Contributed By DLA Piper Singapore Pte Ltd
The main equity exchange in Singapore is the Singapore Exchange Securities Trading Limited (SGX-ST), which is supervised by the Monetary Authority of Singapore (MAS). The SGX-ST is the sole approved exchange for both equity and debt securities in Singapore. The SGX-ST is a wholly-owned subsidiary of the Singapore Stock Exchange Limited (SGX).
There are two listing platforms under the SGX-ST, namely the Mainboard and the Catalist board. The main differences are as follows.
There are several benchmark indices in the Singapore stock market, of which the Straits Times Index (STI) is the most recognised.
The STI is capitalisation-weighted. It tracks the performance of the top 30 companies by capitalisation in Singapore. Other criteria for the companies on the STI include (i) 'free float' greater than 15% and (ii) liquidity of at least 0.05% in ten out of twelve months. The definition of free float includes portfolio investments, nominee holdings and holdings by investment companies. This excludes cross-holdings; significant long-term holdings by founders, their families and/or directors; restricted employee share schemes; government holdings; and portfolio investments subject to a lock-in clause, for the duration of that clause. The liquidity criterion refers to the median trading value of a stock in each month, when divided by its free float shares. For existing constituents, it could be 0.04% in eight out of twelve months.
The MAS is the main regulatory body in Singapore that oversees the offering of shares or units to the public.
The SGX-ST regulates the day-to-day operations of the securities market and its subsidiary rulebooks under which the listing procedures are set out.
Applicants of an IPO on the Mainboard are required to lodge a listing application to the SGX, which acts as an agent on behalf of the MAS. In accordance with the Mainboard Rules, the brief contents of a listing application are, inter alia, the name of the applicant, the date and place of incorporation, a brief description of the principal business, the full title or designation, the amount, the class and par value of the securities for which the listing is applied, and whether the securities are fully paid, etc (see 6 Offering Documents for further details on the content requirements).
For a Catalist listing, the pre-admission notification, which has a similar content requirement to a Mainboard listing, shall be submitted by the sponsor together with a specific confirmation by the sponsor as to the applicant's business and good standing.
The key legislative instruments that govern equity listings in Singapore are:
A company may undertake a primary listing on the Mainboard or the Catalist board of the SGX.
A company interested in listing on the Mainboard must first appoint an accredited issue manager, who prepares the company for listing, ensures that the company is suitable for listing and assists with obtaining approval of the SGX-ST for the listing.
For a company to be suitable for listing, it must first meet the admission requirements. Additionally, the company must be organised in an orderly manner that will facilitate compliance with its continuing listing obligations. Further, the company's directors must have the appropriate experience and expertise to manage the company.
A company interested in listing on the Catalist board must first collaborate with an approved full sponsor. The sponsor in a Catalist listing fulfils a similar role to the Mainboard's issue manager. The company's suitability for listing on the Catalist is assessed and determined solely by the sponsor.
The specific eligibility requirements for companies intended to undertake a primary listing on the Mainboard and the Catalist are set out below.
The following specialist companies that cannot satisfy the market capitalisation requirements may be able to list on the Mainboard subject to the satisfaction of their respective special eligibility criteria.
Mineral, Oil and Gas (MOG) Companies
The SGX allows listing of MOG companies that are not yet in production and hence have no revenue or profitability. In fact, the MOG listing rules present pre-productive MOG companies with a fundraising avenue to raise public equity funding for MOG operations.
Nonetheless, the MOG companies must be able to establish, inter alia, (i) the existence of a meaningful portfolio of reserves in a defined area that is substantiated by a qualified person's report prepared by an independent qualified person and (ii) at least one independent director with appropriate industry experience and expertise.
