On 11 July 2019, the Singapore Exchange (“SGX”) announced changes to two aspects of the voluntarily delisting regime for issuers listed on the SGX Mainboard and SGX Catalist, with immediate effect. Pursuant to consultations with market participants and the public which commenced in November 2018, amendments were made to the SGX listing rules, mainly pertaining to the shareholders’ approval threshold for a voluntary delisting and the exit alternatives for shareholders.
Under the revised SGX listing rules, the resolution to delist the issuer must be approved by a majority of at least 75% of the total number of issued shares, excluding treasury shares and subsidiary holdings held by the shareholders present and voting. The offeror and parties acting in concert with the offeror must abstain from voting on the Voluntary Delisting Resolution. SGX has also removed the 10% block provision which refers to the requirement that voluntary delisting resolution must not be voted against by more than 10% of the total number of issued shares held by independent shareholders. SGX recognises that it is difficult for minority shareholders to collectively obtain 10% block when the issuer is tightly controlled.
Exit offers in conjunction with voluntary delistings must include a cash alternative as the default alternative and must not only be reasonable but fair. According to the Securities Industry Council, the term “fair” relates to an opinion on the value of the offer price or consideration compared against the value of the offeree securities. The price offered to shareholders in a voluntary delisting has to be at least equal to the value of the offeree securities. The issuer must appoint an Independent Financial Adviser (“IFA”) to advise on the exit offer and the IFA must opine that the exit offer is fair and reasonable. To ensure that IFA’s opinions are well understood by investors, SGX expects the bases for determining fairness and reasonableness for the Exit Offer to be detailed separately, where appropriate. In this regard, SGX intends to work with the relevant industry bodies to develop guidance and standards for IFAs and their opinions.
i) General Offer
A General Offer is generally structured to allow the offeror to exercise its right of a compulsory acquisition where the offerer receives acceptance of more than 90% of the shares from the independent shareholders. In this case, the offeror can compulsorily acquire the shares from the independent shareholders and achieve 100% control of the delisted shares.
However, SGX highlights that the loss of public float requirement (10% of total issued shares) during the offer period should not be utilised as a mechanism to avoid compliance with the principles applicable to a voluntary delisting. Accordingly, to avoid circumvention, SGX will generally consider waiving compliance from the Exit Offer and Voluntary Delisting Resolution if the offer is fair and reasonable and the offeror has received acceptances from at least 75% of the independent shareholders.
The issuer will remain listed if these waiver conditions are not met. SGX will direct the company to suspend trading while continuing to meet its listing obligations, including the restoring of its public float. The issuer will be able to delist if a subsequent General Offer that meets the waiver condition is made or if the issuer enters into a subsequent scheme of arrangement that complies with the Listing Rules.
ii) Scheme of Arrangement
A scheme of arrangement takeover is a court-sanctioned arrangement allowing a company to be restructured under the Singapore Companies Act. This is a procedure initiated by the target company to effect the transfer of all its outstanding shares from existing shareholders to the acquirer, upon the approval of a majority in number of shareholders present and voting, representing at least 75% in value of the shares voted at a scheme meeting.
The voluntary delisting shareholder approval threshold is not imposed on delisting via a Scheme of Arrangement as there are existing comparable voting requirements under the Singapore Companies Act. The Exit Offer requirements apply to delisting pursuant to a Scheme of Arrangement since the Singapore Companies Act does not prescribe any such specific requirement.
iii) Voluntary Liquidation
The Voluntary Delisting Resolution and Exit Offer requirements do not apply to a delisting pursuant to a voluntary liquidation.
With the launch of DCS listing framework and applicable Mainboard rules in the second half of 2018, companies with DCS structure can now seek for a primary listing option upon fulfilling general Mainboard admission criteria as well as a list of suitability factors considered by SGX for listings with a DCS structure. A DCS structure gives certain shareholders voting rights disproportionate to their shareholding. Shares in one class carry one vote (“OV shares”), while shares in another class carry multiple votes (“MV shares”). Existing issuers on the SGX with a one-share-one-vote structure may not convert to a DCS structure. DCS structure enable 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, to pursue public listing.
The list of suitability factors includes:
a) the business model of the company (e.g. the company has conceptualized long-term plan that contemplates ramping up growth at a fast pace);
b) track record, including operating track record, of the company, group or business;
c) the role and contribution of intended MV shareholders to the success of the company or business. In the case of a permitted holder group, its relevance to the company or business;
d) participation by sophisticated investors;
e) if the permitted holder group is a trust or corporate vehicle, the suitability of the arrangement, including an assessment of whether sunset features or other safeguards are in place; and
f) other features of the company or business that require a DCS structure.
An issuer with a DCS structure must specify the holders of MV shares at IPO. A holder of MV shares must be appointed as a director of the issuer who is subject to fiduciary duties. Holder of MV shares must observe a moratorium period of 12 months from the time of listing in respect of both their MV and OV shares.
SGX has implemented safeguards against entrenchment risks such as maximum voting differential of 10:1 for MV and OV shareholders respectively, OV shareholders must control at least 10% of the total voting rights of the issuer, OV shareholders holding at least 10% of total voting rights on a one-share-one-vote basis must be able to convene a general meeting and automatic conversion provisions for MV shares.
An issuer with a DCS structure must ensure, as part of its continuing listing obligations, that certain prescribed key matters require the approval of shareholders through the Enhanced Voting Process (i.e. a voting process in a general meeting where votes are cast on the basis that one MV share is limited to one vote). Such key matters include variation of rights attached to any class of share, appointment and removal of independent directors; reverse takeover, winding up and delisting of the issuer. The issuer with DCS structure is also required to have majority of the audit committee, nominating committee and remuneration committee, and each of their respective chairman, to be independent directors.
SGX requires issuer with DCS structure to include prominent statements in its prospectus, offering memorandum, announcements, circulars and annual reports, disclosing details such as MV shareholders, their respective shareholding, voting percentage, voting rights and rationale and risks of the DCS structure.
For more details of the SGX-ST amended rules, please refer to http://bit.ly/SGXrules