The Listing Rules In Singapore See Sea Of Changes Scheduled To Take Effect From 1 July 2002 Introduction... 1 General Principles... 2 The Key Changes... 2 Conclusion... 6 Introduction On 10, the Singapore Exchange Ltd ( SGX ) announced that it had completed its review of the listing rules, which started principally in April 2001, and issued a new Listing Manual ( Listing Manual ). This followed the public consultation in August 2001 on the proposed amendments to the listing rules. The proposed amendments themselves had been mooted in response to the Corporate Finance Committee recommendations made in 1998. These are not, however, the first set of amendments being made. The first lot of amendments were introduced on 20 September 1999. A second lot was introduced on 3 March 2000 to take effect on 1 April 2000. The unique feature about the latest changes is that the entire Listing Manual has been reviewed, reconciled and the language simplified. The intent of the Listing Manual is to streamline and simplify the requirements for new listing applications, thereby facilitating the listing process in Singapore. It will, therefore, be seen that relevant clauses have been moved around and regrouped into a single chapter as appropriate, and chapters generally adopting a more logical sequence. In doing this, the preservation of a fair and orderly market remains the essential requirement. The Listing Manual will take effect on 1 July 2002. All new listings submitted on or after 1 July 2002 must comply with the new rules. Any listing application and other compliance requirements prior to this date must be in accordance with the existing listing rules. However, the SGX has made clear that where necessary, it may publish transitional arrangements in relation to any amended or new listing rule. The principal changes in the latest bout of amendments relate to the following: Initial shareholding spread and public float requirement IPO Distribution Moratorium Disclosure of subscription of IPO shares by parties associated to the offering Covered warrants requirements Disclosure in IPO prospectuses Continuous disclosure Interested person transactions ( IPT ) Circular and annual report Suspension and delisting This Update highlights the key changes that have been introduced. As a prelude to this, the Update also discusses the less rule-based and more generalprinciples based approach of the Listing Manual. Page 1
Corporate & Capital Markets Goh Kian Hwee Executive Committee Contact Details Direct: (65) 62320747 Facsimile: (65) 65369453 E-mail: kian.hwee.goh @rajahtann.com Wong Kok Hoe Executive Partner Contact Details Direct: (65) 62320702 Facsimile: (65) 65369453 E-mail: kok.hoe.wong @rajahtann.com General Principles In a movement towards greater self-regulation and disclosure from the traditional rule-based approach, the Listing Manual retains the general principles by which all listings are to be guided in the Listing Manual. However, the general principles have been simplified substantially, and are as follows: issuers shall have minimum standards of quality, operations, management experience and expertise; investors and their professional advisers shall be given all information that they would reasonably require to make an informed assessment of the securities for which listing is sought; issuers shall disclose information if a reasonable person would expect that information to have a material effect on the price or value of their listed securities; all holders of listed securities shall be treated fairly and equitably; and directors of an issuer shall act in the interests of shareholders as a whole, particularly where a director or substantial shareholder has a material interest in a transaction entered into by the issuer. As a catch-all provision, Rule 103 of the Listing Manual expressly provides that suitability for listing depends on many factors. Given this, applicants are reminded that compliance with the SGX s Listing Manual may not in itself ensure an applicant s suitability for listing. In this regard, the SGX has retained for itself the discretion to accept or reject applications that are submitted. In reaching any decision, however, it will have regard to the general principles outlined above. The Key Changes Initial Shareholding Spread And Public Float Requirement A graduated scale, based on market capitalisation, has been introduced for the minimum float applicable to Mainboard applications. This changes the current two scale approach, with S$300 million being the cut-off. Briefly, the new scale is as follows for Mainboard Listings: Where market capitalisation < S$300 million, 25% of shares in 1000 shareholders. Where market capitalisation = S$300 million but < S$400 million, 20% of shares in 1000 shareholders. Where market capitalisation = S$400 million but < 1000, 15% of shares in 1000 shareholders. Where market capitalisation is > S$1000 million, 12% of shares in 1000 shareholder. Insofar as SESDAQ listings are concerned, regardless of the size of the market capitalisation, 15% or 500,000 shares, whichever is greater, should be in the hands of 500 shareholders. For secondary listings, the issuer must have at least 2000 shareholders worldwide as regards Mainboard listings and 1000 shareholders for SESDAQ listings. Distribution The requirements relating to the distribution of IPO shares have been revised so as to give issue managers greater flexibility. It removes the quantitative guidelines previously contained in Page 2
Practice Note No 3a. The revisions are as follows for both Mainboard and SESDAQ listings: Where the offer size is > S$0 but <S$75 million, at least 40% of the invitation shares or S$15 million, whichever is lower, must be distributed to investors each allotted not more than 0.8% of the invitation shares or S$300,000 worth of shares whichever is lower. Where the offer size is = S$75 million but <S$120 million, at least 20% of the invitation shares must be distributed to investors, each allotted not more than 0.4% of the invitation shares. Where the offer size is > S$120 million, no requirement applicable. The Listing Manual further provides that the shareholdings of an applicant and his associates must be aggregated and treated as one single holder. In addition, preferential allotments made pursuant to Rule 234 must be excluded. Moratorium The moratorium period for Mainboard companies admitted under the profit test has been shortened from 12 to six months; whilst that for companies admitted under the market capitalisation test of S$80 million, the period remains 