Life Science Companies
Similar to the MOG companies, companies that are involved in R&D or production or commercialisation of any item using living organisms or their life processes that are based on biology, medicine, or ecology (ie, life science companies) that cannot satisfy the market capitalisation requirements are subject to eligibility requirements, including (i) the company has as its primary reason for listing, the use of proceeds of the IPO to bring identified products to commercialisation; and (ii) the company demonstrates that it has a three-year record of operations in laboratory R&D, and submits the following to the SGX:
An issuer wishing to undertake a secondary listing on the SGX-ST is required to satisfy a more stringent free float requirement, including:
Additionally, in a secondary listing, the issuer must have at least 500 shareholders worldwide following the listing. In situations where the SGX-ST and the issuer's home exchange do not have an established framework and arrangement to facilitate the movement of shares between the jurisdictions, the issuer seeking a secondary listing must have at least 500 shareholders in Singapore or 1,000 shareholders worldwide.
Further, financial statements that are not prepared in accordance with SFRS, IFRS or US GAAP will need to be reconciled.
An issuer seeking a listing on the SGX-ST should take the following steps:
Companies interested in listing on the Catalist board must first collaborate with an approved full sponsor. The sponsor in a Catalist listing fulfils a similar role to the Mainboard's issue manager. The company's suitability for listing on the Catalist is assessed and determined solely by the sponsor.
Foreign companies seeking a listing on the SGX-ST need to follow the same procedure. The foreign jurisdiction's laws will be taken into account and the SGX-ST will verify that the foreign laws give adequate protection to investors. The majority of foreign companies list their shares on the SGX-ST, with only a few listing depositary receipts.
An issuer can distribute its shares in conjunction with its IPO and listing on the Mainboard or Catalist by means of a public offer and/or a placement. In both cases, the offered shares can be new shares offered for subscription by the issuer or existing shares offered by existing shareholders.
A public offer in Singapore is usually offered through the websites of the participating local banks as well as by way of printed application forms, thus enabling a large number of participants to participate in the IPO.
A placement is the offer of shares to institutional investors, high net worth investors or other investors (who are chosen by the underwriters and the issuer). Before a placement, a bookbuilding process usually takes place. In the bookbuilding process, the underwriter introduces the IPO to various potential investors to ascertain their interest in the offer. Ordinarily, the potential investors will acquire a large number of shares for large amounts of money and therefore there will be fewer shareholders holding the capital than in a public offer.
Listing by Introduction
Listing by introduction is only permitted in Mainboard listings. It is typically adequate in situations where the issuer already satisfies the shareholding spread requirements and does not need to raise capital. Issuers usually seek listing by introduction when either their shares are distributed in specie (in their actual form rather than distributing the cash proceeds) to the shareholders of the issuer's holding company to satisfy the minimum shareholding spread requirements for a Mainboard listing or in a dual-class shares listing where the issuer's shares are already listed in another foreign exchange.
The primary difference between a listing by introduction and other listings is the offering document. While a prospectus is used in all other listings, an introductory document is used in a listing by introduction. Both documents are similar in nature and content, but the introductory document is not reviewed or registered with the MAS like a prospectus.
The majority of IPOs in Singapore are usually fully underwritten by investment banks. An IPO that is fully underwritten by a bank is an IPO in which shares that will not be purchased by investors will be taken by the underwriting investment banks. An underwritten IPO is beneficial to the issuing company because it ensures its success. Also, if the company chooses not to underwrite an IPO, it must first consult on the matter with the SGX-ST.
Subsequent/secondary offerings are usually either rights issues (which can be renounceable or non-renounceable) or placements.
A rights issue grants the existing shareholders of the issuer an entitlement (the 'nil-paid rights') to subscribe for shares in proportion to their existing holdings. The shareholders can exercise this right to purchase new shares of the company at a 'rights issue price', which is usually lower than the current market price for shares.
A rights issue that is non-renounceable (a 'preferential offering') is granted only to the existing shareholders and a shareholder who is not interested in exercising his nil-paid rights is not entitled to transfer or sell that right.
In contrast, a rights issue that is renounceable grants the shareholders the ability to sell their nil-paid rights on the SGX-ST or to transfer them to a third party.
In comparison with a rights issue, a placement offer that can be made to the existing shareholders/unitholders or new investors does not need to be made in proportion to the existing shareholding/unitholding.
A placement offer can be made to institutional investors or by way of a private placement to not more than 50 offerees within any twelve-month period. A placement offer can also be made together with a non-renounceable rights issue.
