The Singapore Exchange (SGX) has issued a Consultation Paper on Enhancements to Continuous Disclosure Obligations (Consultation Paper). The Consultation Paper, which was issued on 7 December 2017, covers a wide range of proposed changes to enhance disclosures in relation to rights issue funding, transactions with interested persons, and the acquisition and disposal of assets. It also proposes to bring the provision of financial assistance to third parties within the Listing Rules framework for the acquisition and disposal of assets.
Provision of Financial Assistance
Currently, an issuer or a subsidiary of an issuer that undertakes an acquisition or disposal of assets must determine whether the transaction falls into one of the following four categories: non-discloseable transaction, discloseable transaction, major transaction, or very substantial acquisition. A major transaction requires shareholder approval, while a very substantial acquisition requires both shareholder approval and the approval of the SGX. Which category an acquisition or disposal falls into depends on the size of its relative figure (for example, the net profits attributable to the assets acquired or disposed of, compared with the group’s net profits).
The Consultation Paper proposes that the provision of financial assistance also be brought within this regulatory framework. “Financial assistance” is proposed to include the following:
- The lending of money, the guaranteeing or providing security for a debt incurred or the indemnifying of a guarantor for guaranteeing or providing security; and
- The forgiving of a debt, the releasing of or neglect in enforcing an obligation of another, or the assuming of the obligations of another.
Accordingly, if the provision of financial assistance amounts to a discloseable transaction, an announcement must be made, and if it amounts to a major transaction, shareholder approval will be required. In determining the size of the relative figure of the financial assistance, the proposal is as follows:
- The monetary value of the relevant loan, debt, indemnity or obligation be compared with the group’s net asset value;
- The aggregate value of any interest payable on the financial assistance be compared with the group’s net profits; and
- The aggregate of the monetary value of the relevant loan, debt, indemnity or obligation and any interest payable on the loan, debt, indemnity or obligation be compared with the issuer’s market capitalisation.
Accordingly, an issuer (or its subsidiary) that, for example, intends to make a loan of an amount that exceeds 20% of the group’s net asset value, under the proposed framework, it must seek shareholder approval for making that loan unless it is made in the ordinary course of its business.
Acquisitions and Disposals
The Consultation Paper proposes various changes to the rules on acquisitions and disposals. The following are noteworthy:
- Unless an acquisition or sale of shares is material to the issuer, immediate disclosure is no longer required for all acquisitions or sales of shares resulting in a company becoming or ceasing to be a subsidiary or associated company of the issuer or increasing or reducing the issuer’s shareholding in a subsidiary or associated company. For such non-material acquisitions or sales, disclosure may instead be made together with the financial statements.
- Where an acquisition or disposal of assets other than shares is a major transaction and the issuer / subsidiary has not commissioned a valuation of the asset, it must explain why it did not do so in its circular to shareholders seeking approval for the transaction.
- In a disposal of assets, if any of the relative figures computed under rule 1006 of the Listing Rules exceeds 75%, the issuer must appoint a competent and independent valuer to value the assets to be disposed. Where the acquisition is a very substantial acquisition, a valuer must be appointed to value the assets to be acquired.
Interested Persons Transactions
The rules on interested persons transactions (IPTs) are proposed to be amended as follows:
- The Listing Rules currently require that IPTs that equal or exceed 3% of the group’s latest audited net tangible assets must be announced, and IPTs that equal or exceed 5% of the same must be subject to shareholder approval. An exemption is currently provided for IPTs below SGD 100,000. The SGX has proposed removing this exemption. All IPTs entered into with the same interested person group during the same financial year regardless of value should therefore be included in calculating the aggregate value of IPTs for determining whether the relevant thresholds have been exceeded.
- In aggregating transactions for determining whether the relevant thresholds for IPTs have been exceeded, the Listing Rules refer to “interested persons who are members of the same group” (rule 908). This will be amended to clarify that an interested persons group refers to the interested person and any of its associates. The change is to clarify that an interested persons group does not include only entities that are related corporations.
- If the group’s latest audited net tangible assets is negative, the issuer must consult the SGX on the appropriate benchmark to use. The Consultation Paper notes that the SGX may use, for example, market capitalisation.
- Currently, an issuer that obtains mandates for IPTs by reference to a generic class (for example, IPTs with the controlling shareholders and their associates) may treat the mandate as continuing to apply even when the identities of the controlling shareholder have changed. It is proposed that this practice be stopped and that issuers must therefore name the relevant director, chief executive officer or controlling shareholder covered by the mandate. Accordingly, if there is a change in identity, a fresh mandate must be obtained from shareholders.
- Where the IPT is a disposal of assets below the value of the asset, the value at risk (for the purposes of determining the value of the IPT) will be the market or book value of the asset. Where the asset has been impaired by 20% or more in the past two financial years and up to the latest announced interim financial period prior to the transaction, then the issuer should consult the SGX on how to determine the amount at risk. The SGX may require an independent valuation of the asset to be disposed.
- Where an IPT has to be disclosed, the issuer must disclose the following additional information: relevant book value, net profit of the assets, and the latest available open market value. In addition to disclosing the name of the interested person, the issuer must disclose the nature of the relationship.
Other Changes of Note
Other proposed changes of note are as follows:
- The SGX proposes the following additional disclosures be made when an issuer undertakes a rights issue:
- Additional upfront and prominent disclosure of the discount, ratio and other principal terms for the rights issues;
- A directors’ statement on why the rights issue is in the best interests of the issuer and their basis for forming such a view including justification for any discount;
- Additional disclosure of the use of proceeds and intended use of any unutilised amount if a rights issue takes place within a year of another fund-raising.
- Where an issuer or any of its subsidiaries enters into a loan agreement or issues debt securities and that agreement or issuance contains terms that a change in the shareholding interests of the controlling shareholder in the issuer will cause a default of the loan agreement or issuance, disclosure must be made of these terms. The disclosure requirement is proposed to be extended to include terms that state that a change in shareholding interests will be an enforcement event or result in the loan repayment being accelerated.
- Where structured warrants are issued, the terms of the issue must provide for adjustment to the exercise price and, where appropriate, the number of securities which each structured warrant carries the right to sell or purchase in the event of any bonus or rights issue. This will be amended to also require that the terms of the issue must provide for such adjustments in the event of any consolidation or subdivision. A similar amendment applies to company warrants and other convertible securities.