Singapore Exchange (SGX) Amends Voluntary Delisting Rules to Protect Minority Shareholders

On 11 July 2019, the regulatory arm of SGX amended voluntary delisting rules with immediate effect after relevant public consultations. These amendments followed minority investors have expressed dissatisfaction at certain listed companies being allowed to delist based on exit offers that were considered not “fair”. 

Voluntary delisting is a form of privatisation where the issuer applies to SGX to be delisted for various reasons, such as corporate restructuring, or where the issuer no longer requires financing from capital markets. Other privatisation mechanisms include schemes of arrangement under the Companies Act (Chapter 50 of Singapore), or a General Offer under the Singapore Code on Take-overs and Mergers.

SGX amended two aspects of the voluntary delisting rules, pertaining to the voluntary delisting resolution and the exit offer, to strengthen protection for minority shareholders. SGX also made amendments to clarify the applicability of the Mainboard Listing Rules and Catalist Listing Rules (together, “Listing Rules”) to delistings pursuant to voluntary liquidations, schemes of arrangement and General Offers.

VOLUNTARY DELISTING

Prior to the amendments, an issuer may seek a voluntary delisting subject to:

(a)   convening a general meeting to obtain shareholders’ approval for the voluntary delisting;

(b)   approval of the delisting resolution by at least 75% of shareholders, based on the total number of issued shares (excluding treasury shares and subsidiary holdings) held by shareholders present and voting, for which the issuers’ directors and controlling shareholders need not abstain; and

(c)   the voluntary delisting resolution not been voted against by 10% or more of the total number of issued shares (excluding treasury shares and subsidiary holdings) held by shareholders present and voting (“10% Block Provision”)

(collectively, “Shareholders’ Approval Requirements”).

In addition, SGX required that an exit offer (“Exit Offer”) should be made to the holders of ordinary shares as well as other classes of securities to be delisted. The Exit Offer must be reasonable and should normally be in cash. The issuer should also appoint an independent financial adviser (“IFA”) to advise on the Exit Offer (together, the “Exit Offer Requirements”).

Under the amended Listing Rules, only shareholders and directors who are not the party making the offer (“Offeror”) and who are not acting in concert with the Offeror (“Concert Party”), can vote on the delisting resolution, in line with general listing principles that interested persons to a transaction should abstain from voting on it. The approval threshold remains at 75% but the 10% Block Provision is removed (together, the “Revised Shareholders’ Approval Requirements”). 

Under the amended Listing Rules, the Exit Offer must also be both fair and reasonable as opined by the appointed IFA, and must include a cash alternative as the default alternative (together, the “Revised Exit Offer Requirements”).

DELISTING PURSUANT TO A VOLUNTARY LIQUIDATION

Prior to the amendments, SGX did not require delistings pursuant to voluntary liquidations to satisfy the Shareholders’ Approval Requirements. In practice, SGX also did not normally require the Exit Offer Requirements to be met. Under the amended Listing Rules, such delistings remain exempt from both the Revised Shareholders’ Approval Requirements and Revised Exit Offer Requirements.

DELISTING PURSUANT TO A SCHEME OF ARRANGEMENT

Prior to the amendments, delistings following a scheme of arrangement were subject to the Exit Offer Requirements. Under the amended Listing Rules, such delistings remain subject to the Revised Exit Offer Requirements. However, the Revised Shareholders’ Approval Requirements do not apply to such delistings.

DELISTING PURSUANT TO A GENERAL OFFER

Prior to the amendments, for delistings pursuant to General Offers where the Offeror is exercising its right of compulsory acquisition, SGX, in practice, did not require such delistings to satisfy the Shareholders’ Approval Requirements and the Exit Offer Requirements. 

Under the amended Listing Rules, delistings pursuant to a General Offer where the Offeror is exercising its right of compulsory acquisition, remain exempt from both the Revised Shareholders’ Approval Requirements and Revised Exit Offer Requirements.

In other post-General Offer delisting situations, however, SGX may have to be consulted on the applicability of the Listing Rules.

CONCLUSION

The above revisions are aimed to protect minority investors and, in the authors’ views, improve the overall fairness of the Singapore trading bourse for investors in general. However, they may also lead to potential pitfalls for unwary issuers that are seeking to delist. For more information on the changes and how they impact you, please reach out to your Moore Stephens contact, or the authors of this article via the email addresses below:

bernardjuay@mscf.com.sg or leemunkeat@mscf.com.sg