IFR Asia – June 30, 2018

People

&Markets

SGX introduces weighted voting rights

Singapore’s rules are less restrictive than those in Hong Kong

SINGAPORE EXCHANGE ushered in new rules last

week allowing companies with dual-class

shares to list in the city, despite criticism

THATûTHEûRULESûCARRIEDûINSUFlCIENTûINVESTORû

protection and would not help attract

issuers away from Hong Kong.

SGX said last Tuesday companies with

WEIGHTEDûVOTINGûRIGHTSûWILLûBEûABLEûTOûLISTû

ONûTHEûMAINûBOARDûPROVIDEDûTHEYûMEETû

CERTAINûCRITERIAûSUCHûASûBEINGûFAST

GROWINGû

THEûBENElCIARIESûOFûTHEû762ûSTRUCTUREû

BEINGûINTEGRALûTOûTHEûCOMPANYSûSUCCESSû

ANDûTHEûCOMPANYûHAVINGûTHEûBACKINGûOFû

SOPHISTICATEDûINVESTORS

4HEûEXCHANGEûINTRODUCEDûAûNUMBERûOFû

SAFEGUARDSûFORûMINORITYûINVESTORSûINCLUDINGû

a requirement that all appointments of

independent directors and auditors as well

ASûREVERSEûTAKEOVERSûORûDELISTINGûPROPOSALSû

BEûCARRIEDûOUTûONûAûONE

SHAREûONE

VOTEû

BASISû3'8ûALSOûSAIDûITûWOULDûCAPûMULTIPLEû

VOTINGûSHARESûATûûVOTESûAûSHARE

3'8SûMOVEûCOMESûONLYûTWOûMONTHSûAFTERû

ITSûRIVALû(ONGû+ONGû%XCHANGESûANDû#LEARINGû

introduced similar rules.

h7EVEûBEENûSUPPORTERSûOFûTHEûPRINCIPLEû

OFûONEûSHAREûONEûVOTEûTHEREFOREûITSû

disappointing that the exchange has

OPTEDûTOûDOûTHISûBUTûITûSEEMEDûINEVITABLEû

especially after Hong Kong implemented

similar proposals,” said Jenn-Hui Tan,

head of capital markets and corporate

GOVERNANCEûFORû!SIAû0ACIlCûATû&IDELITYû

International.

“I understand the commercial pressures

of an exchange to compete for listings

GLOBALLYûBUTûTHEûREALûCHALLENGEûFORû

3INGAPOREûISûTOûAVOIDûBECOMINGûAûSECONDARYû

market for dual-class share companies

INELIGIBLEûORûREJECTEDûFORûLISTINGûINû(ONGû

Kong.”

INVESTOR SAFEGUARDS

4HEû3'8ûVERSIONûISûSLIGHTLYûLESSûRESTRICTIVEû

than the rules introduced in Hong Kong.

4HEû(ONGû+ONGûBOURSEûRESTRICTEDû

LISTINGSûWITHû762ûTOûhINNOVATIVEvû

companies and those with a minimum

MARKETûCAPITALISATIONûOFûATûLEASTû(+BNû

53BN  ûASûWELLûASûANNUALûREVENUESûOFûATû

LEASTû(+BNûIFûITSûMARKETûCAPûISûLESSûTHANû

(+BN

It also introduced new rules requiring

THEûCORPORATEûGOVERNANCEûCOMMITTEEûOFû

COMPANIESûWITHû762ûTOûBEûCOMPRISEDû

entirely of independent directors.

SGX introduced no such requirements

around the type of companies that would

BEûELIGIBLEûTOûLISTûANDûSETûNOûMARKETûCAPû

THRESHOLDûBEYONDûTHEûMINIMUMû3Mû

53M ûREQUIREMENTûFORûCOMPANIESû

ONûTHEûMAINûBOARD

Singapore does not require listed

COMPANIESûTOûESTABLISHûCORPORATEû

GOVERNANCEûCOMMITTEESûALTHOUGHû3'8ûSAIDû

COMPANIESûWITHû762ûSTRUCTURESûMUSTûHAVEû

AûMAJORITYûOFûINDEPENDENTûDIRECTORSûONû

their remuneration, audit and nomination

committees.

“The Hong Kong rules are certainly a

LITTLEûBITûMOREûRESTRICTIVEvûSAIDû3TEFANIEû

9UENû4HIOûMANAGINGûPARTNERûATûLAWûlRMû

43-0û,AWû#ORPORATIONûh4HEYûAPPEARûTOû

HAVEûBEENûDRAFTEDûWITHûAûCERTAINûTYPEûOFû

company in mind.”

h3INGAPOREûHASûBEENûTHINKINGûABOUTûTHISû

framework for a long time and the rules

AREûDRAFTEDûTOûPROVIDEûMOREûmEXIBILITYû

Ultimately though, the exchange will

DECIDEûWHICHûCOMPANIESûWILLûBEûABLEûTOûLISTû

4HEûCOMPANIESûWILLûNEEDûTOûPROVEûTOûTHEû

exchange that they need the growth capital

and satisfy all the other criteria.”

