Three weeks after the Wall Street Journal reported that UK football club Manchester United would list in Singapore with a dual-class share structure, Singapore Exchange (SGX) has clarified in a regulatory guidance article that companies are not allowed to list dual-class voting shares in Singapore. They are, however, allowed to list ordinary and preference shares, as in the majority of other jurisdictions.
In the article, released on 20 September, SGX noted that ‘imprecise terms in public commentaries’ may have confused investors, possibly referring to criticisms that the Manchester United listing would dilute Singapore’s corporate governance regime.
The exchange explained that under a dual-class capital structure, a company issues two classes of ordinary shares. These classes have the same entitlements and risks and differ only in that one class of share carries the usual one vote per share, while shares in the other class give their holder multiple votes in company decisions.
These ‘super voting’ shares are typically made available only to the company’s management, in effect allowing the management to do as it pleases. Because of this, said SGX, there are corporate governance concerns related to the ‘entrenchment of control’.
Under the ordinary and preference shares structure, a company issues two very different categories of shares. These categories not only have different voting rights, but also receive different entitlements and are exposed to different risks.
Preference shareholders essentially give up some of their voting rights in exchange for a lower level of risk and greater entitlements. For example, dividends on preference shares are paid before dividends on ordinary shares, and should the company be liquidated, preference shareholders have a higher priority than ordinary shareholders.
A considerable number of companies in Singapore, including major corporations such as DBS Bank, Hyflux and City Developments have listed preference shares with little fanfare or market reaction.
Dual-class shares, by contrast, have never been allowed under Singapore’s corporate governance regime, although their introduction was mooted several years ago by then-SGX CEO Hsieh Fu Hua.
The only exception is Singapore Press Holdings, which is permitted to issue a management share under Singapore’s Newspaper and Printing Presses Act. And in Hong Kong, where Manchester United had originally planned to list, dual-class shares have been banned since 1991.
The recent interest in the dual-class capital structure – and its subsequent confusion with the ordinary and preference capital structure – was sparked by the listing of Manchester United, which has been surrounded by rumours since the club filed for an IPO with SGX last month. Most observers believe the listing will involve preference shares.
This clarification is at least the third official rejection of the dual-class structure by SGX in one month, although the exchange has remained silent on the Manchester United listing itself.
Last week CEO Magnus Bocker said only one vote was permitted per share, and earlier this month the exchange said in reply to a letter from National University of Singapore business don Mak Yuen Teen that Singapore’s policy does not allow listed companies to issue ordinary shares with different voting rights.
[Article by Mint Kang, Inside Investor Relations]
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