SGX seeks feedback on dual-class shares

If there is strong support for dual-class shares when the public consulation closes on April 17, the SGX will conduct another round of consultation on specific changes to listing rules, perhaps in the third quarter.
If there is strong support for dual-class shares when the public consulation closes on April 17, the SGX will conduct another round of consultation on specific changes to listing rules, perhaps in the third quarter.PHOTO: BLOOMBERG

Safeguards needed to ensure firm owners don't abuse voting rights

The Singapore Exchange (SGX) has launched a public consultation on whether to permit dual-class shares here, which give certain shareholders greater voting rights.

Dual-class shares (DCS) often appeal to business owners wishing to keep control of a firm while at the same time raising capital publicly.

The exercise, which got under way yesterday, will be open until April 17. If there is market consensus in support of DCS, another round of consultation on specific changes to listing rules would be done, perhaps in the third quarter.

DCS would be limited to new mainboard listings.

The Committee on the Future Economy recommended exploring DCS structures as such listings are increasingly being considered by high-tech and life sciences firms.

SGX is seeking feedback on safeguards to mitigate the risk of owner-managers becoming so entrenched in management that they are hard to remove, and the risk of expropriation, where controlling shareholders are able to benefit personally at the expense of non-controlling shareholders, Mr Chew Sutat, SGX head of equities and fixed income, said.

The SGX is considering introducing safeguards such as a "compelling reason" hurdle on why shareholders should be willing to surrender voting rights to owners.

Other safeguards include prohibiting the issuance of multiple-vote (MV) shares by a listed firm and introducing sunset clauses where MV shares are converted to one-vote shares either after a certain time or a vote by one-vote shareholders.

Another question: Should there be admission criteria on top of mainboard prerequisites such as a minimum market cap of $500 million? DCS firms would be required to highlight the risks of their structures in their IPO prospectuses and must make known to all holders of MV shares at the point of listing and in every annual report.

But some industry participants feel the proposed safeguards are not adequate. Gibson Dunn partner Robson Lee believes the criteria for permitting a DCS listing must be made transparent in the listing rules before implementation.

He suggests that such structures be limited to firms with track records in high-tech and intellectual property concerning their products or services. "These companies should also be in a continuous mode of technological development that justifies management continuity for a period of time after the initial public offering."

The right to hold management shares with additional voting rights should be subject to renewal once every three years, he said.

A version of this article appeared in the print edition of The Straits Times on February 17, 2017, with the headline 'SGX seeks feedback on dual-class shares'. Print Edition | Subscribe