Voluntary delisting offer: SGX Regco proposing shift of voting power to minorities

Singapore

THE Singapore Exchange (SGX) Regco is proposing changes to the voluntary delisting rules, which, if adopted, will shift the voting power play from offerors and concert parties to minority and independent shareholders and potentially compel a sweeter exit proposition.

The proposed tweaks by the frontline regulator are aimed at better aligning the divergent interests of offerors and shareholders, particularly the minorities in a voluntary delisting, SGX Regco chief executive Tan Boon Gin told reporters on Friday.

The regulator has given itself up to Dec 7 to consult the market on the matter; subject to feedback, the changes could come through next year.

Currently in Singapore, offerors and concert parties (controlling shareholders and their associates) are allowed to vote on the voluntary delisting at the shareholder meeting. This gives them great sway in the outcome.

In cases of low-ball offers, this can become contentious and anger the minority class, who feel forced to sell their shares against their wishes. This happened in the case of Vard Holdings, which, according to Mr Tan, highlighted the "constraints" in the existing safeguards and prompted the regulator's latest move.

Under the proposed changes, offerors and concert parties will be barred from voting on the offer, as is the case in jurisdictions such as Hong Kong and Australia, where the voting outcome rests squarely with minority investors. In short, offerors will go from having a strong influence to zero influence.

Understandably, the proposed changes have many backers.

Governance advocate Mak Yuen Teen of the National University of Singapore Business School said: "A delisting is like a big IPT (interested-person transaction), where the offeror is the interested party and so, should not vote. Also, ensuring that we don't have hidden concert parties voting is important."

Importantly too, the SGX Regco intends to amend the approval threshold for voluntary delistings to a simple majority of 50 per cent from 75 per cent currently. It also hopes to do away with the 10 per cent block provision (which allows holders of more than 10 per cent present and voting to veto the deal).

SGX Regco's Mr Tan said: "We are conscious of the need to balance the various interests. If we retain the 10 per cent block (with the other changes), it would be putting disproportionate power in the hands of minority shareholders."

Robson Lee of Gibson Dunn & Crutcher LLP, said: "This will provide the proverbial balance between minority oppression and the tyranny of the minorities."

Depending on the lens through which one views the potential changes, they could irk or be a cause to celebrate.

David Gerald, president and chief executive of the Securities Investors Association of Singapore (SIAS), said: "For far too long, minority shareholders who were given low-ball offers could not vote down as the majority was in the hands of the offeror. The proposal is encouraging ... Companies would have to come up with their best offer at the onset."

For offerors who are major shareholders, the proposal could be a bummer. Mah Kah Loon, partner of EY's transaction advisory services in the Asia-Pacific, said: "Not allowing major shareholders (the offerors) to vote on the delisting is a game changer. They have the biggest financial say and may have invested most capital in the company, but have no control (on the voting outcome) although they stand to lose the most."

There is more. SGX Regco is essentially also pushing for a better exit value from bidders by requiring the offer to be both "reasonable" and "fair" for a voluntary delisting. The appointed independent financial adviser (IFA) must also be of the view that the offer meets both criteria.

As it stands now, the listing rules require an exit offer to be reasonable but does not require it to be fair.

In the past, this issue has drawn significant debate and criticism. Gibson Dunn & Crutcher's Mr Lee said: "Many commentators have expressed dissatisfaction with the reports from IFAs that opine on proposed exit offers as 'fair but not reasonable' or 'not fair but reasonable'.

"Such a weird choice of words in an important advisory opinion often leads to unhappiness and incredulity over what the IFA is actually advising. The SGX is adopting the right policy - that all exit offers must be fair and reasonable and that the IFA must clearly state so in its opinion if it supports the offer."

Stefanie Yuen Thio, joint managing partner of TSMP Law Corporation said: "It sets a higher bar for controlling shareholders wanting to delist, but it's not an unreasonable requirement."

SGX Regco is also proposing to codify the existing practice that the exit offer must include a cash option as a default alternative; one banker said this is the SGX making explicit something that is already widely practised.

Voluntary delisting is but one of several mechanisms used by an offeror to privatise an issuer, the other two being a scheme of arrangement under the Companies Act or a general offer (GO) under Singapore's code on takeovers and mergers. Between 2014 and August this year, only 30 per cent of privatisation exercises entailed a voluntary delisting; half involved GOs and the remaining picked the scheme-of-arrangement route.

DBS Bank's head of strategic advisory Choe Tse Wei said: "The (proposed) changes are a pure and simple way of harmonising the voluntary delisting rules with the other mechanisms such as the scheme of arrangement, where the parties initiating the buyout are themselves not allowed to vote."

These changes - if and when they come to pass - mark a triumph for minority shareholders whose rights can no longer be trampled on, but bigger concerns persist, said Ms Thio. "One of the SGX's key challenges is the dearth of new listings, and the increasing number of privatisations. We don't want a 'ghost market', with companies that cannot get delisted but which are not doing any significant business. The real antidote to all this is to attract good new listings."