SGX Looks to Jump Start Listings With Unpopular Share Structuring

The initial report is being met with widespread criticism from investors given the disproportionate level of voting rights levied.

Singapore Exchange (SGX) is set to make waves by revamping a litany of internal listings rules within its exchange network, which will look to entice a number of initial public offerings (IPOs) – the initial report is being met with widespread criticism from investors given the disproportionate level of voting rights levied.

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The latest initiative followed approval from SGX’s Listings Advisory Committee (LAC) that gave the exchange permission to allow companies to list with dual-class share (DCS) structures. These mechanisms have drawn scorn from many individuals and investors, given that one set of shareholders is generally favored via a higher level of voting rights than another group.

On the opposite side of the fence, such options are seen as favorable to issuers seeking to retain control after listing, which could help prevent a repeat of earlier missed opportunities of marquee IPOs. Back in 2012, SGX lost out on the IPO of Manchester United to New York given it could not obtain approval for a dual class share structure. However, the Singapore government has since amended its laws to allow such structures.

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Despite talk of revamping the system, a one-share-one-vote structure will still likely remain the default for new listings, while the DCS structure could be facilitated, albeit with requisite corporate governance safeguards. Many individuals however assert that there is a risk of potential abuse by corporate insiders.

Inflection Point?

This scepticism has been tempered by the harsh reality of the times however, with SGX in the midst of a nadir of listings that culminated in a 17-year low in 2015 with just $430 million worth of deals.

According to David Smith, Head of Corporate Governance at Aberdeen Asset Management Asia, in a recent statement on the potential restructuring of issuer rules at SGX: “We are very concerned that SGX has fired the starter pistol on a race to the bottom – if SGX goes ahead with DCS structures, then other exchanges in the region will want them too, in the name of ‘competitiveness’.”

“We don’t agree that allowing a DCS structure is necessary to maintain competitiveness – we believe that holding on to a strong regulatory regime with a reputation for high quality corporate governance and enforcement should attract companies keen to display to investors their commitment to corporate governance,” Smith added.

SGX recently made headlines after it progressed with its acquisition of Baltic Exchange Limited, having now mutually agreed to terms for a recommended offer for the entire issued share capital. The update follows on the heels of an earlier announcement this August, which signalled the support of Baltic Exchange shareholders given the proposal of SGX’s offering. Earlier this month, SGX reported that it would secure Baltic Exchange shares for a total of $210.1 (£160.41) in cash per Baltic Share.

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