Jurisdiction - Singapore
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Singapore – Take-Over Code Revised.

31 March, 2012


Legal News & Analysis – Asia Pacific – Singapore Corporate/M&ARegulatory & Compliance 


The Singapore Code on Take-overs and Mergers (“Code”) has been revised by the Monetary Authority of Singapore (“MAS”) on the advice of the Securities Industry Council (“SIC”). The new Code will come into force on 9 April 2012.
The key changes to the Code include:
(a) clarification that SIC can take further actions against persons who breach the Code in extreme cases, apart from depriving them of the use of the facilities of the securities market;
(b) application of the Code to real estate investment trusts and business trusts;
(c) requiring an offeror to disclose his interest in offeree shares that have been charged as security, borrowed or lent;
(d) inclusion of long options and derivatives in the Code’s disclosure of dealing and mandatory offer requirements;
(e) lowering the shareholding percentage in the definition of “associate” from 10% to 5% for the purpose of disclosure of dealings;
(f) provision of an exemption to shareholders of a company from the requirement to make a mandatory offer in a share buy-back situation;
(g) clarification on when collective shareholder action would constitute parties acting in concert; and
(h) clarification of when certain offeree company shareholders may be permitted to invest in the bid company to the exclusion of all other offeree company shareholders (ie as joint offeror).
The Introduction to the Code provides that SIC may take certain actions against any parties who have been found to have breached the Code. Previously, the actions specified in the Code were limited to private reprimand, public censure, or in flagrant cases, actions designed to deprive the offender of its ability to enjoy the facilities of the securities market.
The Code has been amended to give SIC the discretion to prescribe the action to be taken against the offender. With this new discretion, SIC’s orders can be better tailored to suit the severity of the breach. Actions which SIC has taken in past cases include delisting and disenfranchising the shares belonging to the offender and his concert parties and declaring that such shares are not acceptable as security, barring the offender from making take-over offers under the Code or declaring the offender to be unfit to be a director of a listed company in Singapore. In each case, the sanction was imposed for a specified period of time.
Also new is the provision that SIC may order advisers who breach the Code to abstain from performing Code-related work for a period of time.
SIC had in some cases ordered the payment of compensation, but it was not clear which breaches might lead to that sanction. The Code now lists the rules which, if breached, might result in SIC making a compensation order. These rules generally relate to an obligation to make an offer on terms prescribed by the Code. The rationale is to provide monetary compensation in situations which justify it, but where shareholders do not have recourse to any civil remedy.
The list of rules includes: Rule 10 (no special deals), Rule 14(mandatory offer), Rule 15 (voluntary offer), Rules 16.4(g) and (h) (certain partial offers for more than 50% of voting rights) and Rule 20(revisions of offers).
In 2007, SIC had issued a practice statement requiring parties engaged in a take-over or merger transaction involving real-estate investment trusts (“REITs”) to comply with the Code. This requirement has now been included in the Code itself. The revised Code has also similarly assimilated the 2008 practice statement requiring mergers or privatisations of business trusts via trust schemes to be carried out subject to the Code.
The Code has been amended to clarify the wording used to address the relationships found in a REIT or business trust. For example, in Definition 18 on “Registered Business Trust and Business Trust”, references in the Code to shares, shareholders and board of a company are to be read as referring to units, unitholders and trustee-manager for a registered business trust or business trust. In a similar manner, the relevant references for a REIT would be units, unitholders and manager (see Definition 19 of the Code).
The new Note 7 on the Definition of “Acting in Concert” provides in respect of REITs, that when a reference to a company is taken to refer to a REIT, the concert party relationship will be with the REIT’s manager and trustee. In relation to the trustee, the concert party relationship will normally be limited to the trustee (including its directors) acting in capacity as trustees for the REIT, as opposed to acting for other trusts, schemes or corporate vehicles. However, if the manager or trustee acts simultaneously for more than one of the offeror, a competing offeror and the offeree REIT, SIC should be consulted.
