The Singapore Exchange Regulation has proposed new rules for the delisting process in order to better align the various interests of offerors and shareholders, including by lowering the approval threshold for resolutions to pass and ensuring that exit offers are both reasonable and fair.
New rules on delisting companies are on the way as the Singapore Exchange Regulation (SGX RegCo) is currently consulting the market on changes to the rules that govern voluntary delisting resolutions and exit offers. SGX RegCo’s proposal seeks to align the divergent interests of offerors and shareholders, particularly the minorities in a voluntary delisting, where the odds are often stacked heavily against them.
The following key amendments have been put forward under the proposal.
Under the current SGX rules, it is mandatory that a shareholders’ meeting be convened to vote on a delisting resolution. For the resolution to be passed, (1) it must be approved by a majority of shareholders representing at least 75% in value held by the shareholders present and voting; and (2) it must not be voted against by shareholders present and voting and holding more than 10% in value.
SGX RegCo now proposes that the approval threshold required for the voluntary delisting to proceed be lowered to a majority of shareholders representing at least 50% in value, instead of 75%. SGX RegCo has also suggested removing the block provision, which prevents delistings from proceeding if the resolution is opposed by shareholders holding more than 10% of the total number of issued shares.
SGX RegCo proposes that only minority shareholders, directors, and controlling shareholders who are not making the exit offer or not acting in concert with it can vote on the voluntary delisting resolution at the shareholders’ meeting. Offerors and parties vested in the delisting cannot participate in the vote. This will allow minority shareholders to have a greater say in the outcome of voluntary delistings.
Where there is an exit offer made in conjunction with a voluntary delisting, SGX RegCo proposes to set a higher bar: Such exit offer should be “reasonable and fair” in order for the voluntary delisting to proceed. As it stands now, the listing rules require an exit offer to be reasonable but do not require it to be fair. According to the Securities Industry Council, an offer is “fair” if the offer price is equal to or greater than the value of the securities subject to the offer (the offeree securities). In considering whether an offer is “reasonable,” the independent financial advisor should consider other matters such as the existing voting rights in the offeree company as well as the market liquidity of the offeree securities.
Delistings have become a hot-button issue among aggrieved minority shareholders, and it is envisioned that the proposed rules will better protect the interests of minority shareholders. Having said that, not allowing offerors—who have the biggest financial say—to vote on delistings will undoubtedly be a game-changer. Nevertheless, the fact remains that different parties will have different interests when it comes to listings and delistings, and there is a constant need to balance those interests.
The public consultation will close on December 7, 2018, and SGX RegCo expects to implement the new rules in 2019.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers, who are solicitors of Morgan Lewis Stamford LLC, a Singapore law corporation affiliated with Morgan, Lewis & Bockius LLP: