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13 March, 2017
On 16 February 2017, the Singapore Exchange Securities Trading Limited (“ SGX”) released a consultation paper seeking responses to a possible admission criteria for companies with a dual class share (“DCS”) structure. Under a DCS structure, certain shareholders have voting power disproportionate to their shareholding. Shares in one class carry one vote each (“OV Shares”), while shares in another class carry multiple votes (“MV Shares”).
The permissibility of DCS structures is a matter of considerable public debate. On one hand, there is the risk that shares with multiple votes can be used to severely undermine minority interests. On the other hand, it is recognised that DCS structures may be utilised by entrepreneurs and companies to increase flexibility in capital management, and to provide greater investor choice while supporting Singapore’s economic transformation.
The Committee on the Future Economy (CFE) recommended exploring the merits of the DCS structures as DCS listings are increasingly being considered by companies in high-technology industries. The Listings Advisory Committee (the “LAC”) advised SGX that it was in favour of permitting a DCS structure, subject to appropriate safeguards. SGX is therefore seeking feedback on whether a listing framework for companies with a DCS structure would be beneficial, and proposes additional admission criteria for a company to list with a DCS structure.
Under SGX’s proposed framework, a potential issuer with a DCS structure must fulfil all the usual admission criteria under the Listing Manual, and may be required to fulfil the following additional criteria: New Issuers; Holistic Assessment A DCS structure will only be allowed for new issuers seeking a listing. SGX will conduct a holistic assessment when determining the suitability of the listing applicant.
Compelling Reason A DCS structure will only be allowed if there is a compelling reason to adopt the same. Voting Differential The maximum voting differential between MV Shares and OV Shares is 10 to 1. The voting differential must be fixed at the point of IPO and may not be changed. Post-listing Issuance MV Shares may not be issued post-IPO except in the event of a rights issue (where the MV Shareholders may retain their existing control). Limited to Management Team The constitutive documents of the issuer may be required to include provisions that MV Shareholders must be executive directors or executive officers. Failing which, their shares will be converted to OV Shares.
Shook Lin & Bok LLP Client Update | Corporate Finance 2 Sunset Clause It may be a requirement that the constitutional documents provide for the automatic conversion of MV Shares into OV Shares at a future date. Board Composition Code of Corporate Governance recommendations on board composition will be mandatory for issuers with a DCS structure (currently it is on a “comply or explain” basis).
Appointment of Independent Directors Independent directors must be appointed through an enhanced voting process where one MV Share is limited to one vote. Coat-tail Provision MV Shareholders may be required to enter into a coat-tail agreement providing that the MV Shareholders will be treated similarly to OV Shareholders in a takeover.
Other proposed requirements are set out and elaborated in the consultation paper, a copy of which can be obtained from SGX’s website: www.sgx.com. The consultation exercise will close on 17 April 2017.