)NVESTORSûANDûCORPORATEûGOVERNANCEû

ADVOCATESûSAIDûTHATûTHEûSAFEGUARDSûWEREû

INSUFlCIENTûHOWEVERûWITHûMANYûOPPOSEDû

to dual-class shares outright.

“The analogy I draw is a room with

SPRINKLERSûAûSMOKEûALARMûANDûAûlREû

EXTINGUISHERûBUTûNOûDOORvûSAIDû.ATIONALû

5NIVERSITYûOFû3INGAPOREû"USINESSû3CHOOLû

associate professor Mak Yuen Teen.

h!LLûOFûTHEûEQUIPMENTûMIGHTûBEûUSEFULû

IFûTHERESûAûlREûBUTûYOUûCANTûGETûOUTûOFû

THEûROOMû)FûYOUûHAVEûTHEûWRONGûFOUNDERû

ORûGROUPûOFûFOUNDERSûYOUûCANTûGETûRIDûOFû

them.”

RACE TO THE BOTTOM?

3'8SûlNALûRULESûINCLUDEûAûNUMBERûOFû

changes from its earlier consultations.

$URINGûITSûlRSTûCONSULTATIONûPAPERû

PUBLISHEDûINû&EBRUARYûLASTûYEARûITûPROPOSEDû

a minimum market capitalisation of

3MûWHICHûWASûDROPPEDûDURINGûTHEû

second consultation in March this year.

It also mooted introducing sunset

CLAUSESûWHEREûTHEûDIFFERENTIALûVOTINGû

structures fall away after a certain period

OFûTIMEûALTHOUGHûTHISûWASûALSOûABANDONEDû

during the second set of proposals.

4HEûEXCHANGEûSAIDûINûITSûlNALûRULESûITû

WOULDûALLOWûCORPORATEûVEHICLESûTOûACTûASûTHEû

BENElCIARIESûOFû762ûSTRUCTURESûALTHOUGHûITû

said in such cases it will consider additional

enhancements. SGX introduced this rule in

response to queries from three respondents

to its second consultation.

3EVERALûINVESTORSûEXPRESSEDûCONCERNû

ABOUTûTHEûIMPACTûTHISûWILLûHAVEûONûTHEûTYPESû

of companies that would list in Singapore.

“The intellectual premise for allowing

dual-class shares is that the company

UNIQUELYûBENElTSûFROMûTHEûLEADERSHIPûOFûITSû

FOUNDERvûSAIDû&IDELITYSû4ANûh#LEARLYûIFûYOUû

THENûALLOWûCORPORATEûVEHICLESûTOûHOLDûTHOSEû

SHARESûYOUVEûBROKENûTHATûLINKv

h)ûTHINKûWHATûITûILLUSTRATESûISûTHEûBROADERû

POINTûTHATûIFûYOUûWANTûTOûBEûCOMPETITIVEû

YOUûHAVEûTOûOFFERûSOMETHINGûDIFFERENTû)Nû

Hong Kong, the exchange is trying to limit

itself to well-known, larger companies,

WHEREûTHEREûISûARGUABLYûLESSûRISKûTHANûWITHû

what Singapore is proposing.”

/THERûSOURCESûSAIDûTHATû3'8SûMOVEû

to welcome dual-class shares would not

THREATENû(ONGû+ONGSûSTATUSûASûTHEûPRE

EMINENTûLISTINGûVENUEûINûTHEûREGION

h7EVEûSEENûINûTHEûLASTûYEARûORûSOûAûLOTû

OFûCOMPANIESûFROMû3OUTH

%ASTû!SIAûLOOKINGû

ATû(ONGû+ONGûTOûLISTvûSAIDûONEû%#-ûBANKERû

h)FûTHEYûWANTûTOûCOMEûTOû(ONGû+ONGûTHEYLLû

GETûBIGGERûVALUEûANDûTHERESûMOREûLIQUIDITYû

)ûDONTûTHINKûANYTHINGûTHEû3INGAPOREû

%XCHANGEûCANûDOûWILLûCHANGEûTHATv

THOMAS BLOTT

TOP STORY EQUITIES

“I understand the commercial

pressures of an exchange to

compete for listings globally,

but the real challenge for

Singapore is to avoid becoming

a secondary market for dual-

class share companies ineligible

or rejected for listing in Hong

Kong.”