SGX advisory body okays dual-class shares, subject to safeguards

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

The LAC, an independent body of industry professionals and advocates that advises SGX on unusual listing matters, said 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 to one, in line with limits used in some other jurisdictions, 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. Multiple-voting shares of an owner-manager who ceases his or her executive role at the company should also automatically convert to single-vote shares.

LAC also favoured SGX requiring that boards and board committees of companies with dual-class shares must 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 currently the case for all Singapore-listed companies.

Multiple-voting shares should also have only one vote per share when it comes to voting on 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 through investor education initiatives.

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 could use dual-class structures.

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

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.

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