Singapore Exchange gives nod for dual-class shares

Move follows months of debate, with rules and safeguards put in place to prevent abuse

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

Companies seeking a mainboard listing in Singapore may now offer dual-class shares (DCS), following months of debate that required the regulators to step up with assurances of safeguards from abuse.

"SGX today joins global exchanges in Canada, Europe and the US, where companies led by founder entrepreneurs who require funding for a rapid ramp-up of the business while retaining the ability to execute on a long-term strategy are able to list," Singapore Exchange (SGX) chief executive officer Loh Boon Chye said yesterday.

With proper rules and safeguards in place, new economy stocks including start-ups and technology firms that have shares with different voting rights will now be allowed to raise funds through an initial public offering (IPO).

The move puts SGX back on a par with its regional rival, the Hong Kong Stock Exchange (HKEX), which revamped its listing rules in April to accommodate dual-class shareholding.

Chinese phone maker Xiaomi, targeting a valuation of over US$50 billion (S$68 billion), will be the first to list under HKEX's new framework.

SGX's move means it will not lose out to other exchanges in the chase for the likes of Facebook and Google.

Its decision to adopt the controversial structure comes after two rounds of public consultations and months of debate with the industry and experts on its pros and cons.

DCS companies must meet SGX's existing mainboard entry criteria and satisfy the exchange on their suitability to list under the structure.

As part of the safeguards, SGX requires an enhanced voting process where all shares carry one vote each regardless of class for the appointment and removal of independent directors and/or auditors, variation of rights attached to any class of shares, a reverse takeover, winding-up or delisting.

To prevent founders from entrenching themselves, each multiple vote share will carry a maximum of 10 votes, and be limited to named individuals whose scope must be specified at the IPO. There are also sunset clauses where multiple vote shares will automatically convert to ordinary voting shares under circumstances that the company must stipulate at the time of the IPO.

A Monetary Authority of Singapore spokesman noted the SGX framework struck a balance between supporting high-growth companies and having in place safeguards to mitigate governance risks associated with such structures.

"DCS listings will broaden the range of investment options for investors and add vibrancy to Singapore's capital markets," it said.

Market observers said SGX did a thorough and detailed study before it decided on adopting DCS.

TSMP Law Corporation joint managing partner Stefanie Yuen Thio said the SGX rules are also more flexible than Hong Kong's, which focus on innovative companies.

"Singapore's rules do not have such eligibility requirements and the regulators have a freer hand in considering which companies and which sectors should be allowed to use dual-class shares in their IPOs," she said.

National University of Singapore Business School associate professor Mak Yuen Teen, a corporate governance advocate, cautioned that it is critical for SGX and sponsors to exercise proper due diligence over the quality of companies using DCS structures.

"Investors should not just rely on the safeguards, but should be even more discerning with DCS companies," he said.

A version of this article appeared in the print edition of The Straits Times on June 27, 2018, with the headline 'Singapore Exchange gives nod for dual-class shares'. Subscribe