Fund managers oppose dual-class shares plan for Singapore

International investors including BlackRock Inc and the Ontario Teachers Pension Plan have voiced their concerns about moves to allow dual-class share listings in Singapore, saying that they risk damaging the city's stock market and harming the region.

Dual-class shares will almost certainly prove to be counterproductive for Singapore and "likely trigger a race to the bottom regionally", the Asian Corporate Governance Association, an industry group whose members also include listed companies, as well as insurance and accounting firms, said in a response to Singapore Exchange's (SGX) consultation on the plan.

The fight for global capital has pushed exchanges to seek new ways to attract initial share sales. Hong Kong Exchanges & Clearing Ltd in January said that it would look again at dual-class shares more than a year after its regulator turned down the idea. Such shares comprise a class of stock, often distributed to founding shareholders, that carries more voting rights than the ordinary shares sold to the public. Companies including Snap Inc have drawn criticism for using the structure because of corporate governance concerns.

"Should SGX proceed with dual-class shares, we believe that any benefits will likely prove short-lived and largely enjoyed by a small group of issuers and intermediaries," the group, two-thirds of whose members are institutional investors that manage more than US$25 trillion, said in a letter dated April 11.

The association said that it was sceptical that SGX's proposed safeguards would be sufficient to offset risks related to having weighted voting rights. The system could mean that stocks in Singapore are discounted relative to international peers, it added.

"We are consulting the market on dual-class structures because of the plurality of views," said Chew Sutat, head of equities and fixed income at SGX. "In an evolving marketplace, a unique balanced approach in Singapore with appropriate safeguards and transparency can widen investor choice, and enable fast-growing companies to tap growth capital without limiting investors to only investing in dual-class share structures."

Snap's initial public offering (IPO) in March was the first to offer only non-voting shares in the US, concentrating the majority of the power with its founders.

Last month, the Investment Association - which represents the largest UK money managers - urged FTSE Russell, MSCI Global and S&P Dow Jones Indices to avoid including Snap in their indexes. The group, whose members oversee £5.7 trillion (S$10 trillion) on behalf of clients, said that it wants indexes to only include companies that allocate "control of a company in direct proportion to total economic interest and the level of exposure to investment risk".

Singapore Prime Minister Lee Hsien Loong in February gave his approval to dual-class shares and other measures proposed by a panel to drive economic growth. The plan was given the green light by SGX's independent listing advisory committee, which said that safeguards needed to be in place, and that the traditional one-share-one-vote structure would be the default for new listings.

"Snap's decision to list only non-voting shares could render a dual-class share-with-safeguards policy significantly less attractive" to some companies, the Asian Corporate Governance Association said in its letter. "In a period where stock exchanges and intermediaries are chasing IPOs, relying on short-term adjustments to market structure are less likely to generate sustained market gains."

Bloomberg

13 April 2017