Contacts Highlights Amendments Pursuant To Companies (Amendment) Act... 1 Announcement Of Grants Of Employee Share Options... 1 Trading Halt, Suspension And Cash Companies... 2 Going Concern... 2 Public Float... 2 Cash Companies... 3 Trading Halt... 3 Other Amendments Reference To Capitalisation Issues And Subdivision Of Shares Include Bonus Issues Acquisitions And Realisations Under Chapter 10 Auditors Trading Halt Consultation Paper Issued By SGX On 10 May 2007, the Singapore Exchange Limited ('SGX') issued a consultation paper on proposed amendments to its listing rules. The main amendments proposed address the following issues: alignment of references to issued share capital with the Companies (Amendment) Act 2005; announcement of grant of employee share option; and trading halt, suspension of trading and cash companies. This Update considers some of the key changes proposed by the Consultation. Amendments Pursuant To Companies (Amendment) Act Consequent upon amendments to the Companies Act, the following changes have been proposed by the SGX: removal of references to par value and other concepts which have been abolished; require the announcement of sale, transfer, cancellation and / or use of treasury shares; change references to 'issued share capital' and 'paid up capital' to 'total number of shares outstanding', and clarifying that treasury shares are not listed on the SGX and hence they are not included in the definition of 'total number of shares outstanding'; Announcement Of Grants Of Employee Share Options It has been proposed that a new rule 704(26) be introduced to provide that the grant of any employee share options must be announced, together with the details such as the following: date of grant; exercise price of options; number of options granted; market price of the issuer's securities on the date of grant; number of options granted to directors and controlling shareholders, 1
Highlights REITs And Exchange Traded Funds... 5 Directors' Confirmation... 6 Concluding Words... 6 if any; and validity period of the options. SGX has noted the abuse of such schemes through the back-dating of options in other markets, a practice that enables management to date the grant of options to correspond with a period where the price of the share is low. This measure has been suggested by the SGX in order to strengthen transparency and accountability in relation to the grant of options. Trading Halt, Suspension And Cash Companies Going Concern Currently, under rule 1303(3), the SGX may suspend trading of the listed securities of a listed company where the ability of the company to stay as a going concern is in doubt. However, SGX's general practice is not to suspend trading of the listed securities of an issuer when the 'degree of doubt' as to the issuer's ability to continue as a going concern is slight and the issuer is able to demonstrate that there are plans to ensure that it will remain viable. Suspension is usually imposed only in instances where it is apparent that the issuer is no longer viable. The SGX is proposing to clarify its current practice by way of an amendment to rule 1303(3), which will provide that the issuer may be suspended if it is unable to continue as a going concern or unable to demonstrate to the SGX that it is able to do so. The SGX also intends to delete rule 1303(3)(c), which allows the suspension of the issuer where there is an audit qualification or emphasis of a matter in respect of the issuer that raises a going concern issue, and replace it with a rule that allows suspension where 'the issuer is unable to assess accurately its financial position and inform the market accordingly'. Public Float Rule 1303(1) provides that the trading of the listed securities of an issuer may be suspended if its public float falls below 10%. The practice of the SGX where the offeror in a take-over succeeds in getting acceptances exceeding 90% of the issuer's outstanding shares and hence reducing the public float to below 10%, is to suspend trading only at the close of the take-over offer, as opposed to the point at which the 10% threshold is reached. The SGX intends to amend rule 1303(1) to reflect this practice. 2
Cash Companies Rule 1018(1) provides that where an issuer's assets comprise wholly or substantially of cash or short dated securities, its securities will normally be suspended. SGX is proposing that rule 1018 be amended to clarify that it may allow continued trading in the cash company's securities if safeguards are put in place to protect the cash balance. This involves requiring a cash company to place 90% of its cash and short-dated securities into an escrow account with a financial institution licensed and approved by the Monetary Authority of Singapore. The cash and short dated securities may not be drawn down until the completion of the acquisition of a business which is able to satisfy the SGX's requirements for a new listing. Monthly valuation of the valuation of the assets and utilisation of cash must be provided to the market. The SGX is also proposing to include a new provision to allow trading in a cash company's securities if the following conditions are met: contractual undertakings are provided by persons such as the issuer's directors and controlling shareholders to observe a moratorium on the transfer or disposal of all their interests in the securities of the issuer; and the moratorium commences from the date the shareholders approve the disposal of business up to the completion date of the acquisition of a business which is able to satisfy the SGX's requirements for a new listing. The SGX may remove an issuer from the Official List where it is unable to meet the requirements for a new listing within 12 months of the suspension of its securities. The issuer may apply to the SGX for an extension to this 12-month period. The SGX is proposing to clarify in the listing rules that an extension, up to a maximum of 6 months, may only be granted if milestones against which the issuer's progress may be evaluated and regular updates to the market are provided by the issuer. Where the issuer is unable to meet its milestones or find a new business within the extension period, it is required to delist and make a cash exit offer to its shareholders within six months. Trading Halt In order to minimise disruptions to the market arising from prolonged trading halts, the SGX is proposing to shorten the trading halt requirement for the dissemination of material information from one hour to thirty minutes. 3
