The Initial Public Offerings Law Review: Singapore
The Singapore Exchange Securities Trading Limited (SGX-ST) is currently the only approved securities exchange in Singapore.
In 2020, there were 11 initial public offerings (IPOs) in Singapore, which raised approximately S$1.4 billion. Five were Mainboard listings: two were real estate investment trusts (REITs), which have portfolios mainly comprising assets located in the United States and the United Kingdom, and the other Mainboard listings were from sectors such as entertainment, credit and risk and nanotechnology solutions. Six IPOs were Catalist listings, from sectors such as mining, water treatment, agriculture and healthcare.
In 2021 thus far, there has been two IPOs in Singapore, which raised approximately S$100 million: one was a Mainboard listing in the technology enabler sector; the other was a Catalist listing in the healthcare sector.
i Main stock exchanges
An issuer can opt to list on the Mainboard or Catalist of the SGX-ST. The Mainboard caters to the needs of more established issuers, with higher entry and listing requirements (such as minimum profit and market capitalisation levels). A Mainboard listing can be a primary or secondary listing.
Catalist caters to the needs of smaller or fast-growing issuers. It has a different model where approved sponsors decide whether an issuer is suitable for listing. A Catalist listing must be a primary listing, and there are no minimum quantitative entry criteria.
Securities that can be listed on the SGX-ST include shares of a company and, in the case of Mainboard listings, units of a business trust (BT), shares and units of an investment fund and units of a REIT.
REITs and BTs account for the majority of IPO funds raised over the past five years. Since 2015, IPOs of REITs and BTs on the SGX-ST raised a total of approximately S$10.4 billion in gross proceeds. As at 31 December 2020, there were 49 REITs and BTs listed on the SGX-ST.
ii Overview of listing requirements
The general listing requirements for an issuer to list on the Mainboard or Catalist are set out below.
Issue manager or sponsor
An issuer seeking a Mainboard listing must appoint an accredited issue manager, and an issuer seeking a Catalist listing must appoint an approved full sponsor, who is responsible for preparing the issuer for listing.
An issuer seeking a Mainboard listing must satisfy either one of the profit tests or the market capitalisation test.
To satisfy the profit tests, the issuer must either:
- have a minimum consolidated pre-tax profit (based on full-year consolidated audited accounts) of at least S$30 million for the latest financial year and an operating record of at least three years; or
- be profitable in the latest financial year (pre-tax profit based on the latest full-year consolidated audited accounts), have an operating track record of at least three years and a market capitalisation of not less than S$150 million based on the issue price and post-invitation issued share capital.
Under the profit tests, the issuer must also have been engaged in substantially the same business, and have been under substantially the same management, throughout the three-year operating track record period.
To satisfy the market capitalisation test, the issuer must have an operating revenue (actual or pro forma) in the latest completed financial year and a market capitalisation of not less than S$300 million based on the issue price and post-invitation issued share capital. REITs and BTs that meet the S$300 million market capitalisation test but do not have historical financial information can apply under this test if they can demonstrate that they will generate operating revenue immediately upon listing.
An issuer seeking a Catalist listing is not required to satisfy any minimum operating track record, profit or share capital requirement. Instead, an approved full sponsor must be appointed who is responsible for assessing whether the issuer is suitable to be listed on Catalist and who will continue to supervise the issuer's compliance with the continuing listing requirements under the listing rules applicable to Catalist listings (the Catalist Listing Rules) for at least three years after listing. When the sponsor ceases to act as such, the issuer must appoint a new sponsor.
Shareholding spread and distribution requirements
For a Mainboard listing, at the time of listing, a minimum of 12 to 25 per cent of the issuer's shares or units must be in public hands (i.e., persons other than the directors; chief executive officer; substantial or controlling shareholders; unitholders of the issuer or its subsidiaries; or their respective associates), depending on the market capitalisation of the issuer. In addition, issuers are required to have a minimum of 500 shareholders or unitholders on listing.
|Market capitalisation||Post-listing share capital in public hands|
|Less than S$300 million||25 per cent|
|S$300 million or more but less than S$400 million||20 per cent|
|S$400 million or more but less than S$1 billion||15 per cent|
|S$1 billion or more||12 per cent|
The listing rules applicable to Mainboard listings (the Mainboard Listing Rules) also prescribe the following distribution requirements:
|Less than S$75 million||At least 40 per cent or S$15 million in value of the shares or units offered under the IPO (whichever is lower) must be distributed to investors, each allotted not more than 0.8 per cent or S$300,000 in value of the shares or units offered under the IPO, whichever is lower.|
|S$75 million or more but less than S$120 million||At least 20 per cent of the shares or units offered under the IPO must be distributed to investors, each allocated not more than 0.4 per cent of the shares or units offered under the IPO.|
|S$120 million or more||No requirement.|
For a Catalist listing, at least 15 per cent of the post-IPO issued share capital of the applicant must be held by the public at the time of listing, and there must be at least 200 public shareholders. There are no quantitative distribution requirements.
