Proposed Listing Framework for Dual Class Share Structures

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Singapore Exchange

Responses to Comments on Consultation Paper

Proposed Listing Framework for Dual Class Share Structures

26 June 2018

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I Introduction

1 Background

1.1 On 16 February 2017, SGX conducted a concept consultation to seek feedback on broad policy considerations on whether to introduce a primary listing framework (the “Framework”) for dual class share (“DCS”) structures in Singapore, and if so, the appropriate safeguards to be put in place (the “Concept Consultation”). A majority of respondents to the Concept Consultation supported the introduction of the Framework on the Mainboard of the SGX-ST. On 28 March 2018, SGX issued a second consultation paper on “Proposed Listing Framework for Dual Class Share Structures” to codify the Framework (the “Second Consultation”). The Second Consultation sets out detailed proposals on amendments to the Mainboard Rules.

1.2 The Second Consultation closed on 27 April 2018. SGX has carefully considered all the comments received and further engaged stakeholders. The list of respondents can be found in Appendix 1 and the refined amendments to the Mainboard Rules are set out in Appendix 2 and Appendix 3. SGX would like to thank all respondents for providing comments to the Second Consultation.

1.3 Unless otherwise defined, capitalised terms used herein shall have the same meanings as ascribed to them in the Second Consultation.

II Comments Received and SGX’s Responses

1 Admission and Related Criteria

Question 1. Definitions

SGX proposes to introduce the following new definitions:

(a) “dual class share structure” which refers to a share structure that gives certain shareholders voting rights disproportionate to their shareholding. Shares in one class carry one vote, while shares in another class carry multiple votes;

(b) “enhanced voting process” which refers to a voting process in a general meeting of the issuer where votes are cast on the basis that one MV share is limited to one vote;

(c) “multiple voting share” (“MV share”) which refers to a share in a dual class share structure that carries multiple votes with the rights attaching to it specified in the Articles of Association or other constituent documents of the issuer in compliance with Rule 210(10) of the Mainboard Rules. Such share is neither listed nor traded. For the avoidance of doubt, save for multiple voting rights, the rights attaching to each MV share must be the same as the rights attaching to each OV share; and

(d) “ordinary voting share” (“OV share”) which refers to a share in a dual class share structure that carries one vote with the rights attaching to it specified in the Articles of Association or other constituent documents of the issuer.

Do you agree with the abovementioned definitions?

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Comments Received

1.1 Almost all of the respondents agreed with the proposed definitions of “dual class share structure”,

“enhanced voting process”, “multiple voting share” and “ordinary voting share”.

1.2 Two respondents queried whether an issuer will be permitted to introduce multiple classes of MV shares, with each class carrying a different number of votes per share.

SGX’s Responses

1.3 We will proceed with the amendments, as proposed in the Second Consultation, save for certain editorial changes.

1.4 In relation to the query on whether an issuer will be permitted to introduce multiple classes of MV shares, an issuer with a DCS structure will only be allowed to introduce a single class of MV shares under the Framework.

Question 2. Suitability requirement

The issuer and the issue manager must establish that the issuer is suitable for listing with a DCS structure. The factors that SGX may take into account include:

(a) the business model of the company, for example, that the company has a conceptualised long-term plan that contemplates ramping up growth at a fast pace;

(b) operating track record of the company or business;

(c) the role and contribution of intended MV shareholders to the success of the company or business;

(d) how actively involved the intended MV shareholders are in the company or the business;

(e) participation by sophisticated investors; and

(f) other features of the company or business that require a DCS structure.

Do you agree with the requirement that the issuer must establish that it is suitable for listings with a DCS structure? If so, please provide your views on the suitability factors that SGX should consider and reasons for your views.

1.5 A majority of the respondents agreed that the issuer must establish that it is suitable for listing with a DCS structure, and agreed with the suitability factors that were cited in the Second Consultation.

1.6 The key concern raised by the respondents who disagreed with the suitability factors was the subjective nature of the suitability factors. They were of the view that the suitability factors should be objective, such as, requiring the participation level of sophisticated investors to be set at 50%

and/or prescribing the minimum duration of participation by sophisticated investors. On the other hand, some respondents commented that the use of participation by sophisticated investors as a suitability factor may be inappropriate and may not necessarily indicate any assurance of the quality of the issuer. This is because while these investors would have undertaken due diligence prior to investment in the issuer, different investors have different investment strategies and horizons.

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1.7 Three respondents commented that the considerations taken into account in assessing the issuer’s suitability for listing with a DCS structure should be transparent and made available publicly, and that an issuer should be required to provide justifications to investors as to why it requires a DCS structure. Three respondents also commented that SGX should, on an on-going basis, periodically assess whether an issuer continues to be eligible to list with a DCS structure.

1.8 We also received suggestions from other respondents that SGX should also consider the following as additional suitability factors:

(a) corporate governance track record of the issuer;

(b) whether the issuer is an innovative company;

(c) suitability of independent directors; and

(d) track record of the intended MV shareholder, including his character, commitment and competence.

