VANESSA NG AAKASH DADLANI
Director, Corporate Practice Associate, Corporate Practice
T: (65) 6645 4506 T: (65) 6645 4508
E: vanessa.ng@fortislaw.com.sg E: aakash.dadlani@fortislaw.com.sg
Fortis Law Corporation
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Singapore’s Companies Act was amended recently to allow dual-class shares in Singapore companies. The Singapore Exchange Securities Trading Limited (“SGX”) has yet to permit dual-class shares on its exchange. This article considers the case for listing such shares.
Dual-class shares carry different voting rights for different classes of shares. Typically, in issuers with dual-class shares, minority shareholders will retain control over all important decisions of the issuer’s business.
There is evident demand for listing dual-class shares: Manchester United reportedly by-passed SGX for the New York Stock Exchange (“NYSE”) because NYSE permitted the listing of dual-class shares. Alibaba allegedly snubbed the Hong Kong Stock Exchange (“HKSE”) for NYSE for similar reasons.
This is understandable. Dual-class shares have the best of debt and equity structures. Like debt, dual-class shares are issued without surrendering control of the issuer’s business. Like equity, payments to investors are via dividends and only payable out of profits. However, debt financing requires regular repayments with interest regardless of the issuer’s profitability. A presumably strong demand for dual-class shares exists in South-east Asia, where an estimated 60% of listed companies are family-owned.
Nonetheless, SGX must address investors’ key concern: their loss of voting rights. However, investors would be informed that such shares lack voting rights, and the regulators should be slow to intervene where there is an informed, willing investor.
SGX’s main concern is likely the protection of retail investors. However, due to their small holdings, retail investors were never practically protected from controlling shareholders via voting rights. Listing dual-class shares would therefore have no real impact on them.
Shareholders are better protected via the statutory actions under sections 216 and 216A of the Companies Act. These cannot be overcome by majority vote, and therefore better protect minority shareholders than voting rights. SGX itself has taken a similar view. In a public consultation exercise for the review of the Companies Act, SGX advocated that the 216A action be broadened to apply to listed companies (previously, this action only applied to unlisted companies), otherwise minority shareholders would have no recourse against controlling shareholders.
As HKSE recently decided against listing dual-class shares, SGX has an opportunity to move ahead of its long-time competitor. Dual-class shares carry risks, but this should be managed, not avoided. SGX could, in classic Singapore fashion, adapt dual-class shares for its market. One commentator suggested requiring the approval of all classes of shareholders for risky transactions such as interested-persons-transactions.
Therefore, the listing of dual-class shares has a potentially high upside and a manageable, limited downside, and SGX should consider boosting Singapore equity markets by allowing the listing of dual-class shares.
1 http://thinkbusiness.nus.edu/articles/item/327-family-firms-need-capitalasian-markets-must-respondmarkets-must-respond
2 Report of the Steering Committee for the Review of the Companies Act, June 2011, Ministry of Finance at 2-38.