Other Amendments Reference To Capitalisation Issues And Subdivision Of Shares Include Bonus Issues Rule 806(3)(c) is proposed to be amended to clarify that any reference to a capitalisation issue or a subdivision of shares includes bonus issues. Acquisitions And Realisations Under Chapter 10 Chapter 10 deals with acquisitions or realisations by a listed company that may be discloseable depending on the relative figures calculated according to certain ratios. The ratio in rule 1006(c) deals with the aggregate value of the consideration given or received, compared with the issuer s market capitalisation. SGX is proposing to introduce a new paragraph 4.3 to Practice Note 10.1 to clarify that for the purposes of determining the relative figure of Rule 1006(c), the aggregate value of consideration given or received should include: any deferred consideration that may be payable or receivable by the issuer; and such further amounts as the SGX deems appropriate and related to the transaction. Listed companies should consult the SGX early on the issue of whether any amounts should be aggregated to the consideration. Auditors The SGX has proposed that Appendix 2.2 of the listing rules be amended to require an issuer to state in its articles of association that a change of auditors must be specifically approved by shareholders in general meeting. Where a notice of meeting contains a resolution relating to the proposed change of auditors, a draft copy of the same must be submit to the SGX for review. The notice of meeting must also incorporate confirmations from the outgoing auditors on the following: whether they are aware of any reasons why the new auditors should not accept the appointment; whether there were disagreements with the issuer on accounting treatments which led to the auditors' resignation; and whether they are aware of any circumstances connected with the change of auditors that should be brought to the attention of the shareholders. 4
Contacts Wong Kok Hoe Partner Direct: (65) 6232 0702 Facsimile: (65) 6536 9453 E-mail: kok.hoe.wong @rajahtann.com Goh Kian Hwee Partner Direct: (65) 6232 0747 Facsimile: (65) 6533 3701 E-mail: kian.hwee.goh @rajahtann.com Serene Yeo Partner Direct: (65) 6232 0716 Facsimile: (65) 6533 3701 E-mail: serene.yeo @rajahtann.com REITs And Exchange Traded Funds The SGX has proposed to insert a new rule to clarify the waivers applicable to real estate investment trusts ('REITs') and exchange traded funds ('ETFs'). For REITs the changes are as follows: clarify that, on a continuing listing basis, a REIT is required to comply with all listing rules applicable to equity securities with necessary adaptations; waiver from rule 748(1) which requires announcement of net tangible assets per share or per unit at the end of each week, subject to quarterly disclosure being made; waiver from rule 748(3) which requires the disclosure of information in the annual report, subject to disclosure of the information required under the MAS Property Fund Guidelines and the Code of Collective Investment Schemes; clarify that where the general mandate referred to in rule 887(1) has been obtained upon listing, such a mandate is deemed as approved by subscription; and clarify that acquisition of properties must be completed before the commencement of listing for REITs. For ETFs, waivers including the following were proposed: waiver from rule 729 which provides that an issuer whose articles of association have been approved by the SGX must not delete, amend or add to them without prior written approval of the SGX; waiver from chapter 12, which deals with the requirements applicable to annual reports; and waiver from rule 112 which provides that the issue manager is responsible for preparing the applicant for listing, lodgment of the application and dealing with the SGX on the same. It has also been proposed that clarification be made that the following listing rules are not applicable to ETFs: rule 704(3) which requires announcement of substantial shareholders' and directors' interest in the issuer's securities or changes thereof; rule 704(17) which requires immediate announcement of any acquisition or disposal of shares or other assets which is required to be announced under Chapter 10; and rule 705(2) which requires companies over a certain size to make 5
quarterly announcements of their financial statements. Directors' Confirmation Rule 705(4) requires the directors of an issuer to provide a confirmation in respect of quarterly or half-yearly reports, stating that nothing has come to the attention of the board which may render the financial results to be false or misleading. It is proposed to change the reference to 'financial results' to 'financial statements', and to provide that such financial statements should not be false or misleading 'in any material respect'. Concluding Words The closing date for submission of feedback to the SGX is 7 June 2007. If you would like to submit any feedback, Rajah & Tann would be happy to assist you in this regard. If you would like more information on the above, please contact the partners whose contact details appear on the left of page 5, or contact the Knowledge & Risk Management Group at eoasis@rajahtann.com, and we would be happy to assist you. Rajah & Tann is one of the largest law firms in Singapore, with a representative office in Shanghai. It is a full service firm and given its alliances, is able to tap into resources in a number of countries. Rajah & Tann is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealings with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The information contained in this Update is correct to the best of our knowledge and belief at the time of writing. The contents of the above are intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as the information above may not necessarily suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann or e-mail the Knowledge & Risk Management Group at eoasis@rajahtann.com. 6