1.9 One respondent provided that SGX should permit potential listing applicants seeking to list with a DCS structure to engage SGX formally, pre-IPO, on the interpretation of the suitability criteria and its application to the prospective listing applicant’s circumstances.

1.10 Currently, all listing aspirants have to demonstrate their suitability to list; Rule 104 of the Mainboard Rules provides that suitability for listing depends on many factors, and SGX retains its discretion to accept or reject applications. While we note the concerns relating to the subjective nature of the suitability factors, we also recognise that it is impracticable and unduly restrictive to prescribe bright-line tests as indicative of whether an issuer is suitable for listing with a DCS structure, including prescribing the level of participation by sophisticated investors. SGX will undertake a holistic assessment of the suitability of the issuer for listing with a DCS structure, taking into account, inter alia, the suitability factors.

1.11 SGX wishes to highlight that the suitability factors are non-exhaustive, and as mentioned in the Second Consultation, SGX intends to make public guidance on the suitability factors as contemplated in precedent cases. In addition, initial cases will be referred to the Listings Advisory Committee (“LAC”) for advice. A summary of LAC’s advice will be published by both SGX and LAC.

1.12 In relation to the comment that SGX should periodically assess whether an issuer continues to be eligible to list with a DCS structure, we wish to highlight that SGX’s assessment on whether a prospective listing applicant will be eligible to list with a DCS structure is undertaken at the point of listing. The issuer should also explain to investors why it requires a listing with a DCS structure. On an on-going basis, based on the disclosures provided by the issuer, investors have access to information for their assessment of the issuer’s performance and business plans. In particular, we note that the financial statements of an issuer will contain a commentary on the performance of the issuer group, including a discussion on any significant factors that affected the turnover, costs and earnings of the issuer group, and any material factors that affected the cash flow, working capital, assets or liabilities of the issuer group, for the reported financial period as well as any significant trends and competitive conditions of the industry in which the issuer group operates (as required in Appendix 7.2 of the Mainboard Rules, which will similarly apply to issuers with a DCS structure).

1.13 In relation to the additional suitability factors suggested by various respondents, we note that it is relevant to also take into account the track record of the issuer, which should not be limited to its operating track record (i.e. inclusive of other factors, such as, corporate governance track record of the issuer). We consider it relevant to take into account, as a suitability factor, the track record of

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the issuer group as a whole, for example, other companies in the issuer group which are also managed by the founder-owner. In response to the suggestion that SGX should consider whether the issuer is an innovative company, the issuer will have to demonstrate why it needs DCS, as a capital structure, to succeed, and one of the features may be because it is an innovative company.

1.14 We wish to highlight that Rule 210(5) of the Mainboard Rules already provides that an issuer applying for listing on the Mainboard must ensure that, inter alia, its directors have appropriate experience and expertise to manage the issuer group’s business. The character and integrity of the directors and controlling shareholders of the issuer is also a relevant factor that will be taken into consideration.

1.15 The factors that SGX may take into account in assessing whether an issuer is suitable for listing with a DCS structure is set out in paragraph 2.31.

1.16 SGX encourages prospective listing applicants seeking to list with a DCS structure to engage SGX and submit pre-IPO enquiries in relation to their suitability to list with a DCS structure.

Question 3. Moratorium

Do you agree that the holders of MV shares must observe a moratorium on the transfer or disposal of their entire shareholdings in the issuer in respect of their interests in both MV shares and OV shares for at least 12 months after listing?

1.17 An overwhelming majority of respondents agreed that holders of MV shares must observe a moratorium on the transfer or disposal of their entire shareholding in the issuer in respect of their interests in both MV and OV shares for at least 12 months after listing. One respondent suggested that the moratorium period should be longer, while two respondents suggested that the existing moratorium requirements applicable to promoters (as defined in Rule 226 of the Mainboard Rules) should apply instead.

1.18 Based on feedback, we consider that imposing a moratorium period of 12 months in respect of MV shareholders’ interests in both MV and OV shares in respect of DCS structures to be most appropriate. We will proceed with the amendments, as proposed in the Second Consultation.

2 Safeguards against Entrenchment Risks

Question 4. Maximum voting differential

(a) Do you agree that the voting rights attaching to MV shares should be capped at 10 votes per share?

(b) Do you agree that the issuer should not be allowed to change the ratio post-listing?

2.1 A majority of respondents agreed that the voting rights attached to MV shares should be capped at 10 votes per share (giving a voting differential between the MV shares and the OV shares of 10:1).

Respondents who disagreed suggested other maximum voting differential ratios of 2:1, 3:1 and 5:1.

2.2 A majority of respondents also agreed that the issuer should not be allowed to increase the ratio

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post-listing. A substantial number of respondents were of the view that an issuer should be allowed to decrease the ratio post-listing, although one respondent felt that permitting the issuer to change the voting differential post-listing would create uncertainty in the minds of investors.

2.3 We wish to highlight that 10:1 is a maximum voting differential permitted under the Mainboard Rules, and an issuer may wish to adopt a lower voting differential ratio.

