The Singapore Stock Exchange (SGX) has shortened the period of rights issue exposure for listing firms, giving much needed stability for capital raising companies in the city state.
The measures became effective on January 13 2009 and the SGX’s website states they will be effective until December 31 2010.
Current listing rules require companies to give a minimum of 10 market days notice from the book’s closure date. This exposure period subjects issuers and underwriters to greater market risks and will be reduced, though no specifics have been announced yet.
According to Kristen Harris, general committee member of the Singapore Corporate Counsel Association (SCCA) and Texas Instruments in-house counsel, such measures would help place a financial value on issues because the longer notice period, the tougher valuation becomes under such fluctuating conditions.
Singapore-based David Chong, a partner with Shook Lin & Bok, agrees, and believes the measures are necessary. “The proposed price of an issue initially thought to be attractive may quickly become unattractive where general market conditions are not stable,” he said.
“If it’s a shorter period, you can base the value of a share on current financial conditions,” said Harris.
The Exchange acted quickly, too. “We do see some urgency in the matter. When the Singapore government says they will do something in a short period of time, it will usually happen,” said Harris.
Elsewhere, the Exchange will also allow for underwriting agreements between primary underwriters and companies’ majority shareholders.
As sub-underwriters, major shareholders could conceivably share the lead underwriter’s fee. The latter could also underwrite more than their allotted excess shares.
The downside is that such an upfront commitment prevents majority shareholders from trading on their rights entitlement.
To protect minority shareholders’ rights, where an issuer undertakes a rights issue and a majority shareholder earns a sub-underwriting fee without shareholder approval, a three-pronged test must be adhered to:
1) The issuer’s board must assure the terms of the sub-underwriting agreement are fair and not prejudicial to the issuer and to other shareholders, and the board must provide its rationale;
2) the board must confirm that the terms agreed to between the issuer and underwriter – including underwriting fees for the lead and sub-underwriters – are at arms length; and
3) the lead underwriter must be a Monetary Authority of Singapore-licensed financial institution.
Ajay Shamdasani