12 months, with 50% of the original shareholdings needing to be held in the latter six months of the total holding period of 12 months. In the case of SESDAQ companies, the holding period has been reduced from 24 to 12 months. Again, only 50% of the original shareholdings have to be held in the latter six months of the 12 months holding period. In the case of shareholders who hold 5% or more of their issue shares less than 12 months prior to the date of the listing application, a proportion of their shareholdings will be subject to a moratorium for six months after listing, based on a prescribed cash formula. This cash formula takes into account the investors original cost of investment. Disclosure Of Subscription Of IPO Shares By Parties Associated To The Offering A new rule has been introduced to require disclosure to be made (before the listing of the issuer's securities) if parties associated with the offering subscribe for the issuer's securities. This disclosure must be made by the following parties: (a) directors and substantial shareholders of the issuer; (b) associates of any person in (a); (c) issue manager, underwriter, lead broker, and any distributor of the issuer; and (d) connected clients of any person in (c). A connected client means: (a) a director or substantial shareholder of the issue manager, underwriter, lead broker or distributor; (b) a spouse, infant child or step child of any person in (a); (c) a person in the capacity of trustee of a private or family trust (other than a pension scheme) the beneficiaries of which include any person in (a); (d) a relative of any person in (a) whose account is managed by the issue manager, underwriter, lead broker or distributor in pursuance of a discretionary managed portfolio agreement; or (e) a company which is a member of the same group of companies as the issue manager, underwriter, lead broker or distributor. Listing Procedure Substantial modifications have been made to the listing procedures. This is to bring the procedures in line with the prospectus registration regime under the Securities Futures Act ( SFA ), which is slated to come inforce by the middle of 2002. Under the SFA, issuers will be required to lodge their prospectuses with the Monetary Authority of Singapore ( MAS ). The prospectus will be subject to public exposure for two weeks before it is registered. The MAS may refuse to register a prospectus if it does not comply with the statutory disclosure requirements of the SFA or it is not in the public interest to do so. The MAS is also empowered to stop an offer if the registered prospectus is later found to be misleading or deficient. The changes to the prospectus registration regime require modifications to the SGX's listing procedures. Subject to the enactment of the SFA, the proposed listing procedures will involve the following usual steps: the applicant submits a listing application to the SGX's; where a prospectus or offering memorandum is required to be issued, the applicant lodges the prospectus or offering memorandum with the MAS; the SGX considers the application and may grant approval in-principle (with or without conditions); if the listing entails an offer of securities to the public, the applicant invites application to Page 3
subscribe for or purchase the securities; after the offer closes, the applicant announces the outcome of the offer, the basis of allotment and the true level of subscription to reflect public demand; and on satisfaction of any conditions imposed by the SGX, the applicant will be admitted to the Official List at the SGX's discretion. Under the modified listing procedures, the applicant will no longer submit a copy of its draft prospectus for the SGX's review. Covered Warrants Requirements A new chapter formalising current internal guidelines on the issuance of covered warrants has been incorporated into the Listing Manual. The SGX currently requires at least 75% of the initial issue to be placed out to a minimum of 100 warrant holders. In addition, a minimum issue size of S$5 million is imposed. Likewise, a minimum issue price of S$0.20 per warrant, with a minimum contract value for each board lot being S$200, has been imposed. The rules further provide that the tenure of the covered warrant must not exceed three years from that date of issue. There has been feedback from some warrant issuers to the SGX that these requirements are unduly restrictive. Issuers have also commented that these requirements will disadvantage investors as the higher distribution cost (arising from higher commission paid to source for the required number of placees) is normally factored into the warrant prices. The SGX takes the view that the minimum size and placee requirements are aimed at promoting post-listing liquidity of the warrants. However, as a counter-argument, some commentators have taken the view that it is not necessary for the SGX to prescribe any minimum size or placee requirements if a market making model is adopted as liquidity will be provided by the market makers making a continuous market in the warrants. The onus of ensuring post-listing liquidity in the warrants would therefore rest with the issuers. Further, issuers will be compelled by competitive pressures to maintain a liquid secondary market because investors will not want to buy from an issuer whose warrants are illiquid. On the other hand, issuers may not face sufficient pressure to ensure that their quotes are competitive, especially when there are only a handful of active issuers. The SGX, however, did not accept these arguments. Disclosure In IPO Prospectuses Prospectus disclosure will now have to comply with a general test instead of a checklist. This is in keeping with the changes introduced to section 45 of the Companies Act in January 2001, which is mirrored in section 243 of the SFA. Accordingly, the IOSCO Document, which is overly prescriptive, will no longer be mandated, save as expressly provided for. However, the SGX will have regard to the IOSCO Document when considering the adequacy of disclosure. An offering memorandum or introductory document must include information in sufficient detail to enable investors to have a full and proper understanding of the applicant's business, financial conditions, prospects, and risks. Generally, in the case of an application for listing, the SGX expects the information disclosed in the document to be the same as the information required to be disclosed as if it were a prospectus. The SGX may require additional information to be disclosed in a particular case. The