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SGX's advisory body gives nod for dual-class shares

However, some safeguards will have to be in place, says the Listings Advisory Committee

SGX chief Loh Boon Chye said the SGX will consider the LAC's advice, and that a listing framework for dual-class structures with safeguards would be good for Singapore as a financial hub and for investors as well.


THE Listings Advisory Committee (LAC) of the Singapore Exchange (SGX) has given the go-ahead for the market operator to permit dual-class share structures among listed issuers - subject to certain safeguards.

The LAC, an independent body of industry professionals and advocates advising SGX on unusual listing matters, said in its annual report that dual-class shares would be permitted only if listing applicants have a compelling reason to adopt such a structure.

SGX should also adopt a maximum voting differential of 10-1, in line with limits used in some other jurisdictions, the LAC said.

Companies already listed on a one-share, one-vote structure should not be allowed to convert into a dual-class structure, because existing shareholders did not invest in the company with knowledge of the risks associated with dual-class structures.

Preferred-class shares with multiple votes should be automatically converted into ordinary one-vote shares when sold or transferred, unless the shares are sold or transferred to permitted holders.

The multiple-voting shares of an owner-manager who ceases his or her executive role at the company should also automatically convert into single-vote shares.

The LAC also favoured SGX requiring that boards and board committees of companies with dual-class shares follow the Code of Corporate Governance's recommendations on independence of board and board members on a mandatory basis, and not on a comply-or-explain basis, as is now the case for all Singapore-listed companies.

Multiple-voting shares should also have only one vote per share in votes for the election of independent directors.

The LAC also agreed with SGX's proposal to require clear disclosure of shareholder rights by dual-class share companies, to have distinctive identification of securities of companies with dual-class structures, and to put in place investor-education initiatives.

The LAC was in favour of SGX referring listing applications with dual-class structures to the LAC initially, until SGX becomes more familiar with such applications.

The advisory committee, however, was not in favour of restricting the industries that can use dual-class structures.

While noting that the presence of sophisticated investors could provide some assurance of quality, the LAC stopped short of prescribing a minimum percentage that should be held by sophisticated investors. The LAC said that judging such a criterion was necessarily qualitative, and should be part of a holistic assessment.

Although the Singapore Companies Act provides for multiple-class share structures, SGX has not amended its listing rules to allow for such features.

SGX chief executive Loh Boon Chye said that the market operator will consider the LAC's advice. "A listing framework for dual-class share 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.

"SGX will study the LAC's advice, and engage with stakeholders to gather views from different perspectives. Any amendment to the listing rules to allow dual-class shares will only occur after a public consultation process."

Steve Melhuish, co-founder and chief executive of online real estate portal PropertyGuru, said that allowing dual-class shares would make Singapore a more attractive listing destination for tech startups. "It's a good move for SGX to be on parity with other exchanges."

He said, however, that PropertyGuru was not planning for a listing yet, and that in general, a lack of comparables and research are obstacles that Singapore has to overcome.

Associate professor Mak Yuen Teen, a corporate governance advocate at the National University of Singapore, said that he continues to be against dual-class shares because of the potential for governance abuses.

"In the last 10 years, other major markets have thought about it and decided against it, but SGX is the only one that is going to do it," he said, citing Australia, Hong Kong and London's main board.

Taking specific aim at the LAC's proposal that all shares have only a single vote when it comes to polls on independent directors, Prof Mak argued that the reliance on independent directors may sound better in theory than in practice because holding independent directors accountable can be a tall challenge even without dual-class shares.

"I am just not convinced that dual-class shares are good for the market," he said.

Separately, SGX also announced that chairman Chew Choon Seng will retire after the coming annual general meeting on Sept 22. Current lead independent director Kwa Chong Seng will take over at the helm.

Mr Chew has been chairman since January 2011. Mr Kwa was elected to the board in 2012.