Singapore’s stock exchange won approval from its listing advisory committee to allow dual-class shares, as it seeks to lure international businesses.
Companies will be permitted to have weighted voting rights, subject to various corporate-governance safeguards, to mitigate the inherent risks of such structures, according to the report by Singapore Exchange Ltd.’s (SGX) committee published on Monday.
The move may help narrow the city’s gap with Hong Kong, Asia’s biggest market for new listings, where minority-control voting structures aren’t permitted. Hong Kong lost Alibaba Group Holding Ltd.’s $25-billion initial public offering (IPO) to the US after regulators rejected the Chinese e-commerce company’s governance structure. Singapore paved the way for dual-class shares by amending laws governing companies earlier this year.
“Definitely, this is a positive move,” said Steve Melhuish, CEO of Singapore-based PropertyGuru, which raised the second-largest amount by a tech company in Southeast Asia last year. “But there is still some work to be done,” including lack of comparable tech start-ups and difficulty in valuing companies in the market, he said.
Singapore has been introducing rules to try to attract more public companies, including allowing the listing of resource firms without an earnings track record and dual-currency trading for stocks and exchange-traded funds. Any change to the listing rules will only occur after a public consultation process, SGX CEO Loh Boon Chye said in an e-mailed statement.
“The envisaged dual-class share structure listing framework is intended to enhance SGX’s attractiveness as a listing venue and to broaden and deepen Singapore’s capital market,” the advisory committee said in its report. “Unlike many other countries, Singapore does not have a vast hinterland providing a continuous pipeline of IPO-ready listing applicants.”
The committee said the “one-share, one-vote” structure will remain the default for new listings unless there’s a compelling reason for a dual-class model.
The listing group’s approval ends a debate over whether such structures compromise the city-state’s levels of corporate governance, a discussion ignited in 2011 when Manchester United Plc. was considering to list in Singapore. The UK soccer club scrapped its Singapore sale due to market conditions and eventually listed in the US under a dual-class share structure.
In the US listed companies with more than one type of share class, including Alphabet Inc. and Facebook Inc., are subject to more stringent reporting requirements and shareholders have the ability to band together on lawsuits.
Since it became easier for investors to buy stocks overseas, it’s become more challenging for the Singapore Exchange to attract international listings. The bourse operator is looking to fight the disruption by becoming the venue of choice for technology companies. While that may boost IPOs, it’s hard to see the golden days returning.
SGX won approval on Monday from its listing advisory committee to allow dual-class shares. The looser rule caters especially to technology companies, such as Alibaba, which chose to list in the US instead of Hong Kong because it wanted to use such a structure to keep more decision-making power in the hands of founders. The change comes a week after the institution suggested it may backtrack on a 20 Singapore cents (15 cents) minimum trading price rule for main board companies with a market value of at least S$40 million, another move that would cater to start-ups.
For SGX, it makes sense to become more flexible. It’s not as though the IPO business is growing in leaps and bounds.
Liquidity has also been dropping in the past few years. SGX seems to have come to terms with the fact that it can’t become the New York Stock Exchange of Asia.
The push, therefore, is to appeal to technology start-ups. Apart from easier rules on minimum price and dual-class shares, SGX is also backing CapBridge, a Singapore-based company that specializes in helping start-ups raise funds and go public. CEO Steven Fang explained to Bloomberg Gadfly a couple of weeks ago that one of his goals is to attract new companies that aren’t big enough for the Nasdaq. In Singapore the thinking goes, they can build their market cap and track record before eventually graduating to a US listing.
The shift fits with Singapore’s aspirations of recovering its status as a technology hub and may reverse the slump in listings. That all sounds good on paper. However, Singapore faces competition not only from Hong Kong but from the Australian Stock Exchange, which so far has been quite successful as an intermediary venue. Distance is no barrier: Silicon Valley, after all, is almost 3,000 miles (4,800 kilometers) from New York.
The strategy also presents added risks for Singapore’s local investors. Research shows that 90 percent of start-ups fail. To be sure, most are companies that haven’t sold shares yet; the ratio is far lower for those with publicly traded stock. Still, the chances of losing money are much higher when investing in small caps, especially in the technology arena.
More volatility could make the SGX a more lively venue and increase trading. Even so, this is unlikely to be a game changer. As the world becomes more interconnected and investors are able to access stocks anywhere, they’ll be less willing to stay local. The same technology that Singapore is trying to attract will, in all probability, continue to shrink the global role of its stock market.