Fund managers oppose plan for dual-class shares

A Snapchat billboard in Times Square, New York. Parent firm Snap is among the companies that have drawn criticism for using the dual-class share structure because of corporate governance concerns.
A Snapchat billboard in Times Square, New York. Parent firm Snap is among the companies that have drawn criticism for using the dual-class share structure because of corporate governance concerns.PHOTO: REUTERS

SGX move is counterproductive, will likely trigger a race to bottom regionally, says industry group

International investors, including BlackRock and the Ontario Teachers Pension Plan, have voiced their concerns about moves to allow dual-class share listings in Singapore, saying they risk damaging the city's stock market and harming the region.

The Asian Corporate Governance Association (ACGA), an industry group whose members include listed companies as well as insurance and accounting firms, said in a response to Singapore Exchange's (SGX) consultation on the plan that dual-class shares will almost certainly prove to be counterproductive for Singapore and "likely trigger a race to the bottom regionally".

The fight for global capital has pushed exchanges to seek new ways to attract initial share sales. Hong Kong Exchanges and Clearing in January said it would look again at dual-class shares, more than a year after its regulator turned down the idea.

Such shares comprise a class of stock, often distributed to founding shareholders, that carries more voting rights than the ordinary shares sold to the public. Companies, including Snap, have drawn criticism for using the structure because of corporate governance concerns.

The initial public offering (IPO) in March by Snap, the owner of the popular Snapchat app, was the first to offer only non-voting shares in the United States.

"Should SGX proceed with dual- class shares, we believe that any benefits will likely prove short-lived and largely enjoyed by a small group of issuers and intermediaries," the ACGA, two-thirds of whose members are institutional investors that manage more than US$25 trillion (S$35 trillion), said on Tuesday.

OF LIMITED BENEFIT

Should SGX proceed with dual-class shares, we believe that any benefits will likely prove short-lived and largely enjoyed by a small group of issuers and intermediaries.

ASIAN CORPORATE GOVERNANCE ASSOCIATION, on the SGX's plan to introduce dual-class shares.

It added it was sceptical that SGX's proposed safeguards would be sufficient to offset risks related to having weighted voting rights.

The system could mean stocks in Singapore are discounted relative to international peers, it said.

Mr Chew Sutat, head of equities and fixed income at SGX, said: "We are consulting the market on dual-class structures because of the plurality of views. In an evolving marketplace, a unique balanced approach in Singapore with appropriate safeguards and transparency can widen investor choice, and enable fast- growing companies to tap growth capital without limiting investors to only investing in dual-class share structures."

Prime Minister Lee Hsien Loong in February gave his approval to dual-class shares and other measures proposed by a panel to drive economic growth.

The plan was given the green light by the exchange's independent listing advisory committee, which said safeguards needed to be in place, and that the traditional one-share- one-vote structure would be the default for new listings.

Said the ACGA: "Snap's decision to list only non-voting shares could render a dual-class share with safeguards policy significantly less attractive. In a period where stock exchanges and intermediaries are chasing IPOs, relying on short-term adjustments to market structure is less likely to generate sustained market gains."

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A version of this article appeared in the print edition of The Straits Times on April 14, 2017, with the headline 'Fund managers oppose plan for dual-class shares'. Print Edition | Subscribe