Jury out on SGX dual-class shares

SGX Centre located at 4 Shenton Way. PHOTO: ST FILE

Moves by the Singapore Exchange (SGX) to allow dual-class shares are dividing the investing community. Such shares confer different voting rights and can allow founders to retain control despite having small stakes.

Advocates say the change can help invigorate a listless initial public offering (IPO)market and keep SGX from losing the likes of Manchester United. The football club reportedly bypassed SGX for the New York Stock Exchange (NYSE) as it permitted dual-class shares. Alibaba snubbed the Hong Kong Stock Exchange for NYSE for similar reasons.

But having a dual-class share structure won't guarantee that globally renowned companies will make a beeline for SGX. Some believe Singapore may end up attracting questionable firms, as the better ones will typically look to dual-list in the United States.

But not having it may preclude SGX from attracting quality firms that have compelling reasons to have such structures in place before listing, corporate lawyer Robson Lee said. Unlike Hong Kong, Singapore does not have huge Chinese firms providing a continuous IPO pipeline. But as Hong Kong recently rejected such structures, the SGX may have a leg up. Dual-class shares carry risks, but these should be managed by having safeguards to protect minority interests, not avoided, Mr Lee said.

Corporate governance expert Mak Yuen Teen pointed to the dangers of allowing dual-class shares without considering the differences in legal and institutional environments, and difficulties implementing meaningful safeguards. He noted that "the monitoring function will effectively be outsourced to the Government, courts and regulators, imposing a greater burden on them".

He warned that when Singapore opened its doors to foreign listings from China, it did not attract firms like Bank of China. Instead, it got China Sky and many failed S-chips that eroded investor confidence, liquidity and valuations.

Whether dual-class shares can be a game changer for the SGX will be the subject of much debate in the upcoming public consultation.

Grace Leong

A version of this article appeared in the print edition of The Straits Times on September 01, 2016, with the headline 'Jury out on SGX dual-class shares'. Subscribe