18. The order prohibits gatherings and encourages people to stay home. Most businesses have to be closed for two weeks. Malaysians are barred from leaving the country, including some 300,000 Malaysians who commute daily to Singapore to work, except those who are already in Singapore. As the Covid-19 situation develops, so will expectations and market practice around the content, timing and frequency of disclosures.

Issuers should disclose promptly any relevant significant information concerning the impacts of Covid-19 on their fundamentals, prospects or financial situation in accordance with regulatory obligations.

They should provide transparency on the actual and potential impacts of Covid-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situations and economic performances.

Investors should be kept informed if there are any changes to previous guidance, and any actual or foreseeable disruptions to current or future business activities.

Given the heightened uncertainty, issuers who do not anticipate significant disruption to their businesses as a result of Covid-19 would do well to share such assessments. Other information that will be well appreciated during this period include statements regarding the strength of the balance sheet, available liquidity and comfort with the headroom in bank covenants.

In Australia, issuers whose businesses are most heavily exposed to Covid-19 - largely the travel and leisure sectors or those who have significant interests in China or Europe - have announced new strategic plans and changes to corpo-rate actions and capital management policies.

There also appears to be a growing trend of entities making disclosures based on general market uncertainty and a potential general downturn in the economy. Some announcements also indicate positive impacts.

Communication by some SGX-listed firms, on the other hand, is still lacking. So far, some 20-odd firms have announced in their filings to the exchange that they have temporarily shuttered their factories, offices and retail shops in Malaysia to comply with the MCO. Businesses affected range from manufacturers and miners to developers. Most said they are still assessing the financial impact of the temporary halt.

Given the gravity of the situation, issuers should be even more forthcoming in their communications with shareholders and consider going beyond the minimum regulatory disclosure requirement.

Just as crisis communication is an essential aspect of crisis management for governments, so too for issuers. Oil and gas companies, for instance, could be more proactive in addressing concerns following the oil price collapse, including its implications for orders at hand and updates on ongoing negotiations.

Any disclosure that contains sufficient detail to enable investors to understand its ramifications and to assess its impact on the price or value of the securities will certainly go a long way to lend sanity and calm to the investing community.

The announcements must be carefully drawn to be accurate, complete and not misleading.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.

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