Offerors cannot rely on loss of public float alone to delist a stock: SGX

Singapore

THE new requirement for exit offers to be both fair and reasonable applies not only to voluntary delistings but to general offers as well, the Singapore Exchange (SGX) has clarified.

In the context of a general offer, once the offer has been launched, there are two ways to delist a company.

One option, if the company's public float has fallen below 10 per cent, is to apply to be delisted.

The second option, if the issuer is incorporated in Singapore, is to use a right of compulsory acquisition under the Companies Act.

The right of compulsory acquisition is triggered when the offeror has obtained at least 90 per cent of the shares held by independent shareholders at the time the offer was launched (not just 90 per cent of all issued shares).

Under the new delisting rules that came into effect on July 11, if a general offer results in an issuer's free float falling below 10 per cent, it will only be allowed to delist if its exit offer is both fair and reasonable, and if the offeror received acceptances from at least 75 per cent of independent shareholders.

Delistings following a compulsory acquisition however, are not required to be fair and reasonable.

The SGX also clarified on Monday a Business Times report, "Offer for Raffles United 'not fair and not reasonable'", on July 26 which misstated how the delisting rules apply to Raffles United.

An SGX spokesman said: "As the Raffles United general offer was announced before the July 11, 2019 effective date of the new delisting rules, any delisting sought by the company will be dealt with under the old rules.

"The old Listing Rules require the offer to be reasonable."

Rule 1309 in the old rulebook stated that if an issuer is seeking to delist from the Exchange, "a reasonable exit alternative, which should normally be in cash, should be offered."

The SGX takes guidance from the Securities Industries Council (SIC) on its concept of what is "fair" and "reasonable".

The SIC has previously said that an offer is "fair" if the offer price is equal to, or greater than, the value of the securities which are subject to the offer.

In considering whether an offer is "reasonable", the independent financial adviser (IFA) is required to consider other matters, including the existing voting rights in the company and the market liquidity of the relevant securities, the SIC said.

In the case of Raffles United, the IFA, Asian Corporate Advisors, opined that the offer is "not reasonable from a financial point of view".

Asian Corporate Advisors said that the offer is "not reasonable" because the offer price is at a "steep discount" to Raffles United's adjusted net asset value per share.

The offer price is also "less favourable" in comparison with other successful privatisations, the IFA said. These were the same reasons it used to explain why the offer is not fair.

It remains to be seen if Asian Corporate Advisors' concept of a reasonable offer matches the SGX's concept of what is reasonable.

Meanwhile, the free float of Raffles United has fallen below the 10 per cent minimum threshold. If the offer does not meet the requirements to be delisted, the SGX can suspend trading of its shares.

If a suspended issuer still wants to delist, the same delisting rules apply.

It must present shareholders with a new exit offer that IFA believes is both fair and reasonable, and at least 75 per cent of independent shareholders must accept the offer.