To enhance disclosure and avoid situations like the Jade Technologies Holdings Ltd offer that had to be aborted due to a share lending arrangement which had not been disclosed, the revised Code provides for an offeror to disclose, in the announcement of firm intention to make offer (Rule 3.5) and in the offer document (Rule 23.3), the number and percentage of his shares in the offeree company which have been charged as security, borrowed or lent.
Borrowed shares which are then on-lent or sold are excluded from the disclosure requirement for borrowed shares, as the borrower is not in a position to exert control over those shares.
SIC has also clarified in Note 10 on Rule 28.1 of the Code that borrowed shares may not count towards fulfilling an acceptance condition. Should a person who triggers a mandatory bid obligation hold borrowed shares as part of his shareholding, he should consult SIC as to how the borrowed shares should be treated.
To keep pace with product innovation and market developments, SIC has provided in the revised Code that under certain circumstances, long options and derivatives of shares in a company should be subject to disclosure of dealings and mandatory offer requirements.
The relevant options and derivatives would be those which cause a person to have a “long economic exposure” to changes in the price of the underlying securities, ie the person will benefit economically if the securities price increases and suffer economically if the price decreases (See Note 16 to Rule 14.1, also Note 8 on Rule 12).
When derivatives are referenced to a basket or index of securities, they would normally not be regarded as having a connection with an offer of any of the underlying securities if, at the time of dealing, the relevant securities in the basket or index represent (a) less than 1% of the class of securities in issue; and (b) less than 20% of the value of securities in the basket or index. However, derivatives which fulfil these requirements may still be regarded as being connected if they have the effect of causing the holder to have a predominant long economic exposure to a relevant security.
Disclosure of dealings
Revised Note 3(e) on Rule 12 of the Code provides that the disclosure of dealings requirements will apply to the relevant persons who carry out the following actions in respect of long options and derivatives of shares in the offeree company:
(a) For options – the taking, granting, acquisition, disposal, or exercising, lapsing, closing out or variation of an option; and
(b) For derivatives – the acquisition, disposal, entering into, closing out, exercise of any rights under, or issue or variation of, a derivative.
Mandatory offers
New Note 16 on Rule 14.1 of the Code provides that if a person has acquired or written options or derivatives which cause him to have a long economic exposure, and crosses the relevant mandatory offer thresholds, he must consult SIC to determine if he is required to make an offer.
Associates of an offeror or offeree company are required under the Code to disclose their dealings in shares in the offeree company by 12.00 noon on the dealing day following the day the transaction was done. In the previous version of the Code, an “associate” was defined as including, inter alia, a holder of 10% or more of the shares in the offeror or offeree company. This percentage has been lowered to 5% in the revised Code (see Definition 2 of the Code).
To avoid the need for frequent routine applications for exemption, the Code has been revised 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 (see Appendix 2 of the Code, Section 3(a)). Previously, such exemptions had to be applied for on a case-by-case basis.
A new Note 3 on Rule 14.1 has been included in the Code. It provides that shareholders who, pursuant to an agreement or understanding, requisition a general meeting on a board control-seeking proposal, will be presumed to be acting in concert with each other and with the proposed directors. Any subsequent acquisitions of shares by any of them could give rise to the requirement to make a general offer.
Note 3 also sets out the factors which will be taken into consideration in determining whether a proposal would be considered “board control-seeking”.
Another new provision is Note 6 on Rule 10, which sets out the factors that should be taken into account in determining if a person is participating in an offer as a joint offeror.
Note 6 provides that if two or more persons (including at least one person who is already a shareholder in the offeree company) come together in such circumstances that they can be considered to be joint offerors, Rule 10 (which prohibits special deals) will not be breached by such joint offeror arrangements. This note is based on the principles and factors set out in the UK Takeover Panel’s statement in the case of Canary Wharf plc.


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