11 July 2023

On 3 July 2023, Singapore Exchange Regulation (“SGX RegCo”) published its Guidelines on Independent Financial Advisers (“Guidelines”), which set out SGX RegCo’s expectations of independent financial advisers (“IFAs”) and the advice contained in their opinions, and the role that directors of listed issuers play in procuring such advice, in the context of the Listing Rules of the Singapore Exchange Securities Trading Limited (“SGX-ST”) (“Listing Rules”). In an article published on the Regulator’s Column in conjunction with the release of the Guidelines, SGX RegCo explained that the Guidelines are intended to be a starting point to improve the standards, clarity and consistency of advice that IFAs render in their opinions.

Under the Listing Rules, IFAs must be appointed for exit offers, interested person transactions (“IPTs”) and, in some cases, under a notice of compliance (“NOC”), to direct the issuer to undertake certain actions or review transactions as required by SGX-ST.

This is to ensure that the directors receive independent and professional advice on a proposed transaction, including the impact on the issuer. In relation to IPTs, the directors should take into consideration such independent advice and make a recommendation to shareholders as to whether the transaction is on normal commercial terms and not prejudicial to the interests of the issuer and its minority shareholders. For exit offers, the directors should make a recommendation on whether to accept the terms of the offer after taking into consideration the advice of the IFA.

The directors must also make known the IFA’s advice to shareholders. Shareholders should review the directors' recommendations and the IFA’s advice carefully before coming to a decision on the proposed transaction, taking into account their individual circumstances and considerations.

Set out below are the key expectations of directors and IFAs as set out in the Guidelines and the Regulator’s Column.

Expectations of directors

The IFA opinion is important in informing the directors and shareholders. Where the proposed transaction involves the existing controlling shareholders or management, the independence of the IFA and its advice is of particular importance.

The Guidelines state that SGX RegCo expects the directors to take the following factors into consideration when appointing an IFA:

  • The IFA (including the professionals involved in preparing and approving the IFA opinion) must be independent and be able to give competent independent advice. No party should take any action which could fetter or compromise the independence of the IFA.
  • The directors should review the suitability of the professionals involved in preparing and approving the IFA opinion, including whether they have appropriate and relevant experience, and whether there is information that casts doubt on their competency, the quality of their advice and their resourcing.
  • The issuer should provide the IFA with unimpeded access to such persons, premises, documents, reports, information and valuations as the IFA reasonably requires to undertake its analysis and to issue its opinion.
  • The issuer should ensure that the relevant valuation reports, expert reports and financial reports contain the necessary disclosures for the IFA to issue its opinion.
  • The directors should be cognisant of the constraints that the IFA may face, including the tight transaction timeline, and seek to enable the IFA to best deliver its analysis and opinion within the stipulated timeline.
  • The directors should carefully assess the contents and material considerations contained in the IFA opinion for reliability, accuracy and reasonableness of information and critically engage the IFA on the IFA’s analysis and resulting opinion, especially where such analysis appears to be insufficient or to warrant further elaboration or substantiation.
  • The directors should also refer to the Singapore Code on Take-overs and Mergers (“Take-over Code”) and Take-over Code Guidance for more information and guidance on the expectations of the Securities Industry Council on the appointment of IFAs for transactions that fall within the ambit of the Take-over Code.

Expectations of IFAs

As stated in the Guidelines, the key tenets of an effective IFA opinion are that the IFA must be independent and that the IFA opinion must represent the objective views of the IFA. The IFA should exercise due care, skill and professional judgement in preparing its opinion. Where relevant, the IFA should refer to the Take-over Code and the Take-over Code Guidance to assess its independence for the purposes of its appointment.

The IFA must have a reasonable basis for its opinion. The IFA must not tailor its opinion to support the views of a commissioning party or any other interested party, or to arrive at a desired outcome. To arrive at its opinion, an IFA is normally expected to perform the following:

  • Obtain all information and documents of the issuer relevant to its assessment and assess if the information is sufficient for the IFA to form an informed opinion.
  • Review the fairness, reasonableness and completeness of assumptions or projections relevant to the transaction (to the extent feasible).
  • Where third-party expert opinion or valuation is involved, assess its recency and relevance to determine if reliance on the opinion or valuation is reasonable.
  • Critically review the information, documents, third party expert opinion or valuation obtained.
  • To the extent reasonably practicable, provide quantitative information on the factors the IFA considers to be material.

The IFA opinion should, among others, also contain:

  • A clear and unequivocal conclusion, as applicable:
    • for exit offers, whether they are “fair” and “reasonable”, and where the transaction involves alternative forms of consideration (e.g. a scrip option, a cash option or a mix of both), each form should be opined upon;
    • for IPTs, whether they are on normal commercial terms and whether they are prejudicial to the interests of the issuer and its minority shareholders;
    • for IPT mandates, whether the methods or procedures in determining transaction prices are sufficient to ensure that the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the issuer and its minority shareholders; or
    • as required by any NOC, where relevant.
  • The factors considered in, and the grounds for, forming an opinion. It should state and explain whether certain factors are determinative of its recommendations.
  • Where relevant and where there is comparable data (e.g. privatisation of peers or financial ratios of peers) which is or is not taken into consideration for the purpose of the recommendation, the basis for the selection should be clearly explained. This may include explaining the parameters or criteria for selecting the comparable data, the reasons for using these parameters or criteria, and any adjustments for the dissimilarities among the comparable data.
  • The methodologies used when conducting an analysis on the proposed transaction.
  • Any material relationships or interests (with a commissioning party or any other interested party) that could reasonably be regarded as relevant to the independence of the IFA including any fee or benefits (whether direct or indirect) to be received in connection with the issuance of its opinion.

Reference materials

The following materials are available on the Singapore Exchange website www.sgx.com: