As announced on June 28, 2018, dual-class share structure (“DCS”) are now official permitted on the Singapore Exchange. SGX follows its regional rival, the Hong Kong Exchanges & Clearing Ltd., which launched DCS (or class weighted voting rights) in April 2018.

While DCS has been a contentious issue for investors, it has been seen by SGX and HKEX as a way to compete for IPOs against markets like the U.S., where many companies have multiple share class structures with differential voting rights. DCS is not an entirely new feature to Singapore — in July 2017 the SGX approved the ability for companies with a DCS structure to have a secondary listing, provided the primary listing was in one of 22 approved markets.

SGX approval comes after extensive debate, including two rounds of consultations. Investor input during the process yielded a number of safeguards in the DCS structure, including an “Enhanced Voting Process” (“EVP”) which curtails the voting advantage of MV shares to restore a one-share-one-vote principle. The EVP will apply to the following instances:

  • Changes to an issuer’s articles of associations (also known as constitutions);
  • Appointment and removal of independent directors;
  • Appointment and removal of auditors;
  • Reverse takeovers;
  • Winding up of an issuer; and
  • Delisting of an issuer.

In addition, there are safeguards relating to board committee structure, and sunset provisions where MV shares automatically convert. Some of the notable new rules for DCS as approved by SGX include:

  • DCS companies must specify the holder of multiple vote (“MV”) shares at IPO.
  • MV shares will be limited to no more than 10 votes per share, and specified at the time of the IPO.
  • Mandatory conversion of MV shares when: (i) such shares are sold or transferred to any person outside of the “permitted holder group”; or (ii) when a “responsible director” ceases as a director or as a member of the permitted group.
  • General mandates for share issuances and repurchases will include shares of each class, for companies with DCS.
  • Where an issuer with DCS changes its capital, the resulting change must be in conjunction with the issue of ordinary voting shares, while share issuances with DCS must be approved by way of a special resolution. Overall, an issuer cannot increase the proportion of MV shares compared to ordinary shares.
  • Issuers must display the DCS structure within their annual reports, including the name of the MV shareholders, along with their shares and corresponding rights of multiple voting shares.
  • Holders of ordinary shares may convene a general meeting if they hold 10% of the total voting rights on a one-share-one-vote basis.
  • For voting at general meetings, holders of ordinary voting shares who are not holders of MV shares must be at least 10% of the total voting rights of an issuer.
  • The main board committees – audit, nomination, and remuneration – must be majority independent, including the committee chair.

The introduction of DCS comes with regulations in flux, as the Monetary Authority of Singapore recently completed a public consultation on potential updates to Singaporean corporate governance. A new corporate governance code will likely be released this year – and it will need to incorporate the changes resulting from DCS.

With DCS frameworks now established in Hong Kong and Singapore, will neighbors such as Malaysia seek to compete with SGX and HKEX to level the playing field? Given the competition between markets, the spread of DCS within Asia-Pacific is likely to continue.

Jeff is a manager covering the Singapore market.