SINGAPORE: The Singapore Exchange (SGX) has launched a public consultation on proposed safeguards for dual class share listings.
A dual class share (DCS) structure is one that is designed to allow specific shareholders of companies more voting rights relative to the proportion of shares they own, allowing them to retain control of their organisations, while still receiving financing from the public equity market.
At a press briefing on Wednesday (Mar 28), SGX highlighted that the two main risks of dual class share structures are expropriation, where founders seek to extract private benefits from the company, to the detriment of non-controlling shareholder; as well as entrenchment, where founders become entrenched in the management of the company, also to the detriment of non-controlling shareholders.
Singapore Exchange Regulation’s CEO, Mr Tan Boon Gin, said that “as Singapore transitions to the New Economy”, it needs “to offer a capital structure that meets the funding requirements of companies”.
He added that SGX has reviewed the feedback received from an earlier public consultation, and is “therefore proposing that the dual class share structure be made available to suitable companies”.
SGX is proposing that dual class share companies meet the existing admission criteria of listing on the exchange’s Mainboard, as well as satisfy the exchange on their suitability to list.
SGX said some factors that would be considered include, “the role and contribution of the holder of multiple vote (MV) shares, the business model and whether sophisticated investors have participated in the company”.
Mr Tan said that the DCS structure “is not for all companies, nor all investors”, and that “the one-share-one-vote structure will continue to be the default structure”.
He added that because the structure is associated with risks of entrenchment and expropriation, SGX has proposed “specific safeguards” to mitigate these risks, but that investors “must nevertheless be informed of the risks of DCS if they invest in them”.
SGX said that to counter risks related to entrenchment and expropriation, it has listed “a range of key actions which require shareholders to vote via an enhanced voting process where all shares including MV shares carry one vote each”.
These actions will include the appointment and removal of independent non-executive directors, as well as the “winding-up or delisting of the issuer”.
Independent directors will also make up the majority, including the chair, of the audit committee, the nominating committee and the remuneration committee.
Safeguards against risks of the founders entrenching themselves will include allowing each MV share to carry a maximum of 10 votes, and limiting initial holders of MV shares to only directors.
SGX is also proposing “event-based sunset clauses”, including requiring that MV shares be converted to one-vote (OV) shares once the MV-shareholder ceases to be a director, or decided to sell or transfer the MV shares. Shareholders can choose to do away with these safeguards through SGX’s enhanced voting process.
The consultation will remain open until Apr 27, 2018.