Singapore’s initial public offerings scene has endured a barren spell of late. Proceeds from IPOs amounted to just $335 million last year, according data from ThomsonOne, two of the biggest listings this year have been real-estate trusts, not really the kind of technology companies that the city-state has been trying to attract.

Keeping this in mind, the Singapore Exchange is set to allow listings of companies with different classes of shares as it looks to attract initial public offerings, sparking criticism from investors. This is expected to result in more companies considering Singapore and help distinguish the market from regional peers, according to industry watchers.

However, the structures have been criticised by corporate governance activists as they typically give one set of shareholders greater voting rights than others, but exchanges that allow them are often attractive to issuers seeking to retain control after listing. The one-share, one-vote structure is expected to remain the default for new listings and the DCS structure would be subject to corporate governance safeguards.

RISKS AND CHALLENGES

Sin Boon Ann, Deputy Managing Director of the Corporate & Finance Department at Drew & Napier, says that if implemented, and depending on the exact rules and framework governing the listing of dualclass shares, it is likely that Singapore will appeal to major technology companies and companies that require large capital input. “DCS structure allows companies to fundraise effectively without ceding too much managerial control,” he says. “This is ideal for companies that require a longer period to realise their investments, such as technology companies or companies that require very substantial capital that founding shareholders are not able to match to prevent excessive shareholding dilution. Allowing companies with DCS will certainly make the SGX a more attractive place to list and raise capital for such companies.”

At the same time, a risk is that Singapore may end up attracting listings from companies which have a very different governance style, says Sin. “The underlying issue is whether the managers in control who are minority shareholders can be counted to always act in the interest of the majority shareholders since control is ensured,” he adds. “The challenge would be finding the balance between managing the increased governance risks brought about by allowing DCS, and allowing the minority shareholders enough room to manage without having to worry about being removed from management.”

The problem, according to Sin, is made worse “by the prohibitive costs of litigation and the unclear extent of judicial remedies available to minority shareholders under the Companies Act, as evinced by a dearth of derivative actions brought against directors in Singapore.”

Sin adds that one issue is whether the duty of care for those with management control and who are entrenched may be increased. “It could well be that the standard of care has changed to require these controlling minority shareholders to act in a way that is not detrimental to the majority shareholders,” he notes.

“Possibly, the jurisprudence in this area may well develop into one where there could be majority oppression as opposed to minority oppression. This will be an interesting development indeed.”