June 20, 2012, the Singapore Exchange Securities Trading Limited (“SGX”) released for public consultation its proposed rules in relation to the listing and continuing reporting obligations applicable to mineral, oil and gas (“MOG”) companies on the SGX Mainboard.
In the consultation paper, the SGX proposes general Mainboard listing criteria for all MOG companies as well as additional listing requirements for MOG companies unable to meet specified SGX profitability and other financial benchmarks. This follows the introduction in 2011 of MOG listing rules for the SGX’s alternative Catalist board. While the proposed Mainboard rules include many similarities to the rules already in place for Catalist, MOG companies seeking a Mainboard listing would face a more robust regulatory framework if the proposed rules are enacted substantially as drafted.
The proposed rules look to strike a balance between, on the one hand, increasing the listing requirements for MOG companies in light of the perceived risks associated with their industries (such as high capital costs and the risks inherent in exploration and extraction activities), and, on the other hand, strengthening Singapore’s position as a commodities hub and a listing venue of choice for prospective MOG issuers looking to access regional investors familiar with these industries. The following summary sets out a number of the key issues MOG companies seeking to list on the SGX Mainboard will need to consider as part of their listing preparations.
The SGX proposes that MOG companies that have not yet met specified SGX profitability and other financial benchmarks have a minimum market capitalization of at least S$300 million, as opposed to the S$80 million minimum market capitalization required for similarly situated listing applicants from other industries.
The proposed rules also require MOG companies to have at least one independent director with prior experience in the mineral, oil or gas industry and to appoint an auditing firm with relevant industry experience.
A MOG company would be required to disclose in its prospectus a legal opinion regarding its compliance with all relevant laws and regulations and title to and validity and enforceability of rights to its assets. As a possible alternative to disclosing a legal opinion, the SGX has suggested (without currently proposing this as a rule) that issue managers provide a statement in the offering document that proper due diligence has been conducted on these matters.
Due to the long lead times that are common for MOG projects to move from the exploration stage into the production stage, the SGX proposes that all MOG listing applicants demonstrate sufficient working capital to meet their present requirements and for at least 18 months following listing. Working capital for MOG companies would include: (i) general, administrative and operating costs; (ii) property holding costs; and (iii) any proposed exploration and/or development costs. Capital expenditure is specifically carved out from the calculation of working capital.
Furthermore, the proposed rules would prohibit disclosure of “prospective resources”, which are quantities of oil and gas resources potentially recoverable from undiscovered accumulations not classified as contingent resources or reserves under the applicable technical reporting standard. This proposal may be particularly relevant to early-stage oil and gas exploration companies. In Hong Kong, by comparison, the disclosure of prospective resources is permitted so long as appropriate risk factors are included.
MOG companies that have not yet met specified SGX profitability and other financial benchmarks would be required to disclose their plans, proposed capital expenditure and milestones to advance their projects to the production stage. An independent qualified person would be required to opine on such plans in the prospectus.
The prospectus also would be required to include a valuation report with respect to the company’s reserves and resources. This report would be prepared by an independent qualified person and could form part of the qualified person’s report (“QPR”) to be included as part of the offering document. The proposed rules include detailed guidance on the permitted technical reporting standards and required contents of QPRs, including as to social, environmental and health and safety factors that may affect exploration or exploitation activities.
Once listed, MOG companies would be required to make an immediate announcement to the market whenever there has been a material change to their reserves or resources, substantiated by a QPR. An independent QPR — namely, a QPR prepared by a qualified person at a third party firm who, along with that firm and its major stakeholders, does not have an interest in the listing applicant — would be required as part of any announcement regarding: (i) new material reserves or resources which have not been previously disclosed; or (ii) a 50% change or more in reserves or resources that have been previously disclosed.
As an additional continuing listing obligation, MOG companies that have not achieved certain profit benchmarks or whose principal assets have not entered into production would be required to make quarterly announcements disclosing the use of their funds during the previous quarter and their projected use of funds for the next immediate quarter.
If the MOG rules are enacted substantially as proposed, MOG applicants are likely to require more time and resources to satisfy the SGX listing eligibility and more robust regulatory framework. Public comments on the consultation paper are due by July 20, 2012.