24 April 2018
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Dual class listings are a 'go' - but alone won't give SGX its edge

Business Times
13 Apr 2018
Angela Tan

Allowing companies with dual class share (DCS) structures to list on the Singapore Exchange (SGX) is just one of the many factors needed to make Singapore more competitive against its equally progressive regional peers in attracting blockbuster initial public offers (IPOs), experts say.

Farhana Siddiqui, partner at Withers KhattarWong, said attracting quality listings is a function of many factors. These include the exchange's understanding of an IPO aspirant's business, the flexibility of rules to accommodate different businesses, investor education, analyst coverage and experience, as well as the quality of institutional investors.

"The mere fact of allowing dual class listings isn't going to make the SGX competitive enough. However, given that Hong Kong is also allowing it means that if we do not allow dual class listings, we will definitely not be more competitive,'' Ms Siddiqui told The Business Times.

For Singapore, the missed opportunity of hosting Manchester United's listing in 2012 drove the government to undertake a comprehensive review of Singapore's Companies Act. This was endorsed by Parliament in 2014, paving the way for the listing of companies with DCS structures, which gives certain shareholders, typically founders, more voting power.

But experts say in considering where to list, companies look at a variety of factors such as the investor base and business knowledge, proximity to investor base, listing costs, ongoing costs and compliance requirements, among others.

"So definitely, we need to look at these elements in competing jurisdictions and ensure SGX doesn't lag behind," she said.

Tham Tuck Seng, Capital Markets Leader at PwC in Singapore, believes that the size of an exchange does play a part in attracting unicorns - privately held startup companies with valuations of US$1 billion or more.

"New York Stock Exchange (NYSE) and Hongkong Exchange (HKEx) are large exchanges and their annual IPO funds raised are often 10 times the size of SGX and hence naturally, many large issuers will consider them as their preferred listing destination."

To attract unicorn listings, it is inevitable that SGX continues to innovate and keep up with market needs. This includes accommodating DCS listings.

Ms Siddiqui said: "There needs to be a deeper re-look at how to attract quality listings, particularly from around the region.

"The new companies setting up in Singapore and raising series funding tend to be in the tech space including fintech. Having ease of set up and creating more opportunities and incentives for investment in these sectors ought to create greater possibility of such companies seeking a listing here.''

Mr Tham feels that SGX's proposed DCS listing framework and safeguards are reasonable and flexible enough to attract some new economy stocks here.

"The success of the DCS structure lies in the types of companies that are admitted for a DCS listing. We want to see strong technology and innovative elements, which also includes biotech and life sciences, in the proposed DCS listings. To identify and admit this type of suitable candidates requires a lot of judgement by SGX and the listing professionals. This is a process which has to be fine tuned over time,'' he said.

Ms Siddiqui said: "The pleasing thing about SGX's proposed framework is that it addresses the risks rather than being prescriptive.''

Whether the proposed rules to prevent entrenchment and expropriation are sufficient will depend on how they are effected in practice, but features on automatic conversion of owner's shares to ordinary shares and having a tenor for shares with multi-voting rights are good parameters for early days.

"The rules need to be flexible to adapt to rapidly changing economies and industry needs,'' she said.

Compared to HKEx, SGX's proposed requirements are more flexible.

Mr Tham said: "For example, SGX doesn't require a specific market capitalisation test, (just mainboard entry criteria), no requirement of sophisticated investor participation and no separate set up of a compliance committee.

"Yet, the important ones are there to protect the one-vote shareholders. The proposed safeguards are very much in line with the exchanges in the US, Canada and Europe.''

Ultimately, he said, SGX's proposed framework reflects a delicate balancing act by the regulator to have sufficient safeguards without over-burdening and risking being unattractive to DCS listing aspirants.

So far, companies in the region, particularly those with family holdings, are actively watching this development.

Ms Siddiqui said: "We are regularly getting queries from our clients around the region on when SGX is going to allow DCS listings. What is particularly of note is that this interest is coming from companies which have shied away from listing.''

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.