Jurisdiction - Singapore
Reports and Analysis
Singapore – SIC Consults on Amendments to Take-Over Code.

20 October, 2011

 

INTRODUCTION
 
The Securities Industry Council (“SIC”) has issued a consultation paper (“CP”) on proposed amendments to the Singapore Code of Take-overs and Mergers (“Code”). The consultation closes on 7 November 2011.
 
The Code seeks to ensure fair and equal treatment of all shareholders in a take-over or merger situation. It is applicable to the take-over and merger of corporations, business trusts with a primary listing in Singapore and real estate investment trusts (“REITs”), and also to unlisted public companies or unlisted business trusts having more than 50 shareholders or unitholders respectively and net tangible assets of $5 million or more. It was last amended in 2007.
 
KEY PROPOSALS
 
The key proposals in the CP relate to: 
 
 Strengthening enforcement of the Code 
 
 Applicability to REITs and business trusts 
 
 Disclosure by offeror of interest in offeree shares that have been charged, borrowed or lent 
 
 When collective shareholder action constitutes parties acting in concert 
 
 When an offeror and an offeree company shareholder will be considered joint offerors 
 
 Lowering the shareholding threshold for the definition of ‘associate’ from 10% to 5% for the purpose of disclosure of dealings 
 
 Mandatory offer obligation and disclosure of dealings in respect of the acquisition of long options and derivatives  
 
 Simplification of “whitewash” exemption for share buyback mandates 
 
 Appropriate offer to holders of convertibles 
 
STRENGTHENING ENFORCEMENT OF CODE
 
Currently, the Code states that persons in breach of it may be subject to private reprimand or public censure, or in a flagrant case, actions designed to temporarily or permanently deprive the offender of its ability to enjoy the facilities of the securities market.
 
It is proposed that the Code explicitly provide SIC with the discretion to adjust the severity of its sanctions to suit the circumstances of each breach. It is also proposed that advisers which breach the Code may be required to abstain from Code-related work as a sanction. 
 
SIC also proposes to amend the Code to clarify when a breach of the Code will lead to an order for compensation.
 
APPLICABILITY TO REITS AND BUSINESS TRUSTS
 
SIC proposes to codify its existing practice statements on REITs and modify the existing wording of the Code, which is drafted in the context of companies, to address the relationships between the manager, the trustee and the REIT.
 
For example, when referring to concert parties in the context of directors acting in concert with a company, a reference to the company would be translate into a reference to the REIT, whereas a reference to directors of the company would be taken to refer to the REIT manager and the trustee of the REIT acting in that capacity. 
 
In a similar way, SIC also proposes to codify its practice statement issued in relation to trust schemes, as well as make clarifications and refinements to the regime for business trusts. 
 
DISCLOSURE BY OFFEROR OF INTEREST IN OFFEREE SHARES THAT HAVE BEEN CHARGED, BORROWED OR LENT
 
It is proposed that in its announcement of a firm intention to make an offer, offerors must disclose if any of their shares in the offeree company have been charged as security, borrowed or lent. This is to provide the market with a better indication as to the likelihood of the offer becoming unconditional. The requirement for disclosure may be seen as a response by SIC to avoid a repeat of the Jade Technologies case, where the offeror withdrew its offer after its shares in the offeree company loaned to a securities lending firm were seized by the receiver when the firm went into receivership.
 
WHEN COLLECTIVE SHAREHOLDER ACTION CONSTITUTES PARTIES ACTING IN CONCERT
 
Generally, the action of shareholders voting together on particular resolutions at one general meeting will not cause them to be regarded as parties acting in concert in relation to a general offer obligation.  
 
However, in the UK, if the resolutions at a general meeting concern the seeking of board control, the shareholders who requisition or threaten to requisition such meeting will be presumed to be acting in concert if they have an agreement or understanding in relation to that seeking of board control.  Any subsequent acquisitions of shares by any of them could then give rise to the requirement to make a general offer. 
 