2.4 We note that a reduction in the voting differential will increase the voting power of OV shareholders.

Accordingly, we propose that the issuer should be permitted to reduce the voting differential post- listing, subject to the approval of SGX. In addition, as the reduction in voting differential amounts to a variation of rights attached to the MV shares, it is also a matter which must be approved by shareholders through an enhanced voting process where the voting at the general meeting is on the basis that one MV share is limited to only one vote (the “Enhanced Voting Process”).

Question 5. Rights of OV shareholders

(a) With regard to the total voting control that OV shareholders can collectively exercise, do you think that OV shareholders must hold: at least 10% the total voting rights of the issuer on a one-share-one-vote basis (Option 1); or at least 10% of the total voting rights of the issuer (Option 2)?

(b) Do you agree that OV shareholders holding at least 10% of the total voting rights on a one-share-one-vote basis must be able to convene a general meeting?

2.5 In relation to the total voting control that OV shareholders can collectively exercise, a majority of respondents expressed that OV shareholders must hold at least 10% of the total voting rights of the issuer (i.e. Option 2). On the other hand, a number of respondents were of the view that this should instead be based on 10% of the total voting rights of the issuer on a one-share-one-vote basis (i.e.

Option 1). We also received feedback from a respondent that neither requirement is necessary. A few respondents also commented that the threshold should be pegged at 25% (instead of 10%).

2.6 An overwhelming majority of the respondents agreed that OV shareholders holding at least 10% of the total voting rights on a one-share-one-vote basis must be able to convene a general meeting.

Some respondents suggested that the threshold should be lowered to 5% to facilitate OV shareholders calling a general meeting.

2.7 We note that a majority of respondents were of the view that OV shareholders must control at least 10% of the total voting rights of the issuer.

2.8 We acknowledge that an issuer with a DCS structure may undertake subsequent rounds of secondary fund-raising so as to support a rapid scaling-up of their business, which will have a dilutive impact on the voting rights held by MV shareholders. Therefore, MV shareholders may wish to start by holding a larger percentage of the economic interest in the issuer at listing, which could result in them holding substantial voting rights in the beginning. However, we note that regardless of the economic interest held by the MV shareholder, it is always possible for the issuer to ensure that OV shareholders control at least 10% of the total voting rights. For example, the issuer may set a lower voting differential or other arrangements to allow OV shareholders to cast at least 10%

of the total number of votes that may be cast at the general meeting.

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2.9 Accordingly, we will proceed with the amendment to provide that in any general meeting, the number of votes that may be cast by OV shareholders who are not also MV shareholders must be at least 10% of the total voting rights of the issuer.

2.10 We will also proceed with the amendment that OV shareholders holding at least 10% of the total voting rights on a one-share-one-vote basis must be able to convene a general meeting, as proposed in the Second Consultation.

Question 6: Restriction on issuance of MV shares post-listing

(a) Do you agree that an issuer shall not be allowed to issue MV shares post-listing except in the event of a rights issue? Should the exception be extended to bonus issue, scrip dividends and subdivision and consolidation of shares which do not raise new funds?

(b) Under Section 64A of the Companies Act, a public company with a DCS structure shall not undertake any issuance of MV shares unless it is approved by shareholders by a special resolution. Do you agree that the issuance of MV shares must be approved by a special resolution of shareholders at a general meeting?

(c) In undertaking any corporate action (including a share buy-back), do you agree that the issuer must ensure that the proportion of the total voting rights of the MV shares as a class against those of the OV shares after the corporate action will not increase above that proportion existing prior to the corporate action?

2.11 A majority of respondents were supportive of the restriction on issuance of MV shares post-listing except for rights issue. It is generally agreed that the exception should be extended to bonus issue, scrip dividend scheme and subdivision and consolidation of shares which are conducted on a pro rata basis as long as it will not result in an increase in the proportion of the total voting rights of MV shares as a class against those of OV shares.

2.12 Among respondents who disagreed, a few respondents were of the view that issuers should not be allowed to issue additional MV shares post-listing without exception. On the other hand, one respondent was against this restriction and proposed that issuers should be allowed to issue MV shares post-listing subject to shareholders’ approval by a special resolution, with the recipients of the MV shares abstaining from voting on the resolution. This would ensure parity of treatment between existing issuers and new issuers.

2.13 One respondent sought clarification on situations where there are excess MV shares and OV shares (i.e. MV shares and OV shares that are not taken up by the relevant shareholders) in a rights issue.

2.14 Respondents were generally supportive of the requirement that the issuance of MV shares must be approved by a special resolution of shareholders at a general meeting. Several respondents suggested that (a) the resolution be voted through the Enhanced Voting Process; and/or (b) the holders of the MV shares, and their respective associates, be required to abstain from voting on the resolution. One respondent sought clarification on whether this would mean that any future proposed rights issue, bonus issue, scrip dividend scheme and subdivision and consolidation of shares would require a special resolution to be passed.