Parties that will usually be involved in an equity offering are as follows.
No response provided.
The main documents to be included in an equity offering are the following:
Under Chapter 289 of the SFA, all offers of securities are subject to the prospectus requirements of the Act unless the offer is excluded or exempted from the prospectus requirements. All prospectuses issued by an issuer must be registered with the MAS before they are circulated.
The prospectus must contain all the information that investors and their professional advisers would reasonably require for the purpose of making an informed assessment of information, such as (i) the assets and liabilities, financial position and performance, profits and losses, and prospects of the issuer; and (ii) the rights and liabilities attaching to the shares being offered.
The issuer and its advisers must disclose all information that investors and their professional advisers would reasonably require to make an informed assessment of the relevant securities.
Ordinarily, the prospectus will include additional background information regarding the business, the board of directors, the management and the industry in which the issuer operates.
The information that must be included in the prospectus is of very wide nature. For example, all the information actually known or that could have reasonably been discovered by the directors and proposed directors of the issuer, the issue manager, the underwriters, lawyers, placement agents, experts quoted in the prospectus and others who are named in the prospectus with their consent must be presented in the prospectus in a clear, concise and effective manner.
The prospectus must be signed by all the directors and proposed directors (or by their authorised agents). Further, it must be dated – no shares or units in a business trust may be issued on the basis of a prospectus after six months from its date of issue.
Main Categories of Information in a Prospectus
The Fifth Schedule of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations prescribes the information to be introduced in the prospectus:
Responsibility and Liability for the Content of the Prospectus
Under the SFA, any false or misleading statements in the prospectus, or non-disclosure of material facts therein, can result in criminal liability for:
In addition to criminal liability, false or misleading statements and non-disclosure of material facts can result in civil liability. The above listed persons may be liable to compensate all persons who subscribe for or purchase shares in the issuer in reliance on that prospectus in respect of any loss or damage sustained by reason of the false or misleading statement or non-disclosure of material facts.
Exceptions to criminal liabilities being imposed are:
In conjunction with criminal and civil liability under the SFA, additional potential liability exists in several sources such as the Penal Code, the Misrepresentation Act, common law and in cases where the offer is marketed to investors outside Singapore, where other foreign securities laws may apply.
Disclosure Requirements for Specialist Companies
Specialist companies shall, in addition to the foregoing, disclose in their prospectuses the issues as listed below.
For life science companies.
For MOG companies.
Under the SFA, the issuer must lodge a prospectus with the MAS. A prospectus lodged with the MAS is posted on the MAS website for 7 to 21 days (extendable by the MAS) for public viewing and review by the MAS (where the issuer had not previously submitted a draft prospectus for review).
The MAS can register the prospectus between days 7 to 21 from the date of the prospectus' lodgement. After the prospectus is registered, the issuer can commence the IPO process.
The MAS may exempt a person from any requirements of the SFA with regards to the form or content of a prospectus if compliance with the requirement is unduly burdensome.
The MAS also has power to dispense with the issue of a prospectus altogether in the case of an offer or invitation, or a class of offers or invitations to which that offer or invitation belongs.
As mentioned above, all offers of securities or securities-based derivatives contracts must be accompanied by a prospectus unless the offer is excluded or exempted from the prospectus requirement. The exemptions below are commonly relied on:
Advertisements calling attention to an offer of shares or debentures or units in a business trust are prohibited unless they contain only very restricted information or unless permitted by the relevant provisions of the SFA. These provide the conditions under which there can be publicity concerning the offer before and after the prospectus has been registered, and specific exceptions for bookbuilding, roadshows and research reports.
No documents or materials (save for a prospectus registered with the MAS) in connection with the offer or sale or invitation for subscription or any shares or debentures or units in a business trust may be circulated or distributed, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the SFA; (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.
Research reports are prepared by the underwriters or brokers participating in an equity offering. The participating brokers and underwriters can be held liable under several sources, such as the following:
It is not common for analysts outside the syndicate advising on a specific transaction to prepare the research reports. Nonetheless, if such analysts prepare the research reports, they are subject to the same potential liabilities as outlined above.
