Mainboard IPOs: minimum 10% for public?

Singapore

THE Singapore Exchange (SGX) is consulting the public on plans to impose a 10 per cent minimum for the public tranche of mainboard initial public offerings, a higher hurdle than it had earlier proposed.

To accommodate large deals for which public appetite may be insufficient, the market regulator is proposing that offerings larger than S$1 billion only need to allocate S$100 million of shares to the public tranche.

SGX first proposed a minimum public allocation in an October 2012 public consultation. At that time, the exchange proposed that at least 5 per cent of shares offered in a mainboard IPO must be available the public for subscription as opposed to being allocated via placement agents.

In an announcement on Friday, SGX said that it had received feedback that the public tranche should be bigger. The exchange thus reviewed IPOs between 2010 and 2015 and found that more than 90 per cent receive public applications that were greater than 10 per cent of the total offering size, which implied that a 10 per cent minimum was feasible.

"A minimum allocation will increase the opportunity for retail participation and generate greater interest in the securities market by retail investors," SGX said. "While some retail investors may sell their IPO shares shortly after listing, we believe that building greater investor interest in our securities market will lead to a more vibrant ecosystem for the future."

SGX, however, acknowledged that public demand may not be enough to take up 10 per cent of large listings. The exchange found that of the four IPOs between 2005 and 2015 that offered more than S$1 billion, two received applications that were only about 8 per cent of the total offer size.

The new proposal therefore allows offerings that are larger than S$1 billion to allocate only S$100 million to their public tranches. SGX has also decided to do away with a "claw-back" requirement in its earlier proposal, which would have required IPOs to increase their allocations to the public depending on the amount of public applications received. Instead, SGX is proposing language that will allow companies to reallocate public tranche shares to the placement tranche if public applications are insufficient.

Corporate lawyer Robson Lee of Gibson Dunn welcomed the new proposal, saying that it was in line with the principle behind a public offering as well as companies' continuing obligations. "It's consistent with the minimum public float that companies have to maintain to remain listed."

A large public component is also protection against manipulation. "You can broaden the so-called critical mass of investors, which will prevent the risk that the stock could be cornered," he said.