Investors criticize SGX as it moves toward dual-class share system

By Anshuman Daga

SINGAPORE (Reuters) – Singapore Exchange is set to allow listings of companies with different classes of shares as it looks to attract initial public offerings, sparking criticism from investors.

In a report issued late on Monday, SGX’s Listings Advisory Committee (LAC) gave the bourse the green light to allow companies to list with dual-class share (DCS) structures.

A Singapore Exchange (SGX) signage is pictured at their premises in Singapore October 17, 2013.  REUTERS/Edgar Su/File Photo

A Singapore Exchange (SGX) signage is pictured at their premises in Singapore October 17, 2013. REUTERS/Edgar Su/File Photo

Such structures have been criticized by corporate governance activists as they typically give one set of shareholders greater voting rights than others, but exchanges that allow them are often attractive to issuers seeking to retain control after listing.

The LAC said the one-share-one-vote structure would remain the default for new listings and the DCS structure would be subject to corporate governance safeguards, but some investors warned of potential abuse by corporate insiders.

“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’,” David Smith, head of corporate governance at Aberdeen Asset Management Asia, told Reuters by email.

SGX set up the LAC, an independent body comprising bankers, lawyers and company chief executives, in 2015 to help devise new listing policies amid fears Singapore is losing its appeal as a capital raising centre.

Dual-share structures are common at companies such as Groupon Inc and LinkedIn, with U.S. corporate leaders arguing that the extra voting power given to top executives helps protect against pressure for short-term returns.

SGX has suffered a dearth of listings in recent years, with 2015 marking a 17-year low of around $430 million worth of deals, according to Thomson Reuters data.

SGX CEO Loh Boon Chye said SGX would consult with the public before amending its rules, without providing a timeline.

“(A) listing framework for DCS structures with the appropriate safeguards could help attract high-quality companies to Singapore as an international financial centre, while providing investors with access to a greater variety of opportunities,” he said in an email to Reuters.

SGX lost out on the IPO of Manchester United to New York in 2012 because it could not obtain approval for a dual class share structure. The Singapore government then amended its laws to allow such structures.

“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 said.

SGX’s planned move to allow dual class share structures stands in contrast to Hong Kong, where the securities regulator last year rejected similar draft proposals by Hong Kong Exchanges and Clearing Ltd saying it was not in investors’ best interests.

(Additional reporting by Michelle Price in HONG KONG; Reporting by Anshuman Daga; Editing by Joseph Radford)



Categories: Asia Unhedged, Southeast Asia

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