30 August 2018

The Singapore Exchange Securities Trading Limited (“SGX-ST”) introduced rules allowing companies with a dual class share (“DCS”) structure to be listed on the SGX-ST Mainboard by way of a primary listing on 26 June 2018. A DCS structure gives certain shareholders voting rights disproportionate to their shareholding - shares in one class carry multiple votes each (“MV shares”), while shares in another class carry only one vote each (“OV shares”).

On 19 July 2018, the Securities Industry Council (“SIC”) issued a “Consultation Paper on Revision of The Singapore Code on Take-overs and Mergers” to seek public feedback on proposed changes to The Singapore Code on Take-overs and Mergers (“Code”) to clarify the Code’s application to companies with a DCS structure (“DCS company”) that have a primary listing on the SGX-ST. The consultation closed on 17 August 2018.

Obligation to make mandatory offer under the Code triggered as a result of conversion of MV shares into OV shares or reduction of voting rights of MV shares

Conversion of MV shares

MV shares of a DCS company listed on the SGX-ST may be held by an individual or a group of persons or an entity (“permitted holder group”). The holder of MV shares must be appointed as a director of the issuer (“Responsible Director”) and the permitted holder group may appoint a Responsible Director for the group.

The MV shares may be converted into OV shares:

  • voluntarily by the holders of MV shares (“Voluntary Conversion”); or  
  • automatically, on a one-for-one basis, if a Responsible Director ceases to be a director, or the MV share is sold or transferred to any person (or in the case of a permitted holder group, to a person who is not in the permitted holder group) (“Automatic Conversion”), unless waiver of such Automatic Conversion is obtained by independent shareholders’ approval at a general meeting where one MV share is limited to only one vote.

Reduction of voting rights

Holders of MV shares can seek to reduce the number of voting rights attached to each MV share (“Reduction”).

Mandatory offer under the Code

Rule 14.1 of the Code provides that, except with SIC’s consent, any person who:

  • acquires shares which carry 30% or more of the voting right of a company; or
  • together with persons acting in concert with him holds not less than 30% but not more than 50% of the voting rights, and such person, or any person acting in concert with him, acquires in any period of six months additional shares carrying more than 1% of the voting rights,

is required to make a mandatory offer for the remaining voting rights in the company.

A Voluntary Conversion or an Automatic Conversion (each, a “Conversion”), or a Reduction will lower the total number of voting rights of a DCS company, which may result in an increase in the percentage of voting rights of a shareholder of the DCS company and persons acting in concert with him. SIC is of the view that the increase in the percentage of voting rights of such a shareholder or group of shareholders acting in concert (“Triggering Shareholder”) amounts to an acquisition for the purpose of Rule 14.1 of the Code. Therefore, the Triggering Shareholder should be required to make a mandatory offer under the Code.

Obligation to make mandatory offer waived for Triggering Shareholder independent of Conversion or Reduction

Where a Triggering Shareholder is independent of a Conversion or a Reduction, SIC proposes to waive the obligation to make a mandatory offer under Rule 14 of the Code for the Triggering Shareholder.

Obligation to make mandatory offer applies to Triggering Shareholder not independent of Conversion or Reduction, subject to certain exceptions

Where a Triggering Shareholder is not independent of a Conversion or a Reduction, SIC proposes that:

  • Making mandatory offer: The Triggering Shareholder be obliged to make a mandatory offer under Rule 14 within six months of the date of the Conversion or the Reduction;
  • SIC waiver subject to Whitewash Resolution: SIC will grant a waiver from the requirement for the Triggering Shareholder to make a mandatory offer under Rule 14, subject to the approval of the independent shareholders of the company for a Whitewash Resolution being obtained either before or within three months of the date of the Conversion or the Reduction; and
  • Disposing shares in lieu of making mandatory offer: SIC will allow the Triggering Shareholder to dispose of such number of shares as is necessary to reduce his aggregate voting rights in the company to a level below the thresholds stipulated in Rule 14.1 within six months of the date of the Conversion or the Reduction (or such longer time period as SIC may allow in exceptional circumstances) in lieu of making a mandatory offer under Rule 14.

Ratio of offer values between MV shares and OV shares in take-over offer should be one

An offeror may have to make an offer for both MV shares and OV shares when making a take-over offer for a DCS company. The Code provides that where a company has more than one class of equity share capital, a comparable offer must be made for each class of shares. SIC proposes that the ratio of offer values between MV shares and OV shares should be one.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg:

 

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