2.15 A majority of respondents agreed that in undertaking any corporate action (including a share buy- back), the issuer must ensure that the proportion of the total voting rights of the MV shares as a class against those of the OV shares after the corporate action will not increase above that proportion existing prior to the corporate action. However, one respondent viewed this requirement as an unnecessary fetter. We have also received comments that holders of MV shares

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should provide an undertaking to assist the issuer in complying with this requirement by reducing their MV shares proportionately (e.g. through a conversion of a proportion of their MV shares to OV shares).

2.16 We note that a majority of respondents were supportive of the proposed safeguard. Respondents who suggested that no exception be allowed for the issuance of MV shares post-listing were concerned with the potential dilution of the voting rights of holders of OV shares. This can be addressed by the requirement that, in undertaking such capital exercise and any other corporate action, the issuer must ensure that the proportion of the total voting rights of the MV shares as a class against those of the OV shares after the corporate action will not increase above that proportion existing prior to the corporate action.

2.17 We recognise the interest from existing issuers to issue MV shares and convert into a DCS structure.

However, as mentioned in the Concept Consultation, shareholders of such companies did not invest with knowledge of the risks associated with DCS structures and may not wish to invest in a company with a DCS structure.

2.18 We note the suggestions that the resolution to approve the issuance of MV shares be voted through the Enhanced Voting Process and the holders of MV shares abstain from voting. However, we do not see such additional requirements as necessary as the resolution is already subject to a higher threshold and the MV shares can only be issued in limited situations and on a pro rata basis in conjunction with the issuance of OV shares.

2.19 In the event of any excess MV shares or OV shares not taken up in their entirety in a rights issue, the issuer should have mechanisms in place to ensure that the proportion of the total voting rights of the MV shares does not increase after the rights issue. As suggested by one respondent, such mechanisms may include (a) no offer or purchase of any excess MV shares; and (b) to the extent that rights in the OV shares are not taken up in their entirety, a proportionate reduction in the number of MV shares that can be allotted, issued or granted. Likewise, in the case of other corporate actions (such as share buy-back), the issuer must ensure that the total voting rights of the MV shares does not increase after the corporate actions. For example, the issuer may obtain undertakings from holders of MV shares to reduce their shareholdings or adopt additional automatic conversion events under such circumstances in its Articles of Association or other constituent documents.

2.20 We would like to clarify that, in principle, shareholders’ approval for share issuance (whether under a general mandate or otherwise) must be obtained for each class of shares. While different approval thresholds apply for the issuance of MV shares and OV shares, issuers have a choice in deciding whether to obtain separate approvals or a single approval according to the stricter threshold.

Issuers may wish to refer to Registrar’s Interpretation No. 1 of 2017 on Section 64A of the Companies Act issued by Accounting and Corporate Regulatory Authority for more details.

2.21 Based on the above, we will proceed with the amendments, as proposed in the Second Consultation, with certain editorial changes.

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Question 7: Automatic conversion of MV shares

(a) Do you agree that initial holders of MV shares must be directors of the issuer?

(b) An issuer with a DCS structure must have automatic conversion provisions in its Articles of Association or other constituent documents meeting the following criteria:

(i) If the holder of MV shares sells or transfers part or all of any interest in respect of his MV shares (which, for the avoidance of doubt, would include the beneficial interest and voting rights of the MV shares) to any party (including other holders of MV shares), whether or not for value, such MV shares will be converted into OV shares on a one-for-one basis.

(ii) If the holder of MV shares ceases to be a director (whether through death, incapacity, retirement, resignation or otherwise), his MV shares will be converted into OV shares on a one-for-one basis.

Do you agree with the abovementioned automatic conversion events? If your answer is no to any of the conversion events, please state the reasons.

(c) Do you agree that the shareholders can waive the conversion through the Enhanced Voting Process on the basis that one MV share is limited to only one vote?

(d) Do you agree that the relevant holder of the MV shares, and his associates, should be required to abstain from voting on the resolution?

2.22 A majority of respondents agreed that there are merits to requiring the initial holders of MV shares to be directors of the issuer. Some respondents highlighted that as there may be more than one MV shareholder at the time of listing, requiring all MV shareholders to be directors does not seem practical, and may even be detrimental to the protection of the rights of OV shareholders. Several respondents expressed concerns that the requirement for MV shareholders to be directors can potentially lead to a board dominated by MV shareholders which will not be able to effectively perform its oversight duties. One respondent suggested that the founders be represented by one director on the board while the rest hold key executive roles.

2.23 Three respondents sought clarification on whether MV shareholders may hold MV shares through corporate vehicles.

2.24 Respondents generally are supportive of (a) mandating the automatic conversion of MV shares to OV shares under certain circumstances set out in Question 7(b); (b) waiver of the automatic conversion requirement by shareholders through the Enhanced Voting Process; and (c) the relevant holder of the MV shares, and his associates, abstaining from voting on the resolution. One respondent sought clarification on whether MV shares can be transferred to non-directors via the Enhanced Voting Process.

