27 April 2018

On 28 March 2018, the Singapore Exchange (“SGX”) announced that it proposes to introduce a primary listing framework for issuers with dual class share structures (“DCS Framework”) to the Mainboard of Singapore Exchange Securities Trading Limited (“SGX-ST”). The proposed DCS Framework will encompass safeguards against entrenchment and expropriation risks to help protect the interests of minority shareholders.

To implement the DCS Framework, SGX has released a consultation paper on “Proposed Listing Framework for Dual Class Share Structures” (“2018 Consultation Paper”) to seek comments on proposed amendments to the SGX-ST Mainboard Listing Rules (“Mainboard Rules”).

Feedback on the 2018 Consultation Paper must be submitted to SGX by 27 April 2018.

In brief

SGX proposes to introduce a primary listing framework for issuers with dual class shares on the SGX-ST Mainboard with, among other things, the following safeguards against:

Entrenchment risks

  • Voting rights attaching to shares with multiple votes (“MV shares”) should be capped at 10 votes per share;
  • Issuer will not be allowed to issue MV shares post-listing;
  • Initial holders of MV shares should be limited to directors of the issuer; and
  • Constituent documents of the issuer must have event-based sunset clauses which require MV shares to be automatically converted to ordinary voting shares on a one-for-one basis.

Expropriation risks

  • Certain key matters including variation of rights attached to any class of shares and appointment and removal of independent directors must be approved at a general meeting where each MV share is limited to only one vote.

Background information

On 16 February 2017, SGX issued a concept consultation paper to seek feedback on broad policy considerations on whether to introduce a DCS Framework, and if so, the appropriate safeguards to be adopted to address potential risks associated with issuers with DCS structures (“2017 Policy Consultation”). On 28 March 2018, SGX issued its Response to comments received from the 2017 Policy Consultation. SGX shared that a majority of the respondents from different constituent groups are supportive of the introduction of the DCS Framework. With this conclusion, SGX issued the 2018 Consultation Paper that sets out the proposed amendments to the Mainboard Rules to implement the DCS Framework.

Issuers suitable for listing with a DCS structure

SGX proposes that an issuer which intends to adopt a DCS structure must fulfil the existing admission criteria set out in Chapter 2 of the Mainboard Rules. In addition, the issuer and the issue manager must establish that the issuer is suitable for listing with a DCS structure.

SGX intends to publish guidance on the suitability factors to be taken into account in determining the suitability for listing of an issuer with a DCS structure after it has reviewed a sufficient number of applications for listing for such an issuer.

Safeguards against entrenchment risks

The 2018 Consultation Paper proposes the following safeguards against risks of the MV shareholders of a DCS issuer entrenching control of the issuer:

  • Maximum voting differential: Voting rights attaching to MV shares should be capped at 10 votes per share and the ratio must not be changed post-listing; 
  • Rights of OV shareholders: To ensure that holders of ordinary voting shares (namely, shares that carry one vote) (“OV shares”) are not disenfranchised, OV shareholders holding at least 10% of the total voting rights must be able to convene a general meeting; 
  • Restriction on issuance of MV shares post-listing: The issuer will not be allowed to undertake equity fundraising by issuing MV shares post-listing except in the event of a rights issue that is approved by a special resolution of its shareholders; 
  • Automatic conversion of MV shares: Initial holders of MV shares should be limited to directors of the issuer who are subject to fiduciary duties. An issuer with a DCS structure must have in its constituent documents event-based sunset clauses which require MV shares to be automatically converted to OV shares on a one-for-one basis once a MV shareholder ceases to be a director, or sells or transfers part or all of any interest in respect of his MV shares unless waiver of such automatic conversion is obtained by specific shareholders’ approval at a general meeting where one MV share is limited to only one vote (“Enhanced Voting Process”).

Safeguards against expropriation risks

To address expropriation risks, SGX proposes to provide in the Mainboard Rules that certain key matters must be approved by the shareholders through the Enhanced Voting Process. Such key matters relate to, among other things, variation of rights attached to any class of shares, appointment and removal of independent directors and delisting of the issuer.

Clear disclosure to investors and shareholders

SGX proposes to introduce new requirements in the Mainboard Rules to require an issuer with a DCS structure to disclose its DCS structure, MV shareholders and their respective shareholding and voting percentage both at the point of listing and thereafter, on a continuing basis, in its annual report.

An issuer with a DCS structure must include a prominent statement on the cover page of its prospectus, and on a continuing basis, in its announcements, circulars and annual reports, highlighting that the issuer is a company with a DCS structure.

Reference materials

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

 

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