Introduction
Following a public consultation conducted between June and July 2012, the Singapore Exchange Securities Trading Limited ("SGX") has implemented new rules for the listing and continuing reporting obligations applicable to mineral, oil and gas ("MOG") companies on the SGX Mainboard. These new rules took effect on 27 September 2013.
There is a transitional period to enable MOG companies that are already listed on the SGX Mainboard to implement compliance with the new continuing reporting obligations in steps over the next six to twelve months, depending on the nature of the obligation, following the effective date.
The new rules contain general Mainboard listing criteria for all MOG companies as well as additional listing requirements for MOG companies not yet able to fully meet specified SGX profitability and other financial benchmarks. The new rules seek 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 in light of the new rules that have been implemented.
Before listing
MOG companies that have not yet met specified SGX profitability and other financial benchmarks must have a minimum market capitalisation of at least S$300 million, as opposed to the S$80 million minimum market capitalisation required for similarly situated listing applicants from other industries.
In order to be eligible to list on the SGX, MOG companies must establish the existence of adequate MOG resources, and substantiate the existence of such resources in a qualified person’s report ("QP Report") from an independent qualified person. In relation to minerals, the QP Report must categorise these as at least an indicated resource and in relation to oil and gas the QP Report must categorise these as at least a contingent resource. The independent qualified person must be from a third party firm who, along with that firm and its major stakeholders, does not have an interest in the MOG listing applicant.
The new 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.
The Singapore issue manager supporting the listing of MOG companies must confirm to the SGX that, after conducting due diligence, the issue manager has no reason to believe that the MOG company is not in compliance with all relevant laws and regulations, possesses title to its assets and holds valid and enforceable rights over them. The issuer manager can rely on a legal opinion when submitting this statement. Although the SGX's original proposal which required the publication of the legal opinion in the prospectus has not been implemented, the rule as enacted is intended to ensure that proper due diligence has been completed on the assets.
Due to the long lead times that are common for MOG projects to move from the exploration stage into the production stage, all MOG listing applicants must demonstrate sufficient working capital to meet their present requirements and for at least 18 months following listing. Working capital for MOG companies includes: (i) operating, general, administrative and financing costs; (ii) property holding costs; and (iii) any proposed exploration and/or development costs. The new rules define working capital as the applicant's ability to access cash and other available liquid resources in order to meet its liabilities as they fall due. Proceeds from the initial public offering can be taken into account when assessing the applicant's ability to access cash only if the offering is fully underwritten. In addition, if projected cash flows are relied upon when assessing the applicant's ability to access cash, the issuer manager must submit a confirmation to the SGX that it is satisfied that such projections have been prepared after due and careful inquiry. It is worth noting that the Hong Kong Stock Exchange rules require a MOG company to demonstrate sufficient working capital to meet 125% of their present requirements for at least 12 months.
The prospectus
The new rules permit the 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) if (i) the relevant risk factors are clearly stated; and (ii) economic values are not attached to the prospective resources. It is worth noting that the SGX originally had proposed prohibiting the disclosure of prospective resources in the prospectus. The decision to allow the disclosure of prospective resources should be welcomed by early-stage oil and gas exploration companies. The SGX approach to prospective resources is similar to that taken by the Hong Kong Stock Exchange.
MOG companies that have not yet met specified SGX profitability and other financial benchmarks must disclose their plans, proposed capital expenditure and milestones to advance their projects to the production stage. An independent qualified person is required to opine on such plans in the prospectus.
The prospectus must also include a valuation report with respect to the company’s reserves and resources. This report must be prepared by an independent qualified person and can form part of the QP Report to be included as part of the offering document. The new rules include detailed guidance on the permitted technical reporting standards and required contents of QP Reports, including as to social, environmental and health and safety factors that may affect exploration or exploitation activities.
Continuing obligations
Once listed, MOG companies are required to make an immediate announcement to the market whenever there has been a material change to their reserves or resources, substantiated by a QP Report, which need not be signed off by an independent qualified person.
A QP Report signed off by an independent qualified person is 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. While the announcement must be made to the market immediately, the QP Report can be made "as soon as practicable", providing MOG companies with time to prepare a QP Report. Where an independent QP Report is required, MOG companies should be mindful of the additional cost that will need to be incurred to commission the QP Report, though it may be the case that an independent QP Report would be commissioned for these types of discoveries independent of the requirement to do so.
As an additional continuing listing obligation, MOG companies that have not achieved certain profit benchmarks or whose principal assets have not entered into production are 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.
Conclusion
Prior to the introduction of the new rules, MOG companies seeking a listing on the SGX Mainboard had to work within the parameters of the general Mainboard listing requirements, which did not apply easily to MOG companies. SGX Mainboard listing applicants also used MOG specific rules found in the Catalist rules (SGX's secondary board) by way of guidance. The new MOG listing rules make it easier for MOG companies to determine whether they are in a position to list on the SGX. The MOG listing rules should also help ensure that well-prepared resources companies, including early stage companies, are able to more easily list on the SGX and access the well-developed resources investor base in Singapore and Southeast Asia. The major drawback to the new rules is that MOG applicants will have to invest significant preparatory time and resources to satisfy the relevant SGX listing eligibility framework.
