SGX proposes at least 10 per cent retail tranche for IPOs

The Singapore Exchange (SGX) is proposing that mainboard companies allocate to retail investors a minimum 10 per cent of shares in initial public offers (IPOs), up to a maximum of $100 million.

The move would go some way towards narrowing the gap between investor demand for IPO shares and the supply. Between 2010 and last year, market debutantes on average set aside only 8 per cent of their IPO shares for retail investors.

But over the same period, 90 per cent of IPOs received applications for their public subscription tranches amounting to greater than 10 per cent of the total offer size.

"SGX's proposal for a minimum 10 per cent retail allocation for shares of mainboard IPOs is aimed at giving individuals more investing opportunities in the Singapore equities market," said its chief executive Loh Boon Chye.

"While market conditions may have been uncertain of late, this initiative is for the long term and is part of overall enhancements to the Singapore stock market."

Lee & Lee senior partner Adrian Chan said the proposal shows that the SGX is keen on broadening its investor base.

He said companies tend not to allocate bigger tranches for public subscription because they want to minimise the element of uncertainty involved in an IPO launch.

"If the underwriter or issue manager can guarantee 'placees' of a certain amount, then the company launching the IPO would naturally say yes, as that gives it more certainty. Larger public tranches increase uncertainty - if they are undersubscribed, then it would not be good for the company's reputation."

A placee is an investor - typically an institutional investor - which will buy shares through a private placement.

Gibson Dunn partner Robson Lee said he fully supported the proposal. "For the longest time, Singapore IPOs have become 'initial private offerings' because it's more expedient for underwriters and issue managers to place out shares way ahead of the offer period, so very few of the offer shares end up being available to the public. So I think this is a positive reaction to market feedback."

This is the second time the bourse operator has suggested introducing a minimum IPO allocation for retail investors. The first occasion was in 2012, when it proposed a 5 per cent retail allocation.

Yesterday's proposal is a recalibrated one that takes into account the feedback the SGX received from the 2012 consultation and data from IPOs launched between 2010 and last year, it said.

Besides increasing the proposed minimum allotment for retail investors, the latest proposal also introduces the dollar cap of $100 million on the value of shares allocated to the public subscription tranche.

The 2012 proposal did not have any such cap, and some respondents had highlighted then that 5 per cent of the total offer size might be significant for large offers and may be a challenging threshold to satisfy.

The cap ensures that the minimum retail allotment is not onerous on issuers who are launching big IPOs, the SGX said.

"This measure is particularly relevant for large IPOs where it is anticipated that public demand for the shares allocated to the public subscription tranche will be less than 10 per cent of the total offer size," it said in the consultation paper.

"Based on the data for IPOs during the period 2005 to 2015, there were four IPOs in which the total offer size was greater than $1 billion."

The consultation will remain open until March 24.

This article was first published on February 27, 2016.
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