SINGAPORE (Reuters) - A funeral parlor switches into gold mining; a steel trader turns into a property developer; and a food packaging firm ventures into resources.
Reverse takeovers and shifting corporate business strategies on Singapore's stock market have come under the spotlight in the wake of a recent collapse in the share prices of three companies listed on Southeast Asia's biggest bourse.
One of the companies, Blumont Group Ltd (BLUM.SI), lost as much as S$6.2 billion ($4.96 billion) in market value in the past week. Prior to that, Blumont had surged as much as 12-fold this year, making it Singapore's top performer. The company, which listed in mid-2000, has shifted its focus between investment - most recently in mining companies - property development and sterilized food and medicine packaging.
The changes in business operations and the use of reverse takeovers - where a private firm buys a public company usually to bypass an often lengthy listing process - and its impact on the broader market risk undermining the credibility of one of Asia's biggest financial and regulation centers.
"It's one thing to change businesses like that if you're a closed-end investment fund, but if it's a listed company and it keeps chopping and changing then that raises all sorts of governance concerns because as a minority shareholder you don't then know what you're a shareholder of," said Jamie Allen, secretary general of the Asian Corporate Governance Association.
The market operator, Singapore Exchange Ltd (SGX) (SGXL.SI), had already toughened its listing rules after a string of blow-ups at locally-listed Chinese stocks, known as S-chips, in 2008 and 2011. At the same time, it has seen few big-ticket listings.
The metamorphosis of a handful of small Singapore companies, mostly penny stocks, has made them among the most actively traded on the SGX, which is home to blue chips such as Singapore Airlines Ltd (SIAL.SI) and DBS Group Holdings Ltd (DBSM.SI).
The market has seen sharp gains in small stocks. As of last week, many of the top 10 performers this year, with gains of 200-900 percent, had started new businesses or said they were exploring such forays. The SGX queried most of these companies on the price surge.
"Sometimes, these things (new ventures) can go either way for the smaller investors," said Jimmy Ho, president of the Society of Remisiers (Singapore). "It's better if the relevant authorities can do adequate due diligence beforehand."
The SGX pointed to guidelines saying all listings must comply with the prospectus disclosure requirements in the Securities Futures Act and the requirements of its listing rules. The exchange says it considers a reverse takeover in the same way it would an initial public offering in terms of how it scrutinizes the proposal from a regulatory perspective.
GRAVES TO GOLD
As part of one reverse takeover, Asia Pacific Strategic Investments Ltd (APST.SI), a funeral services provider in Malaysia, is transforming into a mining company with assets in Armenia. A new investor is buying a 30 percent stake in the restructured firm for S$200 million, implying a total value of S$667 million. Previously, the company had a market value of about S$10 million.
"We have been making losses for the last 3-4 years. So the company has been looking for a new business or new life," said Chief Financial Officer Lee Keng Mun. "We believe this gold mine is a profitable business project."
Manufacturing businesses seem hardest hit.
"The operating environment is very difficult for a lot of traditional businesses, but the owners are not keen to give up their listing," said Kevin Scully, founder and executive chairman of equity research firm NRA Capital. "The listing has value and that's why you see a flux of people coming to do reverse takeovers."
Facing a dwindling outlook in its manufacturing business, ICP Ltd (ICPL.SI) bought a majority stake in two tanker-owning entities earlier this year after previously investing in a coal exploration asset in Australia. This week, it proposed an investment in an unlisted Australian gold miner.
Similarly, Courage Marine Group Ltd (CRMG.SI), a dry bulk shipper, in June proposed diversifying into property investment, noting that its core business of transporting sand, cement and gravel helped it build up a network of construction industry contacts, and it had approaches to invest in real estate.
Broker UOB Kay Hian last week imposed trading limits on many small cap stocks which it reckoned were over-valued after a sharp run-up in prices. Those included Blumont, Asiasons Capital Ltd (ASNS.SI) and LionGold Corp Ltd (LION.SI) - the three inter-linked stocks that fell sharply in recent sessions.
Wild price swings in smaller stocks are fairly routine in a free market that has no circuit breakers. The SGX has opened public consultations on proposed circuit breakers for the securities market and plans to introduce these by the year-end.
"In other markets, if a stock price jumps 20 percent in one trading session, you'll probably call a trading halt and then find out what happened," said NRA Capital's Scully.
In a rare move, the SGX suspended trading in Blumont, Asiasons and LionGold on Friday after the sharp price falls, and later declared them as "designated securities" - meaning investors cannot short-sell them and buyers must pay upfront in cash. Trading later resumed, but under certain conditions.
Last year, Britain's financial regulator proposed reforms of its listing rules to close loopholes allowing reverse takeovers, in a bid to better protect investors.
SGX's dual role as market operator and regulator has in the past raised questions about a conflict of interest as it regulates listed companies that are also its clients.
"The question is whether they are able to regulate and profit from the market at the same time, which seems to be impossible," said Ho at the Society of Remisiers.
In a letter to the Straits Times newspaper on Wednesday, one reader wrote: "Why did the Singapore Exchange, as the regulator, not step in earlier to calm penny stock trading when prices rose from a few cents to more than S$2?"
"It was left to the broking houses to assume the role of regulator and impose trading curbs."
($1 = 1.2509 Singapore dollars)
(Additional reporting by Rachel Armstrong; Editing by Ian Geoghegan)