NEW FRAMEWORK

The Singapore Exchange Securities Trading Limited (SGX-ST) might see a rise in the number of companies listed on foreign stock exchanges seeking secondary listings on its Mainboard (Mainboard). On 3 November 2014, a new regulatory framework for secondary listings on the Mainboard came into effect to streamline the process for such secondary listings and to ensure that companies incur minimal additional compliance cost following listing on the Mainboard.

Under the new framework, in determining the relevant continuing listing obligations applicable to a foreign issuer with a secondary listing, the SGX- ST will distinguish between “Developed” and “Developing” Markets. Where an applicant, which is primary listed on the main board in a Developed Market (excluding Singapore), effects a secondary listing on the Mainboard, it will not be subject to additional continuing listing obligations, apart from the few applicable listing rules highlighted below. This is because foreign issuers from a home jurisdiction which is a Developed Market are viewed as posing less regulatory risk as their legal, regulatory and enforcement framework offers sufficient assurance on the levels of shareholder protection and corporate governance standards.

In contrast, the legal and regulatory regimes in Developing Markets may not offer sufficient assurance on the levels of shareholder protection and corporate governance standards. Where a foreign issuer is from a Developing Market, the SGX-ST will undertake a full review of the home exchange legal and regulatory requirements to identify the areas of possible enhancements in relation to such standards. As such, applicants from Developing Markets may be subject to additional continuing listing obligations should the SGX-ST determine that the standards relating to interested person transactions, acquisitions and realisations, and trading halts, suspensions and delistings of the home exchange require improvements.

WHAT IS A DEVELOPED MARKET?

A company will be regarded as having a home jurisdiction in a Developed Market if both international index providers, FTSE and MSCI, classify the market of its primary exchange as “Developed”. In classifying a jurisdiction, FTSE and MSCI will consider, among others, a country’s legal, regulatory and enforcement framework. Currently, the 22 markets (excluding Singapore) classified by FTSE and MSCI as “Developed” are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom and the United States of America. The SGX-ST will treat all other markets as “Developing”.

It is important to note that the new secondary listing framework is not intended to apply to REITs, business trusts, depository receipts or other non-company issuers with a primary listing overseas. Such non-company issuers are deemed to pose different regulatory risks from company issuers arising from their unique structures and the absence of globally acceptable regulatory standards for such unique structures. Accordingly, the SGX-ST will assess on a case-by-case basis if a non-company issuer should be admitted for secondary listing on the Mainboard.

MAINBOARD ADMISSION CRITERIA

Regardless of the classification of a foreign listed company’s home market, any company seeking a secondary listing on the Mainboard will need to satisfy admission criteria imposed by the SGX-ST. As the Mainboard caters to established enterprises, the Mainboard admission criteria are stringent and include, among others, minimum profit and market capitalisation levels.

Under the current quantitative criteria in the Listing Manual of the SGX-ST (Listing Manual), a company seeking to list on the Mainboard must satisfy one of the following requirements:

  1. have a minimum consolidated pre-tax profit (based on full year consolidated audited accounts) of at least S$30 million for the latest financial year and have an operating track record of at least three years;
  2. be profitable in the latest financial year (pre-tax profit based on the latest full year consolidated audited accounts), have an operating track record of at least three years and have a market capitalisation of not less than S$150 million based on the issue price and post- invitation issued share capital; or
  3. have an operating revenue (actual or pro forma) in the latest completed financial year and a market capitalisation of not less than S$300 million based on the issue price and post-invitation issued share capital.

In addition to the quantitative criteria, other admission requirements include the following:

  1. The foreign issuer must have at least 500 shareholders worldwide, or at least 500 shareholders in Singapore or 1,000 shareholders worldwide where the SGX-ST and the home exchange do not have an established framework and arrangement to facilitate the movement of shares between the jurisdictions.
  2. The foreign issuer must have at least two independent directors who are resident in Singapore.
  3. The financial statements submitted with the secondary listing application and future periodic financial reports need to be reconciled to the Singapore Financial Reporting Standards, International Financial Reporting Standards or United States Generally Accepted Accounting Principles.

Upon the successful secondary listing, a foreign issuer from a Developed Market will only need to comply with the following continuing listing obligations:

  1. The foreign issuer must release all information and documents to the SGX-ST at the same time as they are released to the home exchange and comply with such other listing rules as may be applied by the SGX-ST.
  2. The foreign issuer must, on a continuing basis:
    1. remain primary listed on its home exchange;
    2. comply with all the applicable listing rules of its home exchange; and
    3. provide an annual certification that it has complied with the applicable continuing listing obligations under the Listing Manual imposed on it.

If the foreign issuer is deemed to be from a Developing Market, it may have additional continuing listing obligations imposed.

NO HARD AND FAST RULE

Under the new framework, a foreign issuer with a primary listing on the main board in a market classified as “Developed” will prime facie have to comply with minimal continuing listing obligations. However, it is important to note that in exceptional circumstances, the SGX-ST may review whether it remains appropriate for a foreign issuer that is primary listed in a Developed Market to continue to be treated as such.

The SGX-ST will review a Developed Market classification in the following exceptional circumstances:

  1. where the foreign issuer has presence in multiple jurisdictions (having regard to its place of primary listing, dominant operations and incorporation); and 
  2. the foreign issuer’s primary place of listing is on the index providers’ Watch list or Review List, such that it might lose its “Developed” market classification.

In such cases, a regulatory assessment will be undertaken by the SGX-ST as to whether the Company’s home jurisdiction should still be classified as “Developed”. The SGX-ST will consider factors including but not limited to:

  1. the level of shareholder protection available (such as whether there is fair and equitable treatment of all shareholders, matters requiring shareholders’ approval, availability of proxy voting etc);
  2. the enforceability of Singapore court orders in the place of dominant operations or place of incorporation; and
  3. the presence of extradition treaties or arrangements between Singapore and the foreign issuer’s place of dominant operations or place of incorporation.

CONCLUSION

When a company applies for a secondary listing on the Mainboard, it will be categorised as being primarily listed either on a Developed Market or a Developing Market. The classification will impact the continuing listing obligations under the Listing Manual that will apply to it. We believe that the new changes will enable more foreign issuers from Developed Markets to widen their investor base and boost their profile in Singapore, while keeping compliance costs to a minimum. However, foreign applicants must always bear two issues in mind: (1) before considering continuing listing obligations, the Mainboard admission criteria must first be satisfied; and (2) the SGX-ST will continue to assess a company’s suitability for listing on the Mainboard regardless of the classification of its home market. Accordingly, any foreign issuer seeking to effect a secondary listing on the Mainboard should be mindful of the regulatory requirements and possible practical constraints, and seek professional advice should it decide to proceed with such an exercise.