requirements for proforma accounts in the prospectus have also been amended. In respect of proforma balance sheets, issuers will now be required to disclose only the latest pro forma balance sheet (instead of five years as currently required). In addition, the reporting accountant must now give an opinion that the proforma accounts have been properly prepared. Continuous Disclosure The general disclosure obligations on listed issuers have been reframed. This is primarily because the SFA will make disclosure of material information by listed corporations a legal obligation. Essentially, Rule 703 obligates an issuer to disclose information: necessary to avoid the establishment of a false market in its listed securities; or that would be likely to have a material effect on the price or value of listed securities of that issuer. Rule 703 includes an exception from the requirement to make immediate disclosure of material information if each of the following conditions applies: a reasonable person would not expect the information to be disclosed; the information is confidential; and one or more of the following applies: it would be a breach of law to disclose the information; Page 4
the information concerns an incomplete proposal or negation; the information comprises matters of supposition or is insufficiently definite to warrant disclosure; the information is generated for the internal management purposes of the entity; and the information comprises trade secret. Rule 703 is supplemented by the SGX s Corporate Disclosure Policy set out in Appendix 1. Appendix 1 incorporates a major portion of the provisions relating to corporate disclosure currently found in the existing Chapter 12. Interested Person Transaction ( IPT ) The thresholds for determining whether an IPT requires announcement and / or shareholder approval have been streamlined. In this regard, Rule 901 categorically states that the objective of the chapter is to guard against the risk that interested persons could influence the issuer, its subsidiaries or associated companies, to enter into transactions with interested persons that may adversely affect the interests of the issuer or its shareholders. Currently, any IPT with a value equal to or greater than 3% of the latest audited net tangible assets of the issuer ( NTA ) must be announced ('Threshold 1 transaction ). In addition, a transaction that is equal to or more than 5% of the issuer's NTA is subject to shareholders' approval ( Threshold 2 transaction ). If the aggregate value of all Threshold 1 transactions entered into with the same interested person during the current financial year amount to 3% or more of the issuer's NTA, all future Threshold 1 transactions entered into with that interested person, during that financial year must be announced. Further, if the aggregate value of all Threshold 2 transactions entered into with the same interested person during the current financial year amount to 5% or more, the issuer must seek shareholders' approval for, and make an immediate announcement in respect of, the latest Threshold 2 transaction and all future Threshold 2 transactions entered into with the same interested person during the same financial year. Transactions below S$100,000 each are ignored for the purpose of aggregation. It was proposed that to simplify these requirements and to bring them in line with practices in the Australian Stock Exchange ( ASX ), the Hong Kong Exchanges and Clearing Limited ( HKEx ) and the London Stock Exchange ( LSE ), the materiality thresholds be revised so that issuers will only be required to announce any IPT exceeding a value of S$200,000 and seek shareholders' approval for any IPT equal to or more than 5% of the issuer's latest audited NTA. However, the SGX has retained the existing threshold values. A notable change, however, is that Rule 923 of the new Listing Manual categorically states that the SGX will not entertain any application for waiver of any of the provisions regulating IPT. The exceptions to IPTs have also been reconciled. Circular And Annual Report A new chapter setting out the requirements for circulars and annual reports has been incorporated into the Listing Manual. This provides clarity as to when circulars are required and the details that should be included into the annual report. Suspension And Delisting A new chapter formalising the SGX's powers in relation to suspension and delisting has been incorporated into the Listing Manual. The SGX is empowered at any time to suspend trading of the listed securities of an issuer in any of the following circumstances: if the percentage of an issuer s securities held in public hands falls below 10%; where there is a change in the issuer s assets that produces a situation where its assets consist wholly or substantially of cash or short-dated securities; where the issuer s ability to continue as a going concern is in doubt, including the following circumstances: o when an application is filed with a court to place the issuer (or significant subsidiary) under judicial management; or o when an application is filed with a court for the liquidation of the issuer (or significant subsidiary) and the amount of the debt alleged is significant; or o when there is an audit qualification or highlight in respect of the issuer (or significant subsidiary) that raises a going concern issue. where the issuer is unable or unwilling to comply with, or contravenes, a listing rule; where, in the opinion of the SGX, it is necessary or expedient in the interest of maintaining a fair, orderly and efficient market; or Page 5
where, in the opinion of the SGX, it is appropriate to do so. In addition, a new rule has been introduced to require financiallytroubled issuers that have been suspended on the grounds of its inability to continue as a going concern to submit a proposal to resume trading within 12 months. Where this is not done, the SGX may remove the issuer from the Official List. Conclusion This Update has only provided a snap-shot of the key changes that have been introduced into the Listing Manual. Please do not hesitate to contact the partners identified at page 6 if you require further information. Rajah & Tann is one of the largest law firms in Singapore. It is a full service firm and given its alliances, including US premier firm Weil, Gotshal & Manges, 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 you re your specific business and operational requirements. It is to your advantage to seek specific 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. Page 6