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SGX rejects Nutryfarm's 90m yuan acquisition amid concerns over foreign ownership workaround

THE Singapore Exchange has rejected Nutryfarm International's 90 million Chinese yuan acquisition of a 45 per cent stake in tech company First Linkage over concerns about contractual workarounds to address foreign ownership restrictions.

In a regulatory filing released on Sunday, Nutryfarm said that the market regulator highlighted considerations related to the significance of the business conducted through the workaround and the legality of its the business or ownership structures used to comply with foreign ownership restrictions.

In March 2018, Nutryfarm announced the proposed acquisition of First Linkage. First Linkage owns First Linkage HK, which in turns owns Beijing Zhonglian Shengtong Internet Technology Co. Zhonglian Shengtong provides exclusive technical and other services to the Shengyuantong Group, including education management consulting services, intellectual property licences, technical support and consulting services.

To comply with foreign ownership restrictions, Zhonglian Shengtong entered into certain "variable interest entity" agreements with the owners of Shengyuantong.

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In its rejection to Nutryfarm, SGX cited a listing decision, which stated that a key concern with contractual arrangements that confer operational control and economic rights could expose issuers and minority shareholders to adverse impact if authorities clamp down on those arrangements.

SGX therefore requires adequate safeguards to protect the interests of the issuer and minority interests, and for issue managers or full sponsors to demonstrate that the issuer is suitable for listing, notwithstanding the use of such structures.

Nutryfarm shares last traded at S$0.159 on Feb 7.