2.25 Some respondents provided feedback that SGX should consider additional conversion events such as a time-based sunset clause, minimum equity retention by MV shareholders and misconduct of MV shareholders. One respondent objected to the compulsory automatic conversion clauses, and was in favour of flexibility of capital structure in view of market competitiveness vis-à-vis other jurisdictions.

2.26 Several respondents were of the view that no waiver of the automatic conversion should be allowed, citing concerns that the holders of MV shares may influence the outcome of the resolution

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and the uncertainty of votes can lead to negative outcomes for all shareholders.

2.27 We recognise that there will be issuers with differing DCS structures. For example, in the case of a group of founders who wish to collectively control the direction of the company through the holding of MV shares, it may not be necessary to require all of them to be directors as each may play a different role in the growth of the company to contribute collectively to the development of the company.

2.28 We have calibrated the Mainboard Rules to provide for situations where founders or other persons hold MV shares at listing or thereafter. We will allow for a group of persons or an entity (“permitted holder group”) to hold MV shares, subject to the following safeguards:

(a) an issuer must specify the holders of MV shares at IPO. In the case of a permitted holder group, an issuer must specify the scope of the permitted holder group at IPO. The issuer may not add to the scope subsequently; and

(b) a holder of MV shares must be appointed as a responsible director (as defined in new Rule 210(10)(a)(ii) of the Mainboard Rules). In the case of a permitted holder group, a responsible director must be appointed for the permitted holder group. SGX may require any other person to be appointed as a responsible director.

2.29 If the permitted holder group takes the form of a trust or a corporate vehicle, SGX will consider the suitability of the arrangement, including an assessment of whether sunset features or other safeguards are in place to govern the holding structure.

2.30 Consequentially, the automatic conversion requirement has been refined to provide that an issuer with a DCS structure must have automatic conversion provisions which provide that a MV share will be converted into an OV share on a one-for-one basis in the event that:

(a) the MV share is sold or transferred to any person, and in the case of a permitted holder group, other than to persons in the permitted holder group; or

(b) a responsible director ceases service as a director (whether through death, incapacity, retirement, resignation or otherwise), and in the case of a permitted holder group, other than where a new responsible director is appointed,

unless otherwise specifically approved by shareholders through the Enhanced Voting Process. The relevant holder of the MV shares, the person to whom the MV share is to be sold or transferred and such responsible director (as the case may be), and their respective associates, must abstain from voting on the resolution. For the avoidance of doubt, other disinterested MV shareholders may vote on the resolution.

2.31 Accordingly, we have also refined the suitability factors that SGX may take into account in assessing whether an issuer is suitable for listing with a DCS structure. We would also consider the relevance of the permitted holder group. To summarise, the factors that SGX may take into account in assessing whether an issuer is suitable for listing with a DCS structure include:

(a) the business model of the company, for example, that the company has a conceptualised long-term plan that contemplates ramping up growth at a fast pace;

(b) track record, including operating track record, of the company, group or business;

(c) the role and contribution of intended MV shareholders to the success of the company or business. In the case of a permitted holder group, its relevance to the company or

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business;

(d) participation by sophisticated investors;

(e) if the permitted holder group is a trust or corporate vehicle, the suitability of the arrangement, including an assessment of whether sunset features or other safeguards are in place to govern the holding structure; and

(f) other features of the company or business that require a DCS structure.

2.32 For clarification, MV shares may be transferred to a non-director (who is not in the permitted holder group) as long as the shareholders approve such transfer through the Enhanced Voting Process.

This will give minority shareholders the chance to assess the eligibility of the transferee who is not a director, and decide on whether such transfer should be allowed.

2.33 In respect of the proposals to include additional conversion events, we are of the view that it is difficult to set a common standard applicable to all types of companies. Instead of a compulsory requirement, a DCS company may voluntarily adopt additional conversion events which best suit them to enhance its corporate governance and attractiveness to investors.

3 Safeguards against Expropriation Risks

Question 8: Independence element on board committees

Do you agree that the majority of the Audit Committee, Nominating Committee and Remuneration Committee, including the respective chairmen, must be independent?

3.1 Respondents generally agreed that the majority of the Audit Committee, Nominating Committee and Remuneration Committee, including the respective chairmen, must be independent. Some suggested more stringent requirements, such as fully-independent board committees or the Nominating Committee and the Remuneration Committee to comprise a supermajority (2/3 or 3/4) of independent directors.

3.2 One respondent highlighted that SGX-listed companies with high corporate governance standards already have majority independent board committees.

3.3 We note that a majority of the respondents supported this proposal which is considered essential in ensuring accountability and oversight. A majority-independent board committee will ensure that the decisions of such committee are made by independent directors for effective check and balance. To further enhance the independent element on board committees, we will also require the respective chairmen of these committees to be independent.

3.4 We will proceed with the amendments, as proposed in the Second Consultation.

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Question 9: Reserved matters under the Enhanced Voting Process

Do you agree that the following matters should require shareholders’ approval through the Enhanced Voting Process (i.e. each MV share is limited to one vote)?

