BACKGROUND

Singapore Exchange Securities Trading Limited (“SGX”) recently announced the introduction of new Mainboard admission rules and continuing listing obligations (the “New Rules”) for mineral, oil and gas (“MOG”) companies. These New Rules came into effect from 27 September 2013.

SGX first issued a consultation paper for the Catalist listing of MOG companies in 2009. The Catalist listing rules for MOG companies were issued thereafter and has taken effect from 1 February 2011. Since then, the SGX has endeavoured to encourage the MOG companies seeking to increase their presence in Asia to list on the SGX Catalist and the investors have become increasingly familiar with the requirements and risks of MOG companies.

On 20 June 2012, SGX released a consultation paper (“Consultation Paper”) proposing initial Mainboard listing rules for MOG companies and additional disclosure requirements to govern the continuing listing obligations of such MOG companies. The New Rules take into account feedback and suggestions SGX received from the public consultation concluded in July 2012

With the introduction of the New Rules, SGX has not only done away with certain requirements which precluded those MOG companies which are not yet in production from being listed on the SGX Mainboard, but has also placed emphasis on the key issues which are fundamental to the success of the MOG companies and ensure that the interest of the investors is protected, given the technical and specialised nature of the MOG sector. 

MOG COMPANIES

SGX released Practice Note 6.3 stating the disclosure requirements for MOG companies listed or is seeking listing on the SGX Mainboard (“Practice Note”). The Practice Note states that where the MOG activity of the issuer and/or its subsidiaries, based on the issuer’s latest audited consolidated financial statements: (i) represents 50% or more of the total assets, revenue or operating expenses of the group; or (ii) is the single largest contributor based on any of the tests in (i) above, the issuer may be considered to be principally in the business of exploration for or extraction of MOG assets. The issuer is required to make an announcement when any of the above situations occurs and will thereafter be required to comply with all the continuing listing rules applicable to a MOG company.

The companies listed on the SGX Mainboard should review whether their business operations may be included within the new definition of MOG companies and therefore require them to comply with the additional disclosure requirements that are applicable to the MOG companies.

INITIALLISTING CRITERIA

According to the SGX Listing Rules, any company seeking to list on the SGX Mainboard must fulfill, among others, the requirements pertaining to profits, operating revenue and positive cash flow.

The New Rules provide that a MOG company that is not yet in production or cannot otherwise satisfy the usual initial listing criteria for the SGX Mainboard may apply for listing if it fulfils, amongst others, the following requirements:

  1. has a market capitalisation of not less than S$300 million, based on the issue price and post-invitation issued share capital, and 
  2. discloses its plans and milestones to advance to production stage with capital expenditure for each milestone. Such plans must be substantiated by the opinion of an independent qualified person.

The New Rules also stipulate that a MOG company must be able to establish the existence of adequate resources in a defined area where the company has exploration and exploitation rights, and which must be substantiated by an independent qualified person’s report. In complying with this rule, the resource must at least be categorised as an “indicated resources” for minerals or “contingent resources” for oil and gas.

WORKING CAPITAL

The New Rules provide that a MOG company must have working capital that is sufficient for its present requirements and for at least 18 months after listing. Working capital is defined to include (i) operating, general and administrative and financing costs; (ii) property holding costs; and (iii) costs of any proposed exploration and/or development.

Working capital shall be considered as the applicant’s ability to access cash and other available liquid resources (including proceeds from the initial public offering and projected cashflows but excluding future borrowings/financing which have not been obtained) in order to meet its liabilities as they fall due.

It is important to note that the proceeds from the initial public offering can be taken into consideration only if the invitation is fully underwritten. If the invitation is not underwritten but the listing is subject to a specified minimum amount to be raised from the invitation, the proceeds taken into consideration shall be limited to the minimum amount to be raised.

Where projected cashflows are relied upon, the issue manager must submit a confirmation to the SGX that it is satisfied that the projections are prepared by the applicant’s directors after due and careful enquiry.

REPORT OF INDEPENDENT QUALIFIED PERSON

SGX acknowledged that the expertise and relevant industry experience of the independent qualified person is an important aspect for the success of the MOG company. The New Rules set out specific requirements for the independent qualified person. The New Rules also require the independent qualified person’s report to be prepared in accordance an acceptable standard such as the Canadian National Instrument 43-101 Standards of Disclosure for Minerals Projects (“NI43-101”) and the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Resources (“JORC Code”). The contents of the independent qualified person’s report must comply with the requirements as set out in paragraph 5 of the Practice Note.

Further, the valuation report to be prepared by the independent qualified person is required to be in accordance with an acceptable standard, such as the Code for Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (“VALMIN Code”).

INDEPENDENT DIRECTOR

The New Rules also require the MOG companies to have at least one independent director with appropriate industry experience and expertise.

AUDIT FIRM

The New Rules provide that a MOG company must appoint an auditing firm where the auditing firm and audit partner-in-charge have the relevant industry experience.

LEGAL OPINION

The New Rules require the issue manager to provide a negative confirmation to the SGX. The issue manager must submit a confirmation to the SGX that after conducting due diligence, the issue manager is not aware of any matter that has caused it to believe that the listing applicant:

  1. has not obtained all material licences, permits or certificates necessary toconduct its operations from the relevant governmental bodies in the jurisdictions where the group operates;
  2. is not in compliance with all laws, rules and regulations in all jurisdictions in which the group operates, including the proper incorporation and good standing of any incorporated subsidiary or interest, except where such non-compliance is not material to the group’s business operations; and
  3. does not possess title to or valid and enforceable rights to any assets (including licences and agreements) as is appropriate to the listing applicant or the group, except where such lack of, or defect in, such title or rights is not material to the group’s business operations.

Moreover, the New Rules imposed additional responsibility on the issue manager to ensure the suitability of the legal adviser. The New Rules state that in relying on the opinion from a legal adviser in providing the confirmation to the SGX, the issue manager should make due diligence inquiries including:

  1. assessing the suitability of the legal adviser having regard to whether the legal adviser has the relevant experience and is authorised to practice and advise in the relevant jurisdiction; and
  2. reviewing the terms and scope of engagement.

CONTINUING LISTING OBLIGATION

The MOG companies are now required to comply with detailed disclosure requirements with respect to resources, reserves and exploration results. The Practice Note provides details on the general requirements for disclosure of reserves, resources or exploration results applicable to all MOG companies.

MOG companies also have to comply with the continuing disclosure requirements with reference to any change in the nature of reserves, resources or exploration results, in order to ensure that theinvestors are provided with material information in a timely manner even after the listing.

CONCLUSION

With the introduction of these New Rules, the path to listing of the MOG companies on the SGX Mainboard has been made easier. The requirements stipulated by the New Rules have put in place checks and balances to regulate the MOG applicants. These developments will facilitate the listing of MOG companies on the SGX and strengthen Singapore’s position as a leading commodities hub in Asia.

REFERENCES

Please  click  on  the  links  below  to  refer  to  the relevant documents.

  1. SGX Consultation Paper on Proposed introduction of Mainboard Listing Rules for mineral, oil and gas companies, dated 20 June 2012
  2. Mainboard Listing Rules
  3. Practice note 6.3 on Disclosure Requirements for Mineral, Oil and Gas Companies, dated 5 September 2013