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Nikkei Markets

SGX proposes safeguards for controversial dual-class shares

Governance experts worry dual-class listings will lower standards

SGX's plan to permit dual-class listings has been criticized by several investors and corporate governance experts.   © Reuters

SINGAPORE (Nikkei Markets) -- Singapore Exchange has proposed safeguards for investors as it goes ahead with plans to allow controversial dual class share listings by mid-year.

The proposals, outlined in a consultation paper, include a plan to restrict the issue of shares with multiple voting rights to directors of the company. These multiple-vote shares will convert to one-vote shares should the holder sell his shares or cease to be a director.

The exchange operator hopes to have the new rules take effect by the end of the second quarter, paving the way for the city-state's first dual-class listing "shortly after," Singapore Exchange Regulation CEO Tan Boon Gin said Wednesday, reiterating a comment made by SGX CEO Loh Boon Chye in January.

SGX Regco functions as an independent regulatory entity with a separate board of directors, although it remains a subsidiary of SGX.

"As Singapore transitions to the new economy, we need to offer a capital structure that meets the funding requirement of companies. Market participants have also expressed a desire for more investment choices," Tan said.

"As (the dual-class share structure) is associated with the risks of entrenchment and expropriation, we have proposed specific safeguards to mitigate these risks," he added.

Other proposals in the consultation paper include a requirement that independent directors make up the majority of key board committees such as those for audit and remuneration. These committees must also be chaired by independent directors.

Holders of multiple-vote shares will only be allowed one vote per share for major decisions such as changes to the company's constitution, the appointment and removal of independent directors, and the selection of auditors.

Both Singapore and Hong Kong are in the process of modifying laws to permit dual-class listings to attract fast-growing Asian technology companies whose founders want to retain control after an initial public offering.

However, the plans have been criticized by several investors and corporate governance experts who fear a race to the bottom as exchanges lower their listing requirements in a bid to attract more companies.

Mak Yuen Teen, co-director of the NUS Business School's corporate governance center, has argued that Singapore first needs to address the difficulties involved in holding companies to account if their key management and controlling shareholders are based overseas.

"Attracting more listings by claiming that it gives investors more choice is hardly a good argument if they are made to choose from among lemons," he said in a blog post earlier this month.

Asian companies with dual-class structures that are listed in the U.S. include Chinese internet giant Alibaba Group Holding and Singapore-based online gaming and e-commerce company SEA, which made its debut on the New York Stock Exchange last year.

Alibaba chose to list in New York in 2014 after Hong Kong Exchanges and Clearing rejected requests for concessions that would have allowed the company to put in place a structure where half the board would be nominated by founder Jack Ma and key executives.

SGX RegCo's Tan stressed that only a small number of companies with dual-class structures will be allowed to list on SGX, and that these would most likely come from technology industry.

"The one-share, one-vote structure will continue to be the default structure," he said.

--Kevin Lim

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