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SGX shifts voluntary delisting power balance to minorities

With immediate effect, offers must be fair and reasonable to the IFA. The other change bars the offeror and concert parties from voting on the voluntary exit offer

Small investors will enjoy better protection with changes by the regulatory arm of the Singapore Exchange (SGX RegCo) to two aspects of the voluntary delisting rules for listed firms.


SMALL investors will enjoy better protection with changes by the regulatory arm of the Singapore Exchange (SGX RegCo) to two aspects of the voluntary delisting rules for listed firms.

The changes, which took immediate effect on Thursday, follow the public consultations held last year, and address complaints about issuers delisting on the cheap.

The first change requires voluntary delisting offers (including scheme of arrangements and general offers) to be both "fair" and "reasonable" in the opinion of the appointed independent financial adviser (IFA).(see amendment note)

Previously, an exit offer was only required to be reasonable, even if not fair, and minority investors had argued that this amounted to "doublespeak".

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The change effectively pushes issuers to give shareholders a better exit value if they choose to go private by way of a voluntary delisting.

The second change requires offerors and parties acting in concert with them to abstain from voting on the voluntary delisting resolution.

Effectively, offerors will go from having a strong influence in the exit vote to zero influence.

This is the case in jurisdictions like Hong Kong and Australia, where minority investors alone determine the outcome of the vote.

The approval threshold for the voluntary delisting resolution remains at 75 per cent of the total number of shares held by independent shareholders present and voting.

But the 10 per cent block provision has been removed. It used to be that the delisting resolution could be vetoed if 10 per cent of all shares voted against it.

Tan Boon Gin, chief executive of SGX Regco, told The Business Times that the rule changes were prompted by the voluntary delisting of Vard Holdings by its major shareholder last year.

Many minority shareholders had felt then that the exit offer was made opportunistically - at a time of a cyclical slump for the shipbuilding sector. The IFA paid for by Vard had described the exit offer as "not fair but reasonable", and advised shareholders to accept it.

Mr Tan said of the rule changes: "What they do is to safeguard minority shareholders from the sort of situation we saw in Vard. "One reason the people in Vard were unhappy is that typically, exit offers are fair and reasonable. In the last five years, Vard was the only company that had an exit offer that was not fair but reasonable."

One of Mr Tan's learning points from Vard is that the 10 per cent block provision is actually less useful for minorities than it sounds: "The view was that the 10 per cent block would effectively balance out the fact that we allow the controlling shareholders to vote.

"But 10 per cent voting against is not the same as 10 per cent not accepting the offer - that's a passive thing. A 10 per cent block means you have to turn up at the EGM (extraordinary general meeting) and vote against it."

For former Vard shareholder and investment specialist S Nallakaruppan, SGX RegCo's response restores confidence that it protects minority interests. He told BT: "Although we Vard shareholders were not protected by the present change to much fairer regulations, we can hold our heads high for being a catalyst for this change."

The SGX stressed on Thursday that offerors should not use other forms of privatisation to avoid complying with the principles applicable to a voluntary delisting.

A voluntary delisting process (in which shareholders vote on whether to accept an exit offer) is just one mechanism by which an offeror can privatise a listed company.

The most frequently used mechanism is a general offer under the Singapore Takeover Code.

Under the new rules, if a general offer results in an issuer's free float falling below 10 per cent, that is not enough to justify a delisting.

A general offer, if it becomes an exit offer, must be fair and reasonable; the offeror must also have received acceptances from at least 75 per cent of independent shareholders before it can delist. 

However, delistings via the right of compulsory acquisition are not required to be fair and reasonable. A 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.

Between Jan 1, 2014 and August 31, 2018, 82 companies were privatised from the Singapore Exchange.

Of these, 25 companies or 30 per cent did so via a voluntary delisting.

Forty-six companies or 56 per cent were taken private via a general offer under the Singapore Takeover Code.

Eleven companies or 13 per cent were privatised via a scheme of arrangement under Company Law.

Atin Kukreja, chief executive of financial advisory firm Rippledot, welcomed the rule changes: "These changes will help ensure we get proper premiums for founder-led privatisations that were previously occurring through the delisting route."

Sean Mah, chief investment officer of Astral Asset Management, called the rule changes a "victory" for minority investors: "I think strengthening the delisting rules will encourage more interest in Singapore stocks in the long term as minority investors are now more assured of their rights.

"As for new IPO aspirants, what they probably care more about is the valuation and liquidity of their companies' shares. Not many companies list with the intention to delist!"

While privatisation punts continue to be a key theme for the Singapore bourse, with take-private deals being announced at a rate of one every two weeks since the year began, Mr Mah believes that privatisation offers may die down for a month or so, as companies interested in going private take time to digest the new rules.

"Owners will probably want some advice, because it's quite costly for each exercise. And you have to wait a year before you try again if you fail," he said.

In the past, if an offeror failed to procure 90 per cent of all shares in a company in order to take it private by way of a general offer, the offeror could still fall back on a voluntary delisting, and use its large block of shares to force the deal through.

This was what the controlling family of LTC Corp did last year, and they now stand as the last people to have pulled that off.

One issue that remains to be addressed is the independence of IFAs and IFA opinions.

Some have called on SGX RegCo to get tough on those IFAs that rubber-stamp transactions.

The SGX said on Thursday that it will work with relevant industry bodies to develop guidance and standards for IFAs and their opinions.

Corporate governance advocate Mak Yuen Teen said: "We know that so-called IFAs may not be truly independent and therefore there is still the issue of shopping for a 'fair and reasonable' opinion.

"But I guess at least now, independent shareholders can more easily block a privatisation via voluntary delisting if they don't believe the offer is fair and reasonable, even if the IFA and recommending directors say so."

Overall, the new rules should reduce those cases of controlling shareholders trying to buy out minorities on the cheap, said Prof Mak: "But there are still business reasons for some companies to privatise."

Clarification note: This story originally stated that the new delisting rules do not apply to delistings via a general offer. This is incorrect. Although the new rules do not apply if an offeror exercises its right of compulsory acquisition after a general offer is launched, a general offer that results in the issuer losing its free float is still subject to the new rules.

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