The Singapore Exchange (SGX) released a consultation paper in October 2012 on the proposed initiatives relating to the offer structure for initial public offerings (IPOs). We set out below a summary of these proposed initiatives.
- Minimum Allocation to Public Subscription Tranche
The offer structure for an IPO normally consists of a placement tranche and a public subscription tranche.
Currently, under the SGX Listing Manual, companies seeking to list on the SGX Mainboard with a market capitalisation of under S$300 million must have a minimum 25% public float held by at least 500 shareholders. The current requirements do not however require Mainboard listing applicants to allocate a minimum proportion of shares to the public subscription tranche as a method of offering.
The SGX is proposing to impose a requirement that a minimum initial allocation of 5% of the shares offered under an IPO be allocated to the public subscription tranche.
The SGX intends for this initiative to: (i) allow for greater participation in the capital markets; (ii) cultivate a more diverse group of investors; and (iii) increase investor participation, without prejudicing the existing public float requirement.
- Claw-back Mechanism
The SGX is also proposing to introduce a claw-back mechanism that increases the allocation under the public subscription tranche to 10% of the shares offered under an IPO when total demand for shares in the public subscription tranche is 15 to 50 times the initial allocation. When total demand is more than 50 times the initial allocation, the number of shares allocated under the public subscription tranche is proposed to be increased to 20% of the shares offered under the IPO.
- Reverse Claw-back Mechanism
Subject to fulfillment of the prescribed minimum shareholding spread requirements in the SGX Listing Manual, the SGX is also proposing to introduce a reverse claw-back mechanism whereby shares may be re-allocated from the public subscription tranche to the placement tranche in the event of insufficient demand for the public subscription tranche.
The SGX expects that with the introduction of the proposed initiatives, the resultant increase in retail investor participation may enhance the vibrancy of trading in the secondary market, thereby leading to greater liquidity and potentially improved valuations for listed companies.