Singapore's Opportunity: Two-tier equity structure?
When the Singapore business community supports something, the impact can be huge. When Singapore held a week-long fintech festival in November 2016, this effect was evident. Participants were diverse, from regulators and major banks to representatives of small entrepreneurial companies. The Fintech Festival attracted thousands of participants, supporting the claim that Singapore is a leader in the Asian Fintech industry.
However, in addition to related headlines and hype, in the same week, Singapore launched another debate on an older topic, which is also closely related to the outside world's impression of the "Lion City": this topic revolves around the Singapore Stock Exchange (Singapore Stock Exchange). Exchange) the introduction of dual equity listing structure.
Supporters, led by bankers and lawyers, argue that the abolition of the “one share, one vote” rule will allow Singapore to enjoy the Asia-Pacific region in attracting Asian star companies such as Alibaba and global popular companies such as Manchester United. Advantage. Both companies chose New York for their listing locations, and abandoned Hong Kong and Singapore because the United States is more willing to accept their desire to allow a small group of people to have greater voting rights.
The two U.S. stock exchanges have allowed dual-shareholding structures since the 1980s. At that time, the New York Stock Exchange (NYSE) faced the threat that blue chip companies such as General Motors (GM) might switch to Nasdaq (Nasdaq) and gave up the long-term strategy. A stance against dual ownership structure for 60 years.
Today, opponents in Singapore believe that allowing multiple classes of stocks will lead to vicious competition among exchanges in the region. They argue that this will exacerbate the governance problems inherent in large family businesses and state-owned enterprises.
"The Singapore Stock Exchange will look like a desperate dancer, pulling up his short skirt at midnight to attract people's attention," said David Smith, head of corporate governance at Aberdeen Asset Management Asia. ) Said, “The Singapore Stock Exchange is a commercial entity, I know. But many supporters of dual-shareholding structures made transactions and left. In the end, investors hold those stocks. I don’t know why we want to allow this kind of thing. ."
Earlier in 2016, Singapore revised the law to make dual-shareholding structures possible. Then, the Singapore Stock Exchange's Listing Advisory Committee (Listings Advisory Committee) supported this idea. The next step is the formal consultation.
Those who oppose the dual-shareholding structure worry that Singapore’s authorities will embrace this mechanism as eagerly as they do with fintech, which will make it more difficult to fight. As one investor put it: "Why is the tycoon unwilling to control his company cheaply?"
However, pragmatists acknowledge that the Singapore Exchange needs to take major steps to attract new listings. According to data from Dealogic, Singapore’s derivatives business is booming, but in the past five years, the country has only raised $13.5 billion through initial public offerings (IPOs), which is less than half of any competitor in the region. The most painful thing is that Singapore’s rival, Hong Kong, raised US$119 billion in IPO during the same period.
"It is true that with Mainland China as the backyard, Hong Kong has the world's largest capital market opportunity," said a senior Asian stock banker. "Singapore needs to start from neighboring countries and convince those companies that it will provide better things. This is not the case. easy."
Hong Kong discussed this topic for two years, and the final proposal was rejected by the regulator within a short period of time.
If Singapore implements the new regulations quickly, it will be one step ahead, because not many people in Hong Kong are interested in bringing up this painful topic soon.
It is expected that Singapore will consider adopting some protective measures, such as the approval of the Singapore Stock Exchange for the listing of various types of stocks, and a "sunset clause" to limit the family's inter-generational control.
Chen Yih Pong, head of the securities business of the law firm Baker & McKenzie Wong & Leow, said: “We can achieve a reasonable balance. When the company achieves good performance under the correct management, it also allows investors to Benefit from these arrangements."
However, there are signs that this topic is still controversial. The official consultation process in Singapore was originally scheduled to begin in November, but it has been postponed to early 2017. The Singapore Exchange decided to conduct a more extensive consultation first.
It seems unlikely that Singapore will start a fast process after that. If New York and Hong Kong have spent more than two years in this area, this can be used as a guide (not to mention that the results of the discussions between the two cities are different).
Opponents and supporters of Singapore's dual-shareholding structure will have to prepare for a protracted battle. Neither party currently has obvious advantages.
Box: Two-tier equity structure
In the United States, a two-tier shareholding structure is very common, which enables the founders and other major shareholders of the company to retain sufficient voting rights to control the company after the company is listed. Both the New York Stock Exchange and the Nasdaq market allow listed companies to adopt such a shareholding structure. Facebook Inc. and Google and other large US technology companies all adopt a dual-level shareholding structure. Under this shareholding structure, companies can issue two types of stocks with varying degrees of voting rights, so the founders and management can get more voting rights than under this shareholding structure. And hedge funds and rights-defending shareholders will be more difficult to control the company's decision-making power.
Venture investors often sell their shares soon after they go public. But the founder was unwilling to sell the company he had worked so hard to create, so he designed a two-tier shareholding system. Divide stocks into A and B categories. Class A shares publicly issued to outside investors only have 1 vote per share, while Class B shares in the hands of management can vote for 10 votes. If the company is sold, the two types of stocks will enjoy equal dividends and distribution rights of the sale proceeds. Class B shares are not publicly traded, but they can be converted into Class A shares at a 1:1 ratio. This kind of equity structure allows the management to attack boldly without worrying about being fired or facing a hostile takeover. Because even the founders who hold about one-third of Class B shares and important insiders can continue to control the company's destiny even if they lose majority equity. This kind of structure is quite rare in publicly listed companies, and it has also been criticized by those who advocate good corporate governance. They believe that the concentration of a large amount of power in the hands of a few people is undemocratic.