Photographer: Darren Soh/Bloomberg

If Singapore Wants a Facebook, Dual-Class Stock Isn’t Enough

  • More needs to happen before city is first choice for companies
  • Some say change is positive step to luring more businesses

Singapore’s move to allow more than one class of shares for its public companies won’t be enough on its own to lure international businesses, according to executives and asset managers.

Some of the world’s largest companies, including Facebook Inc. and Alphabet Inc., have multiple share classes, which usually are in place to allow minority shareholders to have majority voting rights. An independent body on Monday said it was in favor of permitting weighted-voting rights for new listings on Singapore Exchange Ltd., in what is the city’s latest bid to draw initial share sales.

The move may help narrow the gap with Hong Kong, Asia’s biggest market for initial public offerings, where minority-control voting structures aren’t permitted. Hong Kong lost Alibaba Group Holding Ltd.’s $25 billion IPO to the U.S. after regulators rejected the Chinese e-commerce company’s governance structure. But executives in Singapore say that more needs to be done before it can compete with the global leaders.

“Technology companies would typically first consider the Nasdaq and New York Stock Exchange, and then the Hong Kong stock exchange,” said Chua Kee Lock, chief executive officer of Vertex Venture Holdings Ltd., a unit of state investment firm Temasek Holdings Pte. The latest move “helps SGX to encourage more technology companies.”

Companies in Vertex’s portfolio include Reebonz Pte, Southeast Asia’s biggest luxury e-commerce company, and online grocer HappyFresh.

“Until you attract good companies, no institutional investor will spend time,” said Chua, the head of Singapore’s largest venture capital firm. “When no institutional investor spends time, you have no liquidity. Therefore, dual-class will not solve everything.”

SGX, which has a monopoly on stock trading in the city, had average daily volume of about S$1.02 billion ($749 million) in the past year, a 9.4 percent decline from the prior year, according to data compiled by Bloomberg.

First-time share sales in Singapore raised $1.7 billion so far this year, according to data compiled by Bloomberg. For the first half of the year, the value of delistings on the exchange was more than twice the amount of new listings, the data show. In 2015, Singapore IPOs raised $374 million, the lowest in at least a decade.

“The ability to do dual-class share structures is a very strong competitive advantage in Asia,” said David Reeb, a finance professor at the National University of Singapore Business School. “Whether that’s going to attract the next Alibaba is going to be very difficult to predict but at least this puts us in the running.”

The next challenge is convincing companies, especially Asia’s family-run firms, of the benefits of going public, Reeb said.

Investor Support

Chew Sutat, head of equities and fixed income at SGX, said it’s essential that the bourse supports the needs of investors and issuers. 

“A listing framework for dual-class share structure with the appropriate safeguards could provide investors more options in exciting growth sectors where the founders play a critical role in the companies’ continued success,” he said by e-mail.

Credit Suisse Group AG and DBS Group Holdings Ltd. said the move broadens the list of potential companies that want to list on SGX, and increases the options available to international business considering an SGX listing.

“A move toward dual-class share structures would be good for the Singapore market,” Ho Cheun-Hon, Credit Suisse’s head of equity capital markets for Southeast Asia, said in an e-mail. 

David Smith, head of corporate governance at Aberdeen Asset Management Asia Ltd., said the firm disagrees with the move, saying that many companies might now apply for the dual-class structure. Singapore Exchange should instead strengthen its rules and enforcement to help attract IPOs, he said.

Hong Kong Exchanges & Clearing Ltd. last year halted its bid to loosen shareholder voting rights after the regulator said there was no assurance a company would treat its investors fairly.

In the U.S., listed companies with more than one type of share class, including Alphabet and Facebook, are subject to more stringent reporting requirements and shareholders have the ability to band together on lawsuits. Rules on so-called representative lawsuits in Singapore are much tighter than the class-action complaints allowed in the U.S.

Attracting Companies

Patrick Grove, co-founder of Kuala Lumpur-based Catcha Group, said SGX’s latest move will prompt entrepreneurs to consider an IPO in the city-state.

“Exchanges like SGX are really starting to become more attractive, especially with the proposed dual-class shareholder structure,” Grove said.

Singapore’s bourse has been introducing rules to try to attract more companies, including allowing the listing of resource firms without an earnings track record and dual-currency trading for stocks and exchange-traded funds. Any change to the listing rules will only occur after a public consultation process, CEO Loh Boon Chye said in an e-mailed statement.

SGX’s committee said on Monday “one-share, one-vote” will remain the default for new listings unless there’s a compelling reason for a dual-class model.

A debate over whether such models compromise corporate governance was ignited in 2011 when Manchester United Plc was considering whether to list in Singapore. The U.K. soccer club scrapped its Singapore sale due to market conditions and eventually listed in the U.S. under a dual-class share structure.

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