SGX changes delisting rules to protect smaller investors

Move ensures that they have major say in delisting a firm and are offered a fair price

The Singapore Exchange Centre in Shenton Way. PHOTO: ST FILE

Small investors who hold minority stakes will see their interests better protected when companies decide to voluntarily delist from the stock exchange.

This comes on the back of two key changes announced by the regulatory arm of the Singapore Exchange (SGX RegCo) yesterday, which take immediate effect.

These ensure that not only do minority shareholders have a major say in whether a company gets delisted, but they will also not be shortchanged in terms of the price that is offered to them.

The move comes after a public consultation last year on the heels of a series of buyout deals.

From now, SGX said, whoever is trying to voluntarily delist a company must make an exit offer that is not just reasonable, but also fair, in the opinion of the appointed independent financial adviser.

In the past, there was no requirement for the offer to be "fair". But now, the price offered to the minority shareholders should be at least as much, or more, than the value of the securities they hold.

This means that companies have to give shareholders a better exit value if they choose to go private by way of a voluntary delisting.

SGX RegCo chief executive Tan Boon Gin said: "In arriving at the new voluntary delisting framework, SGX RegCo was cognisant of the need to ensure that exit offers are fair and reasonable so as to better align the interests of the offeror and independent shareholders."

Another key change centres on who can vote on the voluntary delisting resolution.

SGX yesterday ruled that the party making the offer and any other parties acting in concert with it should sit out the vote. This means that only minority shareholders and those not making or involved with the offer will vote on the voluntarily delisting resolution.

This is the case in other jurisdictions such as Hong Kong and Australia, where minority shareholders ultimately determine the voting outcome.

But in Singapore, minority shareholders who opposed the delisting of shipbuilder Vard Holdings failed to block the resolution last year.

SGX has also determined that the approval threshold for delisting votes remains the same. It currently stands at 75 per cent of the total number of shares held by independent shareholders present and voting.

"We concluded that the approval threshold should be kept at 75 per cent to give independent shareholders a say in the delisting in all situations," said Mr Tan.

But SGX will remove another provision which required that a voluntary delisting resolution must not be voted against by more than 10 per cent of issued shares held by shareholders present and voting. That is because it may be difficult for minority shareholders to obtain this requirement in some cases.

Mr David Gerald, chief executive of the Securities Investors Association (Singapore), said the changes are welcome.

"It is a good move. For some time now, minority shareholders in the delisting have been of the view that they are disadvantaged because the majority shareholders could participate in the voting. The minority was therefore unable to overcome the tyranny of the majority."

Mr Ho Meng Kit, chief executive of the Singapore Business Federation, said the new rules would ensure the interests of all shareholders, big and small, were protected.

"The new rules set a higher bar for controlling shareholders seeking to take the company private," said Mr Ho. "Companies seeking delisting just have to put their best offer on the table and invest more effort in explaining the exit value."

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A version of this article appeared in the print edition of The Straits Times on July 12, 2019, with the headline SGX changes delisting rules to protect smaller investors. Subscribe