(a) changes to the issuer’s Articles of Association or other constituent documents;

(b) variation of rights attached to any class of shares;

(c) appointment and removal of independent directors;

(d) appointment and removal of auditors;

(e) winding up of the issuer; and (f) delisting of the issuer.

You may also propose other matters that should be subject to the Enhanced Voting Process.

Please state reasons for your proposal.

3.5 All respondents agree that the reserved matters set out in Question 9 should be voted on through the Enhanced Voting Process. A number of respondents also suggested extending the Enhanced Voting Process to other material decisions such as interested person transactions, major transactions, very substantial acquisitions, share issuances and reverse takeovers.

3.6 We note the suggestions that the Enhanced Voting Process be extended to cover other key matters of the issuer:

(a) Interested person transaction: An MV shareholder who is an interested person will be required under the existing Mainboard Rules to abstain from voting on any resolution approving the interested person transaction. Therefore, there is no need for an Enhanced Voting Process.

(b) Major transaction/very substantial acquisition: For a very substantial acquisition, the issuer must appoint a competent and independent valuer to value the target business and the transaction is subject to SGX’s approval under the current Mainboard Rules. In addition, SGX proposed in its consultation paper¹ that in the case of an acquisition or disposal of assets other than shares which constitutes a major transaction under Chapter 10 of the Mainboard Rules and where no valuation is available, the issuer must provide an explanation on why the issuer did not commission a valuation. Where a disposal of assets is one where any of the relative figures as computed on the bases set out in Rule 1006 exceeds 75%, the issuer must appoint a competent and independent valuer to value the assets to be disposed. These safeguards will provide protection to minority shareholders as an independent valuer is involved to enhance transparency and fairness of the transaction. Additional requirements may hinder the founders’ ability to implement their strategies and manage the company in an effective manner.

(c) Share issuance: Issuance of MV shares must be approved by a special resolution, and in

1 Consultation Paper on Enhancements to Continuous Disclosures.

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conjunction with an issuance of OV shares. In addition, we will require the issuer to ensure that the proportion of the total voting rights of MV shares does not increase after the issuance, which addresses the concern of dilution of voting rights of the OV shareholders.

As such, it would not be necessary to subject the share issuance to the Enhanced Voting Process.

(d) Reverse takeover: We agree that the holders of OV shares should have greater say in a reverse takeover of the company, as they have accepted lesser voting rights in reliance of the founders’ vision and ability to run the company. When such underlying assumption changes, the holders of OV shares should be allowed to vote on it on an equal footing.

3.7 Based on the above, we will proceed with the amendments, as proposed in the Second Consultation, with reverse takeover of the issuer as an additional reserved matter.

4 Measures to Increase Clarity to Investors

Question 10: Disclosure of rights of shareholders

Do you agree that an issuer with a DCS structure should disclose the following additional information?

(a) The issuer must disclose its DCS structure, holders of MV shares and their respective shareholding and voting percentage both at the point of listing and thereafter, on a continuing basis, in its annual report.

(b) The shareholders’ circular must contain information on the voting rights of each class of shares.

(c) The issuer must, in its prospectus, disclose the risks of DCS structures, rationale for adoption of its DCS structure, matters subject to the Enhanced Voting Process including implications to holders of OV shares, and key provisions in the Articles of Association or other constituent documents relating to DCS structures in a prominent manner.

(d) The issuer must include a prominent statement on the cover page of its prospectus, and on a continuing basis, in its announcements (including financial statement announcements), circulars and annual reports, highlighting that the issuer is a company with a DCS structure.

You may also suggest other disclosure requirements and provide reasons for your suggestion.

4.1 All respondents were supportive of the amendments.

4.2 We note that all respondents supported the proposal. We will proceed with the amendments, as proposed in the Second Consultation.

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III Implementation of Amendments to Mainboard Rules

1 Implementation Date

1.1 The amendments to the Mainboard Rules will take effect from 26 June 2018.

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Appendix 1 Respondents to the Second Consultation

SGX received comments from 27 respondents on the Second Consultation, of which 4 requested confidentiality. The 23 respondents who agreed to be named are:

Aberdeen Asset Management Asia Ltd Allen & Gledhill LLP

Allianz Global Investors Asia Pacific Limited Ang Hao Yao

Asia Securities Industry & Financial Markets Association Blackrock

British Columbia Investment Management Corporation California State Teachers’ Retirement System

Centre for Governance, Institutions & Organisations, NUS Business School CFA Society Singapore

Clifford Chance Pte. Ltd.

Council of Institutional Investors DBS Bank Ltd

Deloitte & Touche LLP Fidelity International

International Corporate Governance Network Lan Luh Luh

Lee & Lee

Maybank Kim Eng Securities Pte. Ltd.

Norges Bank Investment Management Rajah & Tann Singapore LLP

Singapore Institute of Directors TSMP Law Corporation

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Appendix 2 Amendments to Mainboard Rules

Legend: Deletions are struck-through and insertions are underlined.

Definitions and Interpretation

“dual class share structure”

a share structure that gives certain shareholders voting rights disproportionate to their shareholding.