A bookbuilding process is used for equity offerings in Singapore, both in IPOs and secondary/subsequent offerings.
In Mainboard IPOs, the trend is to adopt a sequential offering structure. In this sequential offering structure, the public offer will only open after registration of the final prospectus with MAS. However, the bookbuilding for the placement tranche takes place and the offer price and allocation to investors in the placement tranche are fixed in the period between lodgement and registration of the prospectus with the MAS.
In placements, the placement agent will carry out bookbuilding through an accelerated bookbuilding transaction in the course of one day, usually overnight which is followed by the announcement of the placement.
Rights issues may or may not be underwritten; however, the majority of Mainboard IPOs are fully underwritten. An underwriting agreement obliges the underwriter to subscribe for the offered shares in the event that these shares are purchased by investors.
In placements, the placement agent sometimes covenants to underwrite the offered shares in a commitment to subscribe backed by its major shareholders. Thus, the placement agent will occasionally be referred to as the underwriter.
Key Terms of an Underwriting Agreement
The main terms of an underwriting agreement are:
In Singapore, price stabilisation of securities is prohibited under the SFA, which includes provisions prohibiting false trading and market rigging, securities market manipulation and insider trading.
An exemption to the prohibition of price stabilisation exists under the Securities and Futures (Market Conduct) (Exemptions) Regulations 2006 (Market Conduct Regulations). Actions taken to stabilise a security's price in an IPO will be allowed if they were taken in compliance with the conditions set out in the Market Conduct Regulations.
Market manipulation is prohibited in Singapore. Chapter 289 of the SFA sets out several conducts that are prohibited and that are construed as illegal market manipulation, such as:
Breach of the market manipulation prohibitions may result in criminal prosecution. The punishment for market manipulation is imprisonment for a maximum term of seven years, or maximum fine of SGD250,000, or both. Corporations may also be convicted and punished by fines.
In addition, civil penalties can be imposed on an individual who is also exposed to civil liability for claims made by investors under the SFA.
There are no specific rules governing block trades. However, it should be noted that block trades are subject to the mandatory trading obligations stipulated under the Securities and Futures (Trading of Derivatives Contracts) Regulations 2019 (effective from 1 April 2020). In summary, other than block trade agreements, a list of specific derivatives contracts executed on or after 1 April 2020 will be subject to mandatory trading obligations, such as compliance requirements, including the keeping of books and other information relating to the transactions.
There are no restrictions on the use of foreign governing laws.
It is common to have English or New York law-governed underwriting agreements in Singapore securities offerings.
This firm is not aware of such cases, other than those based on public policy or those that do not fall within the statutory schemes on the recognition of foreign judgments as set out below.
Foreign judgments are only enforceable through the applicable statutory schemes (below) in addition to the common law regime (ie, commencing an action afresh in Singapore as a judgment debt).
The statutory schemes are:
An arbitral award that is made in another country that is a signatory to the New York Convention on the Enforcement of Arbitral Awards (the New York Convention) is recognised by Section 30 of the International Arbitration Act (Chapter 143A). For awards made in another country that is not a signatory to the New York Convention, they may be enforced by, inter alia, an action commenced under the RECJA and the REFJA, and common law action commencing an action afresh in Singapore as a judgment debt.
Under common law, in order for a foreign judgment to be enforceable, the foreign judgment must be (i) for a fixed and ascertainable sum of money, (ii) from a court of competent jurisdiction (in the conflict of laws sense) and (iii) final and conclusive on the merits by the law of that country.
For the recognition of a foreign judgment, similar requirements must be satisfied, with the exception of the sum of money, which need not be fixed or ascertainable.
For the RECJA, the judgment must be issued by a superior court of the relevant jurisdictions for a sum of money payable. This also covers an arbitration award if such arbitration award can be enforceable as a judgment order made by the court of the relevant jurisdiction.
For the REFJA, the judgment must be issued by a superior court for a sum payable (excluding tax, fines or penalties). The judgment shall also be final and conclusive even if it may be subject to appeal.
