In a public consultation launched earlier this month, the Singapore Exchange Regulation Co (SGX RegCo) proposed several changes to the delisting rules for Singapore companies. The changes aim to protect the interests of minority shareholders in the event of a voluntary delisting by ensuring that, inter alia, the exit offer will be fair and reasonable.
According to the Securities Industry Council, an offer is considered fair if the offer price is equal to, or greater than the value of the securities which are subject to the offer. Whereas, in evaluating the reasonableness of the offer, other matters should be considered including, but not limited to, the existing voting rights in the offeree company held by the offeror and its concert parties and the market liquidity of the offeree securities.
Currently, the listing rules require an exit offer to be reasonable but have no requirements for it to be fair. The proposed changes will require that the exit offer be reasonable and fair in order for the voluntary delisting to proceed.
At the moment, offerors and parties acting in concert with the offer can participate in the vote on a voluntary delisting. As seen in recent examples, offers can amass a large enough stake to resolve a delisting on their own, giving minority shareholders little to no say in the resolution.
Under the proposed rule changes, only parties who are not linked to the offer can vote on the resolution. This is designed to align the interests of the offerors and shareholders in a delisting and avoid writing off minority shareholders. Additionally, the SGX RegCo is proposing to shift the approval threshold to a simple majority of 50% (from 75%) and remove the current block provision (10% of the total votes against the delisting) to ensure the power held by minority shareholders following the changes are not unduly disproportionate.
If the changes are passed, it will definitely be a win for minority shareholders, who will have a significantly greater say in whether a delisting can proceed. This means that offerors will have to make an offer attractive enough to be deemed “fair” by minority shareholders – likely to be equal or greater than the net asset value per share.
On the other hand, what is attractive to minority shareholders will probably not be to the offerors. In the future, offerors must consider the potential increase in costs involved in swaying minority shareholders to vote for a delisting to proceed. Majority shareholders will need to evaluate their offer more carefully before launching a takeover given the risk of not being able to subsequently delist the company.
In pushing for the interests of minority shareholders, several market observers have warned that the proposed changes run the risk of making the SGX a less attractive option for listings. They have called for more analysis to be made on the validity and merits of minority shareholder grouses before introducing new rules.
In our view, as a regional capital markets legal advisor, it is ultimately about striking a balance and comparing best practice and regulatory frameworks of listing platforms in not just Hong Kong, but other locations such as New York, London, Australia and Shanghai to ensure that a balance is struck between the needs of the businesses, majority/controlling shareholders and minority shareholders, to create a robust and fair market for all.