The Singapore Exchange (SGX) has rejected Nutryfarm International’s 45 per cent stake acquisition of First Linkage on grounds of its failure to address foreign ownership restrictions and contract-related risks in the company.
Nutryfarm first announced the proposed acquisition of First Linkage in March 2018 for a consideration of 90 million yuan ($13.3 million).
According to a regulatory filing, SGX-listed Nutryfarm had proposed the use of contractual arrangements to comply with foreign ownership restrictions in Singapore. Since these arrangements confer operational control and economic rights, issuers and minority shareholders may be affected in the case of a clampdown by authorities.
The nutrition and health food product company said, the acquisition of First Linkage would help Nutryfarm capture opportunities linked to existing operations, such as an internet management business.
First Linkage owns First Linkage HK, which in turns has interest in Beijing Zhonglian Shengtong Internet Technology Co.
Meanwhile, Zhonglian Shengtong provides education management consulting services, intellectual property licences and technical support to a company called Shengyuanyong Group.
In order to comply with Singapore’s foreign ownership restrictions, Zhonglian Shengtong had entered “variable interest entity” agreements with Shengyuantong.
SGX has advised that safeguards be put in place to protect the interests of the issue and its minority shareholders. The exchange has also demanded that Nutryfarm demonstrate its eligibility for listing, notwithstanding the use of these structures.