The curious case of Best World International and the Role of the SGX Regco

 

Best World International has been suspended from trading on the Singapore Exchange for nearly 2 ½ years since 10/5/19 following an adverse report on its business structure by short-sellers. 

DRsSecret17DR's Secret is the main skincare brand of Best World. For the 6 months ended 30/6/21, it reported increases of 30.7% and 84.1% in revenue and net profit to $278mil and $77mil respectively. It had a gross profit margin of 79% and a net profit margin of 27.8%.

Its earnings per share for the period was 14.2 cents and its net asset value was $0.79.

Its cash balance stood at $393.5mil and the company is debt free. 

Controversy aside, it is easier to understand and accept when a company is suspended from trading as a result of weak financials but not when its financials are sound and strong.

Therefore, unless one takes the view that Best World’s financial statements are fake and the bank balance of $393.5mil does not exist, Best World shareholders, the general investment community and potential IPO aspirants will find it hard to resolve this aberration. 

A company’s business practices can never be compartmentalised clearly.  There are company secrets that have to be kept in order to preserve its competitive advantage.  Business rivalries exist as much as business alliances. 

One company’s inroad in market share comes at the expense of destroying a competitor and the line is unclear on the means to achieve that. 

In this respect, short sellers’ reports must always be taken with a certain level of circumspection because it is not easy to find people willing to make efforts on a commercial basis without the promise or prospect of reward. 

In the real world, it would be a challenge to find companies without business practices that someone can deem controversial.  What is not acceptable in one business environment may be acceptable in another. 

Every business with global ambition familiarises itself with each location’s business environment and the way business is done in that jurisdiction.

Otherwise, it cannot survive there. While the end does not and must never justify the means, the crux of the issue is that a corporation faced considerable challenges in striking a balance in being law abiding and fending off competitors who have no interest whatsoever in seeing it survive.

An equities market is a market place where the buying and selling and issuance of publicly held companies take place within a defined set of regulations. 

In this respect, SGX Regco must decide where its role ends because the line seems to have been blurred over the years as it appears to have crossed into the territory of trying to dictate business practices and ethics, an area where, arguably, it cannot claim absolute knowledge and understanding of. 

Every stakeholder understands that SGX Regco has the best intention of preserving market integrity and the nation’s reputation.

What SGX Regco seems to have failed to understand is that every business is fraught with risk, sometimes massive, and for every move that a business makes that is clear, there is one that is blur and can be controversial and exploited by a competitor.  Often it can be a zero sum game and no one out there is going to give a quarter to a rival.

For investors and stakeholders in Best World, it has been difficult to understand why trading remains suspended.

If shareholders are satisfied that they have enough information to take the risk of continuing to invest in Best World and will exercise their shareholders’ rights in getting the company’s management to be accountable, why does SGX Regco feel the need to intervene in what is essentially a real world economic function? 

If new investors invest in the shares, they have to do so with their eyes opened for no one can protect another from his follies neither should we think we have a moral high ground to deny people their just rewards for their risk taking. 

What SGX Regco should not do is to let its best intentions cross over to mollycoddling in the investment environment. It is not good for the people and the country.  Every country and economy has been and will continue to be build with ventures that contain risk taking. There is no such thing as a risk free safe business or investing environment.

Facebook, Google and Tesla all have their fair share of challenges and controversies and brushes with the law. They have faced criticisms but also have their shares of adherents.  Despite all these, the shares remained traded and the businesses have thrived. 

The thing to understand and acknowledge is that a listed company must be given space to meet challenges to its existence. To do that, it must be given the opportunity to right its wrongs if any and to take on challenges and threats from competitors.

  It is not the function of a regulatory body to inadvertently stifle business and the human spirit of entrepreneurship and endeavour.

Charge those in Best World for any criminal act if they have been committed.  If none is found and even if there is, do consider lifting the suspension and let shareholders, other stakeholders and the market decide on the fate of the company. 

Let the market do its job in price discovery. 

SGX Regco’s duty is to ensure that listed companies comply with set rules, it is not the market’s nanny or conscience and should never try to be because it destroys the spirit of enterprise.

 


Comments  

+1 #3 Waterflow 2021-11-14 08:15
Thanks Lotus Root. I was re-looking at page 78 of BWL's AR2020. It suggests BWL's affairs are not illegal and any risk is remote.

Putting this legality aside, SGX seems to have made up its mind on behalf of investors by suspending the stock indefinitely. I believe SGX can point out these issues and allow market forces (us as investors) to value the stock appropriately.

SGX RegCo's responsibility is to inform/educate investors and not decide on the business model of the company.

Quoting Lotus Root:
Hi Waterflow

Lawyers did not give the green light, as far as I know.

"On the legality of the group’s sales and distribution business in China (Legal Review), the Company’s legal advisor has opined that the group complies with the applicable franchise related laws and regulations in China , but certain features of the Franchise Model may potentially be in breach of the regulations on Direct Selling and ChuanXiao 传销."

And even if they did give the green light (which they didn't), why should a regulator give full trust to the words of lawyers that are paid by the very client that hopes for a green light?
Quote
0 #2 Lotus Root 2021-11-13 20:08
Hi Waterflow

Lawyers did not give the green light, as far as I know.

"On the legality of the group’s sales and distribution business in China (Legal Review), the Company’s legal advisor has opined that the group complies with the applicable franchise related laws and regulations in China , but certain features of the Franchise Model may potentially be in breach of the regulations on Direct Selling and ChuanXiao 传销."

And even if they did give the green light (which they didn't), why should a regulator give full trust to the words of lawyers that are paid by the very client that hopes for a green light?
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0 #1 Waterflow 2021-11-13 10:47
Hi Mr. Tng,

I like your article. I believe SGX overstepped their responsibility and acted like it's the law.

They should not impose their views on what is a fair business model or not, it is up to the lawyers to decide. In this case, lawyers gave the green light. SGX can do a job at warning us but they should not suspend stock without a strong reason.

I wrote a blog post https://kelvestor.com/blog/whats-a-fair-delisting-share-price-for-best-world-international/ and I invite shareholders of BWL to discuss more in a Telegroup group.

https://t.me/joinchat/3rw1yrBXkiwxYWI1
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