SGX Regco proposes to raise safeguards on voluntary delisting rules

SINGAPORE Exchange Regulation (SGX Regco) is proposing to disallow offerors and parties acting in concert from voting on voluntary delistings and with that, to lower the approval threshold from 75 per cent to a simple majority of independent shareholders.

The proposed changes - aimed at better aligning the interests of all parties and chiefly to safeguard minority interests - also include scrapping the 10 per cent block provision. Under this provision, a delisting will not proceed if it is voted against by those who hold more than 10 per cent).

In a media briefing, SGX Regco chief executive Tan Boon Gin admitted that the episode involving Vard Holdings had catalysed the need for such changes as it underscored the “constraints” in the existing safeguards.

“What the Vard case illustrates is that if a company has inactive minority investors, then the safeguards work against minorities and work in favour of the offeror. We realise that this needed our attention and had to be rectified,” said Mr Tan.

Vard Holdings’ controlling shareholder Fincantieri Oil & Gas had managed to push through the delisting of the shipbuilder as it could vote on the offer despite minority investors’ outcry and opposition over what they deemed was a low ball offer. The incident had triggered deep unhappiness among the minority class and was slammed by governance hawks.

In addition, the frontline regulator also plans to require exit offers made in conjunction with a voluntary delisting to be “reasonable and fair” for the deal to proceed while the appointed independent financial adviser (IFA) must be of the opinion that the offer meets both criteria.

The listing rules currently require an exit offer to be reasonable but does not require it to be fair.

SGX Regco is also proposing to codify the existing practice that the exit offer must include a cash option as a default alternative.

"Different parties will have different interests when it comes to listings and delistings, and we need to constantly balance the various interests. The changes we are proposing aim to align, as much as possible, the interests of the offeror and the shareholders, particularly the minorities," said Mr Tan.

SGX Regco is seeking public feedback on the changes, and the consultation will close on Dec 7. Subject to the feedback received, SGX Regco expects to implement the new rules in 2019.

David Gerald, president and chief executive of the Securities Investors' Association of Singapore (Sias) said: “For far too long, minority shareholders of companies, which were given low-ball offers could not vote down as the majority was in the hands of the offeror. The proposal by SGX is indeed encouraging as the majority and concert party group cannot vote on the offer."

Governance advocate Prof Mak Yuen Teen of NUS Business School welcomed the changes which he said were more in line with Hong Kong and the US, and agreed with the requirement for the IFA opinion to be both fair and reasonable. However, he said that it may not address concerns over the  assumptions and comparatives used as well as the question of the true independence of the IFA.

Anita Gabriel

09 November 2018