Under the CCAA, courts in Singapore will enforce and recognise foreign judgments rendered in international cases where there is an exclusive choice of court agreement concluded in a commercial or civil matter. An 'international case' under the CCAA is prescribed as a case in which its claim is for the recognition, or recognition and enforcement, of a foreign judgment; or the enforcement of a judicial settlement recorded before a court of a foreign state. A 'foreign judgment' is a judgment given by a court of a state that is a party to the Hague Convention of 30 June 2005 on Choice of Court Agreements, being a chosen court; or a court to which a chosen court has transferred the case. A 'judgment' is a final court decision on the merits, a consent order, a consent judgment or a judgment given by default.
The response will depend on the place of incorporation/domicile of the shareholder.
This firm is not aware of such regulatory restrictions. It is also common for foreign entities to enter into equity transactions and offer equity securities in Singapore.
A typical listing timeline for an IPO in Singapore is set out below:
A secondary offering timetable is different when compared to an IPO in several ways. For example, the MAS does not review the offer, only the SGX-ST reviews the offer; the review process is shorter and less extensive; and approval by the shareholders might be necessary for the issuance of new shares.
Several jurisdictional-specific tax considerations include:
The taxation in Singapore of dividends paid by the issuer will depend on the tax residence of the issuer (ie, whether the issuer is resident in Singapore).
Singapore-resident issuers are subject to the one-tier corporate tax system (one-tier system). Under the one-tier system, tax on corporate profits is final and dividends paid by a Singapore-resident company are tax exempt in the hands of a shareholder, regardless of whether the shareholder is a company or an individual and whether the shareholder is a Singapore tax resident. Therefore, such dividends will not be subject to Singapore withholding tax.
Stamp Duty for the Conveyance of Shares
The purchaser (unless set out otherwise in the agreement), is subject to the stamp duty for the transfer of shares. The stamp duty rate is 0.2% of the consideration or the net asset value of the shares, whichever is higher.
The transfer of scripless shares that are book-entry securities defined under Section 81SF of the SFA are not subject to the stamp duty regime.
Capital Gains Tax
Singapore currently does not impose tax on capital gains. However, gains arising from the disposal of listed shares that are considered gains derived from any trade, business, vocation or profession carried on by that person, if accruing in or derived from Singapore, may be taxable as such gains are considered revenue in nature. Gains derived from the sale of listed shares may also be taxable if they constitute any gains or profits of any income nature under Section 10(1)(g) of the Income Tax Act (Chapter 134).
The main continuing obligations set out in the listing rules are set out as follows.
With respect to a foreign-incorporated issuer that has undertaken a primary listing on the SGX-ST, it must comply with the continuing obligations under the listing rules as set out above.
For a foreign-incorporated issuer that is seeking a secondary listing in Singapore, it must maintain its primary listing on its home exchange and ensure compliance at all times at its home jurisdiction. Nonetheless, the issuer is still subject to the approval/disclosure requirements with respect to the IPTs, acquisitions and realisations, and delistings as set out in the listing rules above.
A foreign issuer whose equity securities are listed on the SGX-ST in the form of depository receipts will be subject to similar disclosure obligations. However, the issuer of equity securities represented by global depository receipts listed on the SGX-ST is only subject to limited continuing disclosure obligations set out in Part XI of Chapter 2 of the Listing Manual (eg, substantial shareholders' interests in the issuer's securities).
Penalties Under the Listing Rules
The SGX-ST is empowered under the listing rules to deal with an issuer's non-compliance with its continuing obligations.
Contravention (whether it is unable or unwilling to comply) with the continuing obligations by the issuer could result in:
The Singapore courts may also on application by the MAS or the SGX-ST make an order directing the person to comply with, observe, enforce or give effect to the listing rules.
Penalties Under the SFA
A breach of continuing obligations may attract criminal liability and/or civil penalties under the SFA. An issuer must not (whether intentionally, recklessly or negligently) fail to notify the SGX-ST of information that is required to be disclosed by the SGX-ST under the listing rules or any other requirement of the SGX-ST. An intentional or reckless contravention is an offence.
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