It is proposed that the Code include a similar presumption. SIC is also seeking input as to whether there would be other resolutions apart from those dealing with board control where shareholders should be presumed to be acting in concert.
 
WHEN AN OFFEROR AND AN OFFEREE COMPANY SHAREHOLDER WILL BE CONSIDERED JOINT OFFERORS
 
SIC proposes to clarify in the Code when an offeror and an offeree company shareholder coming together to form a consortium can be considered as joint offerors, such that the Code’s prohibition on special deals would not apply to arrangements between them. 
 
LOWERING THE SHAREHOLDING THRESHOLD FOR DEFINITION OF 
‘ASSOCIATE’ FROM 10% TO 5% FOR THE PURPOSE OF DISCLOSURE OF DEALINGS
 
Associates of an offeror or offeree company are required under the Code to disclose their shareholdings in the offeree company at the time a relevant transaction is made.  Currently, one of the categories of persons in the definition of “associate” is a holder of 10% or more of the shares in the offeror or offeree company (as the case may be).  SIC is of the view that this percentage is too high.  It is proposed to lower this to 5% instead. 
 
MANDATORY OFFER OBLIGATION AND DISCLOSURE OF DEALINGS IN RESPECT OF THE ACQUISITION OF LONG OPTIONS AND DERIVATIVES
 
Options and derivatives are financial instruments which, although not being shares themselves, have a correlation with their underlying shares such that the holders of options and derivatives have significant influence over shareholdings and voting control. 
 
It is therefore proposed that: 
 
 all acquisitions of long options or derivatives be normally regarded as acquisitions of shares; and 
 
 persons who own or control 5% or more in the offeree company’s issued share capital be required to disclose their dealings in long options and derivatives during the offer period. 
 
Persons who acquire long options or derivatives which might cause them to cross the mandatory offer thresholds should also continue with the current practice of consulting SIC before entering into such transactions. 
 
SIMPLIFICATION OF “WHITEWASH” EXEMPTION FOR SHARE BUYBACK MANDATES
 
Usually, when a company buys back its shares, any resulting increase in the percentage of voting 3 rights held by a shareholder and persons acting in concert with him will be treated as an acquisition triggering the mandatory offer requirement under Rule 14 of the Code. Currently, exemptions are granted on a case-by-case basis upon application to SIC.
 
SIC proposes to grant a class exemption for shareholders triggering a mandatory offer as a result of the company buying back its own shares under Section 76E (market acquisition) and Section 76C (off-market acquisition on equal access scheme) of the Companies Act.
 
The exemption will be subject to the same conditions which are currently set out in Appendix 2 of the Code. These conditions include obtaining shareholders’ approval for the share buyback mandate and the persons seeking the exemption not having made any disqualifying transactions. 
 
To ensure compliance with the conditions, parties seeking to rely on the exemption must submit a new Form 2 (see Annex 2 of the CP) within 7 days from the shareholders’ approval of the share buyback mandate.
 
APPROPRIATE OFFER TO HOLDERS OF CONVERTIBLES
 
The Code requires that where an offer is made for the shares of an offeree company, the offeror must also make an appropriate offer to the holders of convertibles. An appropriate offer should be at least the higher of the “see-through” price and the highest price paid for convertibles in the relevant periods.
 
SIC proposes to clarify that offerors may offer a higher price than the “see-through” price and the highest price paid for convertibles in the relevant periods, unless it is part of a special deal to provide an incentive to persons who also hold shares in the offeree company to accept the offer. SIC is also prepared to consider a basis other than the “see-through” price to determine an appropriate offer for convertibles.
 
REFERENCES
 
Please click on the links below to access the relevant documents. 
 
 
 
 
 
For further queries, please contact:
 
Gary Pryke, Drew & Napier
gary.pryke@drewnapier.com
 
 
 
 

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