Hunting unicorns, Singapore Exchange turns to dual share system

SINGAPORE (Reuters): Singapore’s plans to become the first Asian bourse to allow dual class share listings is catching the attention of tech entrepreneurs and could help turn a staid market into a buzzing tech hub, as the city-state looks to rebrand its image.

Singapore Exchange’s boldest move in years is designed to make it the go-to-place for potential IPOs for Southeast Asian start-ups, such as ride-hailing services Grab and GO-JEK, and online retailers Tokopedia and India’s Flipkart.

Such a change, if approved, would support the Southeast Asian financial hub, which is battling the impact of cooling global trade, a downturn in its key offshore support services sector, and a spate of delistings.

Singapore could by the end of this year implement a split share system that allows entrepreneurs to retain control even with minority stakes, by giving some shares more weight.

“It’s a game changer,” said Vinnie Lauria, a founding partner at Golden Gate Ventures, a Southeast Asian venture capital firm which has invested in over 30 companies across more than seven Asian countries.

“These companies want to have the voting power and the controlling shares within a small group of people who have been really involved since the beginning.”

Dual class share listings (DCS), which are allowed on the New York Stock Exchange and Nasdaq, give extra voting power to protect executives from shareholders obsessed with short-term gains. The structure has been embraced by companies such as Facebook, LinkedIn, and high-valued tech startups known as unicorns.

Bankers and lawyers say the changes would put Singapore on the Asian tech industry’s short-list, especially given that local exchanges typically offer richer valuations to regional firms when compared to U.S. exchanges.

Patrick Grove, co-founder and CEO of Southeast Asian internet firm Catcha Group, has been favouring a U.S. IPO but said he would “strongly consider” SGX if it launched the dual share system.

“We’ve been impressed with what SGX has done to become a more favourable financial tech hub in the region,” said Grove, who has taken five companies from start-up to IPO in Australia and Malaysia. He declined to give details of the planned IPO.

The share structure got attention in Singapore in 2012 when Manchester United jilted the city state over efforts by the Glazer family to retain control through an IPO using this system.

Trailblazers

In Asia, such share structures are almost unheard of, although technically possible in particular cases in Tokyo and Sydney.

The Hong Kong bourse proposed weighted voting rights in 2015 but failed to get regulatory support.

SGX, a global centre for business trusts and real estate investment trusts, is seeing an opportunity to fill the void and broaden its appeal to tech and other new economy companies.

This chimes in with the city-state’s moves to provide funding and light-touch regulation, as it seeks to reinvent itself as a fintech and disruption hub.

A key Singapore advisory panel last month recommended the new share system with appropriate safeguards to widen public financing options.

SGX is closing in on a public consultation that is open till mid-April. Based on feedback, it will then launch a second consultation.

If regulators give this a green light, the new rules could be in place as early as end-2017.

Chew Sutat, SGX’s head of equities and fixed income, said that any actual implementation will depend on responses received in the consultations.

The new system could inject some much-needed vitality to an exchange that has seen a decline in turnover, and fewer company listings due to low valuations and insufficient liquidity.

Fund raising via IPOs at SGX, where about 40% of its over 700 listed companies originate outside the country, slumped to its lowest in 17 years to just $335 million in 2015 before rebounding last year.

“It’s a step in the right direction. But it still boils down to liquidity and valuation,” said Chua Kee Lock, CEO of Temasek’s Vertex Venture Holdings, adding that the next step would be to attract tech investors who trade in public stocks to Singapore.

One of the main challenges SGX faces is opposition from corporate governance campaigners such as Aberdeen Asset Management, who say weighted voting rights sideline ordinary shareholders.

“Whether these companies ultimately list here will come down to a multitude of factors,” said Stefanie Yuen Thio, joint managing director at law firm TSMP. “But not allowing DCS effectively closes the door to such listings, which would be a disaster for the SGX.”