Commentary: SGX’s new delisting measures: Crucial that intent and disclosures are clear

Date: August 21, 2019

First published in The Business Times on 19 August 2019

Companies and offerors should reach out to all shareholders by all means possible about what exactly is on the table to ensure that minorities will not be shortchanged.

FOR far too long, Sias has lamented the predicament of minority shareholders’ helplessness in delisting offers. The tyranny of the majority prevailed. Compounding the issue was the IFA’s (independent financial adviser) opinion of an offer being “unfair but reasonable”, resulting in confusion among minority shareholders how an offer could be unfair and yet reasonable.

The Singapore Exchange’s regulatory arm SGX RegCo is to be commended for acting at last to address an injustice that existed with regard to privatisation-cum-delisting offers.

In less than a year after shipyard operator Vard Holdings was controversially delisted, SGX RegCo last month amended the rules to prohibit offerors and parties acting in concert from voting in such deals, thus making it harder for large shareholders to take advantage of weak market conditions to buy out small shareholders with low, probably undervalued offers.

In addition, the new rules now require all privatisation offers to be both “fair and reasonable” and SGX RegCo expects the basis for determining fairness and reasonableness to be separately disclosed by IFAs.

Though these new measures have come too late for shareholders in delistings that came before July such as Vard’s – they cannot be applied retroactively – they nevertheless go a long way towards answering criticism that small shareholders usually end up with the short end of the stick in such privatisation-cum-delisting cases.

However, Sias would like to point out that the onus is not only on regulators to ensure a more level playing field but also listed companies and offerors. In this connection, it is crucial to note that as far as the new rules are concerned, intent is key and should form the starting point for any discussion.

Intent is key

SGX Regco’s actions were in response to the Vard delisting, where the offeror Fincantieri Oil and Gas when tabling its deal had already accumulated 83.28 per cent of Vard and clearly stated that it wanted to delist the company.

Because the approval threshold at the time was 75 per cent and because offerors were allowed to vote, minorities were resigned to having their shares taken from them and the company was duly taken private at the perceived unfair price of S$0.25.

This is because the minority was not able to garner the required 10 per cent dissenting vote to block the delisting. In reality, it is not altogether easy to garner the 10 per cent dissenting vote largely because the shares of minority are scattered in the hands of SRS, CPF and nominee accounts.

What made it all the more frustrating to minorities was that when Fincantieri first bought into Vard in 2012, it did so at S$1.22 per share for a 50.75 per cent stake, and that its mandatory unconditional general offer at that price at that time had been rejected by the company’s independent directors. Fast forward six years and they had to surrender their shares for a fraction of the 2012 offer.

The first and most important thing to note is that the new rules only apply when the offeror’s intention is to delist the company. So had they been in place for Vard’s case, this would have meant that Fincantieri would have been barred from voting, in which case it might not have been able to push the deal through.

Privatisation vs general offer

The second important point is that the rules do not apply in the case when a party crosses the 30 per cent mandatory takeover threshold. It is thus obliged to table a general offer at the latest price paid, but has no intention of taking the company private.

Note however that if the public float then falls below 10 per cent as a result of such an offer, SGX RegCo could suspend trading until the company complies with the free float requirement by issuing more shares, usually through a private placement.

SGX RegCo has to be consulted

In all other instances where a voluntary delisting is sought, the new rules say that SGX RegCo must be consulted. For those instances when the general offer route is adopted to privatise a company, the price still has to be fair and reasonable and there has to be acceptances from at least 75 per cent of independent shareholders. If these conditions are not met, the company will remain listed.

Clear disclosure of intent is required

The next point to note follows from the first – intention must be clearly spelt out. SGX RegCo has played its part in clearing up confusion that existed in the past such as when Vard’s offer was deemed by the IFA to be “not fair but reasonable” by now requiring them to be both “fair and reasonable”.

However, offerors must follow suit by stating clearly up front whether a) they intend to privatise and delist the company, in which case the new rules come into play; or b) the offer is simply to comply with the takeover rules but the intention is to retain a public listing.

In the latter case, it is essential to bring to the attention of shareholders who are considering accepting the offer that they risk ending up holding shares in a company whose free float might fall below the required limit and could therefore remain suspended for a prolonged period until appropriate action is taken.

Whatever the case, it should be clear that companies and offerors that are involved in either type of takeover should reach out to all shareholders by all means possible, for example, frequently asked questions on their websites, townhall meetings and shareholder engagement events.

This is because the standard circulars are usually voluminous and filled with legal and technical jargon that may not be understood by everyone. Simple, straightforward communication is essential in order to ensure that minorities are clear about what exactly is on the table, in which case they can then enjoy the protection afforded by SGX RegCo’s latest rule changes.

  • The writer is David Gerald, founder, president and CEO of the Securities Investors Association (Singapore)