On 15 December 2023, the Singapore Exchange Regulation (“SGX RegCo“) issued a regulator’s column titled “What SGX RegCo expects of listed issuers when allotting excess rights shares”, which set out SGX RegCo’s expectations of issuers when allotting excess rights shares in a rights issue.
By way of background, rights issues are a common form of equity fund raising where existing shareholders of an issuer are given the right to purchase a specified number of new shares of the issuer, often at a discount to the market price. At the time of the announcement of a rights issue, issuers should disclose if there are directors or substantial shareholders who intend to or have provided undertakings to subscribe for their rights entitlements and if such persons intend to submit excess rights applications. The issuer should also release an announcement as and when there are changes to such intention. These disclosures provide transparency to shareholders who can then decide whether to accept their provisional allotment of new shares and apply for excess rights shares. Where existing shareholders do not fully accept their provisional allotment of rights shares resulting in undersubscription of the rights issue, there will be excess rights shares that the issuer may allot to shareholders who submit excess rights applications.
Rule 877(10) of the Mainboard Rules and Rule 814(3) of the Catalist Rules (“Rule“) require issuers to confirm that, in the allotment of excess rights shares, preference will be given to the rounding of odd lots, and that directors and substantial shareholders who have control or influence over the issuer in connection with the day-to-day affairs of the issuer or the terms of the rights issue, or have representation (direct or through a nominee) on the board of the issuer (“Restricted Individuals”) will rank last in priority for the rounding of odd lots and allotment of excess rights shares.
The purpose of the Rule is to avoid a situation where the Restricted Individuals are placed in a position of conflict where they can exercise their control or influence over the issuer to effect an allotment of excess rights shares that benefits themselves, which may at the same time cause undue prejudice to the legitimate interests of other shareholders (“Minority Shareholders“).
SGX RegCo highlighted that compliance with the Rule requires issuers not only to provide the necessary confirmation to SGX RegCo for the purpose of the additional listing application, but to abide by the Rule in form and in substance. SGX Regco has set out three non-exhaustive, hypothetical scenarios to illustrate how the Rule can be applied:
Hypothetical scenarios | Examples of how this Rule can be applied |
Minority Shareholders do not subscribe for any excess rights shares | All excess rights shares are available for satisfaction of the applications by the Restricted Individuals, after the rounding of odd lots by Minority Shareholders. |
Minority Shareholders subscribe for more than the available amount of excess rights shares | After the rounding of odd lots by Minority Shareholders, followed by odd lots by Restricted Individuals, the listed issuer has the discretion to determine an appropriate allocation methodology for allocation amongst all the Minority Shareholders. |
Minority Shareholders subscribe for less than the full amount of excess rights shares available | In this scenario, all valid applications of the Minority Shareholders must be fully satisfied before excess rights shares can be allocated to the Restricted Individuals to satisfy their valid applications. |
Issuers should note that allocation of excess rights shares to Restricted Individuals should, in line with the Rule, occur only after all valid applications by Minority Shareholders have been satisfied. Methodologies for allotting excess rights shares that deviates from this goes against the purpose of the Rule because they would potentially allow issuers or Restricted Individuals to unduly favour themselves to the detriment of Minority Shareholders in the allocation of excess rights shares.
SGX RegCo acknowledges that there may be situations where issuers may have legitimate concerns about satisfying, in full, all applications for excess rights shares by Minority Shareholders. For example, some Minority Shareholders may have purchased a small quantity of the issuer’s shares in order to participate in the rights issue for the purpose of acquiring a large quantity of excess rights shares at discounted prices. In exceptional circumstances where issuers have legitimate concerns, they are expected to consult SGX RegCo on the application of the Rule promptly as soon as such concerns arise and prior to the allocation of excess rights shares. The onus is on issuers to justify to SGX RegCo why it should not insist on strict compliance with the Rule.
Click on the following link for more information:
- Regulator’s Column: What SGX RegCo expects of listed issuers when allotting excess rights shares (available on the SGX RegCo website at www.sgx.com)
