A (dual) class act to follow in SGX’s path to dual listings

A UNIQUELY Singapore version of a dual-class share regime has not had any take up since it was introduced in 2018 by the Singapore Exchange (SGX).

The scheme is designed to (surprise!) attract high-tech or innovation companies while carefully balancing investor protection interests, and came after substantial public consultation and debate.

Critics will argue that it never took off because our market and investors do not support high-growth companies, as we get ourselves punch-drunk on real estate investment trusts (Reits) and high-yielding blue-chips. This is a myth this column debunked in January.

UI Boustead Reit’s recent debut below its initial public offering (IPO) price would suggest to the ultimate sceptics that our market cannot support IPOs at all.

Let’s conveniently forget the tensions flaring up in the Strait of Hormuz when the Reit braved a public listing; the over 20 per cent return for debutant growth stocks such as the US$2 billion UltraGreen.ai and Info-Tech after an initial baptism of fire; or Centurion Accommodation Reit’s climb from day one.

Others believe that our dual-class regime remained a path less trodden simply because – between our earnest desire to remain competitive with US capital markets and trying to safeguard and lock down as much as we can – we rolled it out in no-man’s-land.

This proved unsatisfactory for founders, who chafe at our cap of 10 votes per share for multiple-vote shares and other governance constraints mandating majority independent audit, nominating and remuneration committees, among others.

Investors, it seems, do vote with their feet – for slavery, anyway. Chasing economic returns, they appear willing to have disproportionate voting rights in extremis when the founder or business model is attractive.

“Super-voting” rights

Back when the local market lost the listing of Internet company Sea to the US in 2017, the Class B shares held by the founders originally had three-times “super-voting” rights versus Class A shares.

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This could have fit within Singapore’s 2018 regime, but the market moved, and casting 10 times in stone meant that we could not adapt.

Sea’s three times was quintupled to 15 times at an annual general meeting in 2022 by shareholders happy with the economic return during the Covid-era US stock bubble. At its peak share price of US$360, Sea had a whopping 24-times return from its US$15-a-share IPO price.

Then having a larger market capitalisation than DBS Bank’s today, Sea was included in the MSCI Singapore Index in May 2021. Weighing close to 20 per cent, it fractured Singapore index trading across two time zones.

After its latest results, Sea settled at a US$90 share-price level – still a decent 35-times price-to-earnings ratio supported by institutional investors benchmarked to the MSCI, and local retail investors trading overnight, toggling between their broker apps and Shopee.

Interestingly, at Grab’s upcoming extraordinary general meeting this Tuesday (Mar 24), the company will propose doubling the voting rights of Class B shares from 45 votes to 90, compared with Class A shares – six times Sea’s 15.

The move could entrench founder and chief executive officer Anthony Tan’s voting rights close to 75 per cent, leaving Singapore’s untested local regime in the dust.

Explaining the move recommended by the board, Grab stated in a circular to shareholders that “maintaining (Tan’s) majority voting power is a prerequisite for satisfying the regulatory requirements of the Monetary Authority of Singapore”.

This may be related to the need to “maintain a majority Singaporean control” over GXS Bank, Grab’s joint venture with Singtel.

Otherwise, it would seem awkward to pin the dilution of Class A shareholders’ voting rights in a public company on a regulator without more explanation – especially if it is a regulator of a licensed banking subsidiary, not the holding company itself.

Grab, of course, is also listed in the US, included in the MSCI Singapore Index, and not secondary listed in Singapore.

The other observation is: why now? Given that Temasek still owns more than 50 per cent of Singtel shares, and Singtel owns 40 per cent of GXS, is such a supermajority for Grab’s founder required for the digital bank’s licence?

Grab’s circular has another reason for the doubling of Class B voting rights. It said this would provide “a buffer against potential dilution from future corporate events, such as mergers and acquisitions or financings”.

Are there changes afoot at the joint-venture level, or impending corporate actions coming at Grab itself? If so, investors cannot complain that the breadcrumbs have not been laid.

Protecting investors from themselves

The perils of trying to protect investors from themselves have often seen our local listing frameworks lag the dynamic Wild West in the US.

Our “well-balanced” special-purpose acquisition company (Spac) framework, too, was introduced at the tail end of the last Spac bonanza in the US in September 2021.

This was shortly before the largest US$40 billion Spac merger of the period on Nasdaq – that, coincidently, was Grab. The share price has declined by 70 per cent since.

Were we lucky to be late to the party? Or is the Global Listing Board (GLB), designed to facilitate a dual-listing bridge with Nasdaq, the panacea that is needed for us to keep up with the dynamism of US markets and unshackle ourselves from impossible regulatory compromises?

After all, if our companies choose US rules and take advantage of these capital-raising pathways, we can enable new classes and structures for our entrepreneurs on the GLB and keep a semblance of listing in Singapore – without being “responsible” to the point of irrelevance.

Without spelling it out, we are also implicitly recognising the futility of protecting investors from themselves. They are free to roam on their own, anyway – for better or worse.

The writer is chairman of Shan De Advisors. He retired in 2021 from SGX, where he was a senior managing director.