Chew's Group makes U-turn on plan to allow dual-class shares

SINGAPORE - Publicly listed companies in Singapore have yet to be given clearance to issue dual-class shares (DCS), but one listed entity appeared to have jumped the gun by moving to give itself the right to issue shares with different voting rights.

The Singapore Exchange (SGX) has stepped in with a reminder that DCS have not been given the greenlight, and that a public consultation on the subject may be held soon.

Catalist-listed Chew's Group, one of Singapore's leading producers of fresh eggs, has thus had to send out a corrigendum to its shareholders' circular, which had proposed a change to its constitution that would have enabled the company to issue DCS.

The proposal - which cited the updated Companies Act on DCS - was to have been put to a shareholders' vote at the company's extraordinary general meeting (EGM) this Wednesday.

On Jan 6, it announced that "all references in the circular to DCS structures and the issue of non-voting shares or shares with multiple votes shall be removed".

Just four days before that, on Jan 2, Chew's Group had proposed that its constitution be changed to "empower the company to issue different classes of shares, including shares which confer special, limited or conditional voting rights, or which do not confer voting rights, provided that no such issuance may be undertaken unless it is approved by shareholders by special resolution".

In other words, it was a move towards having dual- or multiple-class shares, which would make some shares subordinate to others, by giving some shares a disproportionate voting power or other related rights.

The company's circular went on to say that this move was is in line with recent amendments to the Companies Act.

It may well have been a case of Chew's Group counting its chickens before they were hatched.

The Companies Act has indeed been amended to allow public companies to issue DCS, and the SGX's Listings Advisory Committee (LAC) - an autonomous body that offers independent opinions on unusual listing applications for the SGX - did recommend that SGX's Listing Rules follow suit, with certain "safeguards".

However, the SGX has not yet adopted the practice. Listed companies are thus barred from issuing more than one class of shares at the moment; shares issued have to be of the one-share-one-vote variety.

But even if DCS structures are allowed by the SGX down the road, it is unlikely that already-listed companies would be given the chance to have DCS structures.

The LAC had recommended that listed companies ought to be prohibited from issuing DCS after they are listed on the SGX.

"Existing companies which had listed with a one-share-one-vote structure would not be permitted to convert to a DCS structure post-listing," it said.

The SGX thus took steps to inform Chew's Group of the situation.

Asked about the incident, SGX's head of Listing Compliance June Sim told The Business Times: "SGX has not yet proposed making the DCS structure available; a public consultation on the matter is only expected later in the quarter. We have thus informed the sponsor (PrimePartners Corporate Finance) of our stance and the company has removed mention of DCS in its constitution."

Corporate-governance advocate associate professor Mak Yuen Teen had spotted the company's proposed new constitution when it first came out and alerted BT to it.

He said he was concerned that, if Chew's Group could make the wrong assumption, other listed companies might as well.

"I have since looked at a few other companies that have recent or forthcoming EGMs to approve changes in constitution to align with the amendments to the Companies Act, and none of them has done what Chew's Group had proposed to do.

"However, I have not looked at all the companies that have proposed changes to their constitution. Hopefully, we won't see any other companies trying this before DCS is approved, which I hope is never."

He added that he hoped all parties with listing matters would be more careful, to prevent a situation such as that involving Chew's Group from recurring.

"The company secretary and lawyer would usually be closely involved in advising on constitutional amendments. I am also surprised this passed through the scrutiny of the sponsor.

"Ultimately, the buck stops with the board, and it is disappointing that it was so keen to allow a share structure that potentially disenfranchises public shareholders, assuming it had carefully reviewed and approved the proposed changes."

Singapore is leaning towards allowing DCS structures as it believes they can pull in high-quality companies which may not otherwise consider Singapore as a listing venue.

The move is also aimed at keeping the city-state competitive.

The Hong Kong Exchanges and Clearing (HKEX) recently announced that it is re-examining the possibility of permitting DCS structures upon hearing that its rival, Singapore, was mulling the idea.

Both HKEX and SGX have lost out on big-name initial public offerings (IPOs) in the past because they would not bend the rules on share structure.

SGX lost a possible Manchester United IPO to the New York Stock Exchange in 2012; HKEX lost Alibaba's IPO in 2014, also to New York.

Detractors of DCS point to the disadvantages and the economic inequality that these shares create for investors: It does mean that, even if one paid the same amount for one's shares and held the same number of shares, a common investor would always have a smaller voice and less sway than a superior investor.

michquah@sph.com.sg

This article was first published on Jan 24, 2017.
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