Singapore Exchange seeks feedback before launch of dual-class shares

The Singapore Exchange (SGX) has launched a two-monty public consultation on the matter of introducing a dual class share (DCS) structure; a share structure where certain shares possess higher voting rights than others.

The aftermarket announcement on Thursday by the bourse details that its consultation is seeking feedback on possible safeguards. Some of the measures being discussed are admissions criteria “over and above current Mainboard prerequisites such as a minimum market capitalisation of S$500 million” and potential safeguards against controlling shareholders entrenching themselves and minimising the risk of expropriation.

According to an official release, safeguards include:

  • Prohibiting the issuance of multiple vote (MV) shares by a company that is already listed.
  • A sunset clause where MV shares are converted to one-vote (OV) shares either after a certain time or subject to a vote by OV shareholders.
  • Subjecting the appointment of Independent Directors to a vote where both MV shares and OV shares are treated equally.

“The Companies Act allows for an MV share structure. The CFE has also recommended that DCS listings be permitted with appropriate safeguards to support Singapore’s ambitions to become a leading tech and biomedical hub,” said Loh Boon Chye, CEO of SGX.

Loh adds, “A DCS structure could enable entrepreneurs to swiftly accelerate business expansion while continuing to lead the strategies and growth of their company. SGX must keep innovating as a fund-raising platform and feedback from our stakeholders will be crucial in helping to construct a DCS offering which is in the interest of investors and attractive.”

Since becoming CEO, Loh has faced challenges in growing the trading volume of the city-states’ bourse. In terms of securities traded on the SGX, January 2017 saw its total securities market turnover valued at S$20.9 billion, unchanged month-on-month and down 10 per cent year-on-year (YOY) over 20 trading days. Securities daily average value (SDAV) stood at S$1.047 billion, up 5 per cent  month-on-month and down 10 per cent YOY.


According to the SGX, a DCS structures permits entrepreneurs and companies greater flexibility in capital management and boosts investor choices. If DCS companies are listed, their securities will be clearly identified for investors and investor education activities will be organised.

They will also be required to prominently disclose risks of the structure in their IPO prospectuses and disclosed all holders of MV shares at the point of listing and in every annual report.

There is already a precedent for a DCS in the form of listed firm Singapore Press Holdings (SPH), which is regulated by Singapore’s Newspaper and Printing Presses Act of 1974.

SPH issues both management and ordinary shares, with all issues and transfers of management shares requiring government approval; The vote of one management share is equivalent to 200 ordinary shares.

Bloomberg reported on this matter in August 2016, which looks like a first step aimed at enhancing its appeal to international businesses. and is aimed at narrowing its gap with the Hong Kong bourse, which has progressed into a different orbit and competes with global exchanges such as those based in London, New York, and Tokyo.

In a statement to Bloomberg, Steve Melhuish, vice-chairman of Singapore-based online property listing enterprise PropertyGuru, had commented: “Definitely, this is a positive move. But there is still some work to be done.”

The latest move comes at a time when the bourse has seen consecutive annual declines in enterprises seeking to list there. It is also potentially chasing a mirage in the form of technology listings.


Credit: Bloomberg

Corporate leadership perspective

In an October 2016 interview with DEALSTREETASIA, when asked to comment on the SGX’s IPO (initial public offer) pipeline and a potential listing by Propertyguru on the bourse, Melhuish had opined:  “The SGX has a challenge on its hands. From our point of view, the SGX would make sense for lots of reasons but we will probably not go. Liquidity is very low. There have been three tech stocks listing in the last three years and none have performed well in terms of trading volume, and this is coupled with the widely publicised technical failures.”

“The SGX has done seven IPOs at $1.2 billion and HKSE has done 37 at $6 billion. Clearly, the SGX is losing out, and the lack of trading volume doesn’t help at all. We don’t really have many comparables from a tech perspective beyond ifast, Yuuzoo and Trendlines. And those three tech businesses have seen their valuation come down from 40 per cent  to 70 per cent  in last three years, which is not helped by trading volume or the factors,” he added.

Arguing that the SGX had to choose between being a traditional mainboard or targeting technology corporations with smaller market capitalisations, he remarked: “Does it have a future on its own? I don’t know. The recently introduced dual-class share structure which is seen in more mature markets is something which is very popular – 20-21 per cent of all IPOs have had dual class structure on the NASDAQ.”