Shares in one class carry one vote, while shares in another class carry multiple votes

“enhanced voting process”

a voting process in a general meeting of the issuer where votes are cast on the basis that one multiple voting share is limited to one vote

“multiple voting share”

in relation to a dual class share structure, a share that carries multiple votes but that otherwise has the same rights as an ordinary voting share. A multiple voting share is neither listed nor traded

“ordinary voting share”

in relation to a dual class share structure, a share that carries one vote

Chapter 2 Equity Securities 210

(10) Dual Class Share Structure (a) In this Rule 210(10):

(i) “permitted holder group” means a group of persons or an entity permitted to hold multiple voting shares in accordance with Rule 210(10), and includes a holder of multiple voting shares;

(ii) “responsible director” means, in relation to any multiple voting shares, a director who is required to be appointed in accordance with Rule 210(10); and

(iii) references to any sale or transfer of multiple voting shares include any sale or transfer of interest (including beneficial interest or voting right) thereto, and whether or not for value.

(b) A listing applicant that intends to list with a dual class share structure must be suitable for listing with a dual class share structure.

(c) An issuer must specify the holders of multiple voting shares at IPO. The Exchange may permit a group of persons or an entity to be treated as a permitted holder group. In the case of a permitted holder group, an issuer must specify the scope of the permitted holder group at IPO. The issuer may not add to the scope subsequently.

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(d) Each multiple voting share shall not carry more than 10 votes per share. An issuer must specify the number of votes at IPO, and may not increase such number subsequently.

(e) Subject to Rule 210(10)(f):

(i) a holder of multiple voting shares must be appointed as a responsible director; or (ii) in the case of a permitted holder group, a responsible director must be appointed

for the permitted holder group. The Exchange may require any other person to be appointed as a responsible director.

(f) An issuer with a dual class share structure must have automatic conversion provisions which provide that a multiple voting share will be converted into an ordinary voting share on a one- for-one basis in the event that:

(i) the multiple voting share is sold or transferred to any person, and in the case of a permitted holder group, other than to persons in the permitted holder group; or (ii) a responsible director ceases service as a director (whether through death,

incapacity, retirement, resignation or otherwise), and in the case of a permitted holder group, other than where a new responsible director is appointed,

unless otherwise specifically approved by shareholders through the enhanced voting process. The relevant holder of the multiple voting share, the person to whom the multiple voting share is to be sold or transferred and such responsible director (as the case may be), and their respective associates, must abstain from voting on the resolution.

(g) Holders of ordinary voting shares holding at least 10% of the total voting rights on a one- share-one-vote basis must be able to convene a general meeting.

(h) In any general meeting, the number of votes that may be cast by holders of ordinary voting shares who are not also holders of multiple voting shares must be at least 10% of the total voting rights of the issuer.

(i) The majority of each of the committees performing the functions of an audit committee, a nominating committee and a remuneration committee, including the respective chairmen, must be independent.

(j) The issuer must ensure that the requirements relating to the dual class share structure and the rights of the multiple voting shares and ordinary voting shares in Rules 210(10)(c) to 210(10)(i) are prescribed in its Articles of Association or other constituent documents.

225 Purpose of a Moratorium

The purpose of a moratorium is to maintain the promoters’ commitment and the commitment of holders of multiple voting shares to the issuer and align their interests with that of public shareholders.

Dual Class Share Structure 229A

The holders of multiple voting shares must give contractual undertakings to the issue manager to observe a moratorium on the transfer or disposal of their entire shareholdings in the issuer in respect

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of their interests in both multiple voting shares and ordinary voting shares at the time of listing for at least 12 months after listing.

Chapter 6 Prospectus, Offering Memorandum and Introductory Document 610

The following additional information should be provided in the prospectus, offering memorandum, introductory document and shareholders’ circular: –

(10) In the case of a dual class share structure, the following information must also be prominently provided:-

(a) A statement on the cover page of the document that the issuer is a company with a dual class share structure;

(b) Details of the dual class share structure and its associated risks;

(c) The rationale for adopting the dual class share structure;

(d) Matters that are subject to the enhanced voting process and the implications to holders of ordinary voting shares;

(e) Key provisions of the Articles of Association or other constituent documents relating to the dual class share structure; and

(f) The following details for each holder of multiple voting shares:

Name of shareholder

Number of multiple voting shares

Total voting rights of multiple voting shares

Number of ordinary voting shares

Total voting rights of ordinary voting shares

Total voting rights of both

multiple voting shares and ordinary voting shares

Chapter 7 Continuing Obligations Dual Class Share Structure 730B

For an issuer with a dual class share structure, the following matters must be voted through the enhanced voting process:

(1) changes to the issuer’s Articles of Association or other constituent documents;

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(2) variation of rights attached to any class of shares;

(3) appointment and removal of independent directors;

(4) appointment and removal of auditors;

(5) reverse takeover of the issuer as set out in Rule 1015;

(6) winding up of the issuer; and

(7) delisting of the issuer as set out in Rule 1307.

For the avoidance of doubt, the relevant voting thresholds in respect of each of the above matters will continue to apply.

