The Singapore Exchange S68 Regulation (SGX RegCo) has issued a reprimand to the former directors of Nutryfarm International AZT who were accused of breaching rule 701(1)(b) of the SGX rulebook.
The former directors were former executive director and CEO Cheng Meng, former non-executive chairman Terence Luk Chung Po, former non-executive and non-independent directors Ng Poh Khoon Jimmy and Neo Chee Beng, former non-executive independent directors Lee Pih Peng and Low Chin Chin Parn Eric as well as former executive director Levin Lee Keng Weng.
Rule 703 states that the issuer has to announce any information on the SGX that may affect its share price or to avoid the establishment of a false market in its shares.
Nutryfarm is accused of being in breach of this rule as it had not disclosed that it was in discussions with Corpbond IV Ltd to explore the possibility of restructuring its loans from Corpbond on Jan 20, 2022. The bonds would expire between March 2022 and November 2022 and were proposed to be restructured into convertible bonds with a new maturity date beyond 2022.
However, just 10 days ago, shares in Nutryfarm fell by 36.4% to 14 cents from 22 cents apiece, prompting a trading query from the SGX RegCo. At the time, Nutryfarm denied any knowledge of any material information which would’ve caused the drop in its share price.
Between Jan 17 to 18, 2022, shares in Nutryfarm fell by a further 31.3% to close at 9.9 cents. The company then called for a trading halt on Jan 18, 2022.
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Following Nutryfarm’s announcement on Jan 20, 2022, trading resumed on Jan 21, 2022. By Jan 28, 2022, shares in Nutryfarm fell to a low of 6.6 cents, or a 33.3% drop from its closing price on Jan 18, 2022.
Before Nutryfarm’s announcement on Jan 20, 2022, it had previously said that it was in the midst of discussions with Corpbond for a possible restructuring of its Corpbond loans, which represented a significant payment obligation within the next 12 months on Aug 3, 2021. Both parties were already engaged in discussions between September 2021 to December 2021 on the proposed restructuring. Fast forward to December 2021, a written confirmation from Corpbond’s underlying investors with respect to their in-principle support for the proposed restructuring was provided.
While SGX RegCo notes that based on their available contemporaneous records, there was no indication of any substantive checks done to confirm whether leakage of information had occurred, it also notes that there was a “significant” fall of 36.4% in Nutryfarm’s shares with a 221% increase in the traded volume. The figures “could not be explained by information which was publicly available then”, says the market regulator.
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It adds that the most obvious inference of the unusual trading activity is that the information on the proposed restructuring could have been leaked.
“The significant adverse market reaction further made it clear that information on the proposed restructuring was material information that a reasonable person would expect to be disclosed, and ought to have been disclosed in a timely manner,” says SGX RegCo.
“As a result of the company’s failure to disclose information about the proposed restructuring in its response to the trading query on Jan 10, 2022, investors who purchased the company’s shares thereafter until the release of the Jan 20, 2022 announcement were not able to make an informed decision,” it adds.
An unnamed non-executive independent director of the company is also being reprimanded by the market regulator. The director is actively claiming that the price fall and the proposed restructuring were unrelated and that it was premature to disclose details of the proposed restructuring during the board’s discussion ont eh trading query.
There was no apparent basis given by him in taking these positions. His actions were significant in influencing the board's decision in replying to the trading query in the way it did. This director is said to have several years of experience as a director of two other SGX-listed issuers, and ought to have been familiar with the company’s disclosure obligations under the listing rules, says SGX RegCo.
On June 14, the judicial manager of Nutryfarm has applied to the court for an extension of the validity of the judicial management order to Sept 24. The hearing of the application extension is fixed on July 10.
Shares in Nutryfarm last traded at 8.5 cents before trading was suspended.