The introduction of a dual class share structure brings the SGX more on par with other bourses and will aid it in attracting technology or founder-led corporates. However, such dual-class stock is likely to be insufficient and will have to be coupled with other schemes to grow Singapores’ brand as a listing destination.

In an exchange with Bloomberg, Chua Kee Lock, CEO of Vertex Ventures, a unit of state investment firm Temasek Holdings, had opined: “Technology companies would typically first consider the Nasdaq and New York Stock Exchange, and then the Hong Kong stock exchange. Until you attract good companies, no institutional investor will spend time. When no institutional investor spends time, you have no liquidity. Therefore, dual-class will not solve everything.”

Meanwhile, in an interview with DEALSTREETASIA, Serguei Beloussov of Acronis had remarked when asked about listing in Singapore: “For companies like Acronis, there should be an infrastructure that allows investors to understand the investment. You need a critical mass of similar enterprises that needs to have a base of analysts covering them. If you don’t have that cluster of companies, it’s very hard.”

He added, “For Singapore, you need to attract companies like Acronis to list or partially list. You need analysts to cover compaines and you need investors to invest in them. It’s happening but slowly. For companies like Acronis, its more common to list on the Nasdaq or NYSE, as the investment community there is well educated about about how to invest in companies like ours.”

Singapore vs Hong Kong

Singapore’s bourse is supported by an “efficiently regulated and market-oriented regime” that has built a niche as a destination for Asian companies from those countries whose bourses lack global recognition, according to a 2009 EY report. However it is no longer comparable to Hong Kong, given the different tiers they inhabit, with Singapore being – at best – a regional exchange while Hong Kong is a global exchange that nearly surpassed New York in global IPO ranking in 2016.

Last year saw Hong Kong’s bourse raising $24.5 billion, compared to with $24.6 billion on the New York Stock Exchange (NYSE). Meanwhile Shanghai ranked third with $16 billion in IPO proceeds according to data complied by Dealogic. Tokyo and Copenhagen followed this with $9.6 billion and $5.9 billion of new listings respectively.


Credit: Duff & Phelps Singapore Pte Ltd

In an interaction with DEALSTREETASIA, Srividya Gopalakrishnan, managing director, Duff and Phelps Singapore highlighted: “Now, Singapore not only faces competition from other global exchanges like Hong Kong, there is also competition from the domestic market exchanges as well as other forms of fund-raising like PE. Several foreign listers are risk averse to listing overseas—in Singapore or other global exchanges—due to currency volatility.”

She adds, ” While the Singapore dollar has been fairly stable, some of the regional currencies have depreciated, making the cost of capital higher for such listers. Having said that, we expect to see some REIT listings on the mainboard as well as more listings on Catalist by the new-economy companies. SGX as well as the Singapore government are taking several initiatives to promote the tech ecosystem. We also expect to see a few listings through RTO (reverse takeover) in 2017.”

In parallel to this, the SGX also has to deal with the reality that more listed entities may be taken private and de-listed. 2016 saw the value of IPOs on the bourse surpassed by the value of delistings.

“Privatisation of listed companies could happen due to various reasons such as—the shares trading at a low price, giving the main shareholder(s) a good opportunity to take it private; acquisition or buyout; and, third, companies facing operational, business or financial issues. We expect to see more privatisations of companies listed in the Singapore exchanges in the near future,” Gopalakrishnan said.

Competition between Hong Kong and Singapore pivots on China, with the two growth drivers being derivatives and asset classes as . The Financial Times notes: “Singapore has had success with iron ore derivatives and index futures, not least for Tokyo’s Nikkei 225 contract and India’s Nifty index. Its crown jewel, however, is the world’s only offshore futures contract based on mainland Chinese stocks, the FTSE China A50 contract.”

Both Hong Kong and Singapore are competing to emerge as the Asian centre for cross-border dealing in as many asset classes and market segments they develop a footprint in. However, Hong Kong’s clear advantage lies in raising capital; it ranked as the leading exchange in 2015, raising almost $34 billion through IPOs, while Singapore has raised about a tenth of Hong Kong’s IPO capital during the past decade, according to Dealogic data.

According to the Financial Times, when presenting the SGX’s full-year results last year, Loh stated: “If you look at the position of Singapore as a financial centre internationally, as SGX we feel . . . that being a multi-asset exchange is very real and important. There are various things we are doing that will bear fruit.”

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