Part X Dual Class Share Structure – Continuing Listing Obligations 752

An issuer must comply with Rules 210(10)(c) to 210(10)(i) on a continuing basis.

753

An issuer with a dual class share structure must prominently include a statement on the cover page of its announcements that the issuer is a company with a dual class share structure.

Chapter 8 Changes in Capital 803A

(1) An issuer with a dual class share structure must not issue multiple voting shares except in the event of a rights issue, bonus issue, scrip dividend scheme or consolidation or subdivision of shares, in each case in conjunction with the issuance of ordinary voting shares.

(2) Any issuance of multiple voting shares by an issuer with a dual class share structure must be approved by a special resolution of the shareholders in a general meeting.

(3) The issuer must ensure that, in undertaking any corporate action (including as set out in Rule 803A(1)), the proportion of the total voting rights of the multiple voting shares as a class against those of the ordinary voting shares after the corporate action will not increase above that proportion existing prior to the corporate action.

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Chapter 12 Circulars, Annual Reports and Electronic Communications 1206

Any circular sent by an issuer to its shareholders must:-

(7) for an issuer with a dual class share structure, prominently include: (a) a statement on the cover page that the issuer is a company with a dual class share structure; and (b) information on the voting rights of each class of shares.

1207

The annual report must contain enough information for a proper understanding of the performance and financial conditions of the issuer and its principal subsidiaries, including at least the following:- (9)

(g) the number of subsidiary holdings held; and

(h) the percentage of the aggregate number of treasury shares and subsidiary holdings held against the total number of shares outstanding in a class that is listed.; and

(i) for an issuer with a dual class share structure, prominently include: (i) a statement on the cover page that the issuer is a company with a dual class share structure; and (ii) the following details for each holder of multiple voting shares:

Name of

shareholder

Number of multiple voting shares

Total voting rights of multiple voting shares

Number of ordinary voting shares

Total voting rights of ordinary voting shares

Total voting rights of both

multiple voting shares and ordinary voting shares

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Appendix 3 Consequential Amendments to Mainboard Rules

Legend: Deletions are struck-through and insertions are underlined.

Definitions and Interpretation

"controlling shareholder"

a person who:-

(a) holds directly or indirectly 15% or more of the total number of issued shares excluding treasury shares and subsidiary holdingsvoting rights in the company. The Exchange may determine that a person who satisfies this paragraph is not a controlling shareholder; or (b) in fact exercises control over a company

Chapter 7 Continuing Obligations 704²

In addition to Rule 703, an issuer must immediately announce the following:—

Acquisitions and Realisations (17) Any acquisition of—

(a) shares resulting in the issuer holding 10% or more of the total number of issued shares excluding treasury shares and subsidiary holdingsvoting rights of a quoted company;

(18) Any sale of—

(a) shares resulting in the issuer holding less than 10% of the total number of issued shares excluding treasury shares and subsidiary holdingsvoting rights of a quoted company;

728²

(1) Where any borrowings or loans of the issuer or any of its subsidiaries contains any provisions which makes reference to the shareholding interest of any controlling shareholder(s), the issuer must obtain an undertaking from such controlling shareholder(s) to notify the issuer, as soon as it becomes aware, of any share pledging arrangements relating to these shares and of any event which may result in a breach of the issuer's loan provisions.

(2) Upon notification by the controlling shareholder(s), the issuer must immediately announce the following information:—

(a) The name of the shareholder;

2 SGX is proposing amendments to Rules 704(17), 704(18) and 728 of the Mainboard Rules, as described in the Consultation Paper on Enhancements to Continuous Disclosures.

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(b) The class and number of shares and the percentage of the issuer's issued share capital excluding subsidiary holdingsvoting rights that is the subject of the security interest;

(c) The party or parties in whose favour the security interest is created or financial instrument given; and

(d) All other material details which are necessary for the understanding of the arrangements.

Chapter 8 Changes in Capital 806

(2) A general mandate must limit the aggregate number of shares and convertible securities that may be issued. The limit must be not more than 50% of the total number of issued shares excluding treasury shares and subsidiary holdings in each class, of which the aggregate number of shares and convertible securities issued other than on a pro rata basis to existing shareholders must be not more than 20% of the total number of issued shares excluding treasury shares and subsidiary holdings in each class. Unless prior shareholder approval is required under the Listing Rules, an issue of treasury shares will not require further shareholder approval, and will not be included in the aforementioned limits.

882

A share buy-back may only be made by way of:

(1) on-market purchases transacted through the Exchange's trading system or on another stock exchange on which the issuer's equity securities are listed ("market acquisition"); or (2) off-market acquisition in accordance with an equal access scheme as defined in Section 76C

of the Companies Act.

Unless a lower limit is prescribed under the issuer's law of incorporation, such share buy-back shall not exceed 10 per cent of the total number of issued shares excluding treasury shares and subsidiary holdings in each class as at the date of the resolution passed by shareholders for the share buy-back.

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Proposed Listing Framework for Dual Class Share Structures

Responses to Comments on Consultation Paper