SGX puts forward safeguards for dual-class share listings on main board

Tan Boon Gin, chief executive officer of SGX Regulation (SGX Regco) said, "The one-share-one-vote structure will continue to be the default structure. The DCS structure will be the exception."
Tan Boon Gin, chief executive officer of SGX Regulation (SGX Regco) said, "The one-share-one-vote structure will continue to be the default structure. The DCS structure will be the exception."PHOTO: ST FILE

SINGAPORE - The Singapore Exchange (SGX) on Wednesday (March 28) entered into the final consultation stage for dual-class share (DCS) listings, unveiling detailed rules and safeguards proposed, as it paves the way for the controversial structure on its main board.

"Singapore is restructuring and transitioning to a new economy. The Committee on the Future Economy has made clear in its recommendations that everyone has a role to play including capital markets. Our role is to provide a capital structure in which new economy companies have the best chance of success," Tan Boon Gin, chief executive officer of SGX Regulation (SGX Regco) said at a press conference.

"What these companies need is the ability to raise substantial funds in order to grow quickly as well as the freedom to focus on long-term growth. We, therefore, agree with the committee's recommendations to allow certain companies to list using dual-class share structure," Mr Tan shared.

Given that a majority of respondents to its first consult paper are against the setting of additional admission criteria for DCS structure, the SGX is proposing that DCS companies meet existing main board admission criteria. Therefore, instead of the initially planned minimum market capitalisation of S$500 million, a lower threshold of S$300 million has been proposed.

The onus will be on the company to demonstrate and convince the SGX that it needs the DCS structure to succeed. In its deliberations, the SGX will consider the role and contribution of the holder of multiple vote (MV) shares, the company's track record, growth trajectory and participation by sophisticated investors.

"The one-share-one-vote structure will continue to be the default structure. The DCS structure will be the exception," Mr Tan stressed.

Also proposed are safeguards against the two main risks presented by the DCS structure - expropriation and entrenchment risks.

To address expropriation risks, the SGX will require shareholders to vote via an enhanced voting process, where all shares including multiple vote shares carry one vote each during certain circumstances such as the appointment and removal of independent non-executive directors, and the winding up or delisting of the issuer. Independent directors will also make up the majority, including the chair of the audit, nominating and remuneration committees.

To prevent founders from entrenching themselves, the SGX has proposed allowing each MV share to carry a maximum of 10 votes, and limiting initial holders of MV shares to only directors. Also proposed is an event-based sunset clause requiring MV shares to be converted to one-vote (OV) shares once the MV shareholders ceases to be a director, or sells or transfers the MV shares.

"Shareholders can choose to do away with these safeguards through the enhanced voting process," the SGX said.

All companies with DCS structures will be clearly identified on trading screens.

The consultation is open till April 27. The exchange has said that it plans to adopt the DCS structure shortly after June.