Minimum IPO price and subscription
The minimum IPO price of shares or units listed on the Mainboard or Catalist is 50 or 20 cents per share or unit, respectively. The board lot size of shares or units listed on the SGX-ST is 100. Accordingly, the subscription and allocation value of shares or units at IPO on the Mainboard or Catalist for each investor must be at least S$500 or S$200, respectively, and must be based on an integral multiple of a board lot.
iii Overview of law and regulations
The SGX-ST and the Listing Rules
The requirements for a company seeking a listing on the SGX-ST are set out in the Mainboard Listing Rules or the Catalist Listing Rules (together, the Listing Rules). The SGX-ST interprets, administers and enforces the Listing Rules and reviews applications for admission to its official list. The SGX-ST will consider whether a listing application satisfies the listing requirements set out in the Listing Rules and will decide whether to issue an eligibility-to-list (ETL) letter, with or without conditions.
The Monetary Authority of Singapore and the Securities and Futures Act
An issuer seeking listing on the SGX-ST will normally do so in conjunction with an IPO of its shares or units.
The offering of shares of a company or units of a BT is primarily regulated by the Securities and Futures Act, Chapter 289 (SFA) and the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 made thereunder.
The offering of units of a REIT is primarily regulated by the SFA and the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005 made thereunder.
The Monetary Authority of Singapore (MAS) administers the SFA and subsidiary legislation thereunder, and is the primary regulatory authority in connection with the offering of shares or units in Singapore.
A company may be listed on the Mainboard by way of a primary listing with a dual-class share (DCS) structure if it can establish that it is suitable for listing with a DCS structure. Companies with DCS structures that are listed on the Mainboard are subject to various requirements under the Mainboard Listing Rules, including safeguards against entrenchment and expropriation risks, to help protect the interests of minority shareholders. The SGX-ST will undertake a holistic assessment of the suitability for listing of an issuer with a DCS structure.
The offering process
i General overview of the IPO process
The IPO process typically begins with the appointment of an issue manager, lawyers and auditors. It can take up to 12 weeks (in some cases longer) for the due diligence process to be completed, the prospectus to be drafted and the accompanying documentation (as prescribed by the Listing Rules) to be prepared. The issue manager may, on behalf of the issuer, consult the SGX-ST to resolve key fundamental issues prior to the submission of an application.
Submission of listing application
Once all necessary documentation has been prepared in compliance with the Listing Rules, the SFA and the regulations thereunder, the issue manager will submit to the SGX-ST, on behalf of the issuer, the listing application, including the Listing Admissions Pack and the prescribed accompanying documents, in particular the draft prospectus.
The Listing Admissions Pack sets out the key issues for listing. Additionally, the issue manager must confirm that – after having exercised due care, diligence and skill – it is satisfied that the issuer has met all the requirements of the Listing Rules relevant to the submission and all relevant information relating to the listing application has been disclosed in writing to the SGX-ST.
The issuer may also submit the draft prospectus to the MAS for pre-lodgement review at the same time as the submission of the listing application to the SGX-ST.
Review by the SGX-ST and MAS
The SGX-ST will review the listing application and assess whether the key issues identified in the Listing Admissions Pack have been adequately resolved to decide whether the issuer is suitable for admission. The issue manager will liaise with the designated SGX-ST officers on queries they may have on the documents submitted. Once the review is completed, the listing application will be tabled before the listings committee of the SGX-ST for consideration.
Assuming that the listings committee has no further queries, the SGX-ST will issue an ETL letter, which will contain conditions. The SGX-ST may take up to eight weeks to complete its review of the listing application.
If the issuer had submitted the draft prospectus to the MAS for pre-lodgement review, during the review period, the issuer's lawyers will liaise with the designated MAS officers on queries they may have on the draft prospectus. Once the MAS completes its review and queries are addressed to its satisfaction, it will grant the issuer clearance to proceed with lodgement of the preliminary prospectus.
MAS lodgement and registration
Once the ETL letter is issued and pre-lodgement clearance from the MAS is obtained, the issuer can lodge the preliminary prospectus with the MAS, together with the prescribed accompanying documents. The MAS will upload the preliminary prospectus on its website under the Offers and Prospectuses Electronic Repository and Access, where it will be subject to public comment for seven to 21 days.
The MAS may register the prospectus between the seventh and the 21st day of the date of lodgement of the preliminary prospectus (which may be extended to a maximum of 28 days if the MAS gives notice of the extension under the SFA). Once the prospectus is registered, the IPO can commence.
The offer period for an IPO must not be shorter than two market days (excluding the date of commencement of the offer period). It normally lasts for three to five days.
Once the SGX-ST is satisfied that an issuer has met all conditions stipulated in the ETL letter, the issuer will be admitted to the Mainboard, and the listing and quotation of its shares or units may then commence.
The listing process for a Catalist listing may be significantly shorter than a Mainboard listing.
Following the preparation of the necessary documentation to be submitted to the SGX-ST, the sponsor will submit a pre-admission notification containing the prescribed documents. After receiving clearance from the SGX-ST, it will lodge a preliminary offer document with the SGX-ST for posting on its Catalodge website.
The preliminary offer document will be exposed for public comments for a minimum of 14 days. Provided that any queries from the public and the SGX-ST are addressed to the SGX-ST's satisfaction, the final offer document will be registered by the SGX-ST and posted on Catalodge. The IPO can commence only after the final offer document is registered. The offer document is not required to be lodged with or registered by the MAS.
Issue manager or sponsor
An issuer applying for a Mainboard listing must appoint an accredited issue manager who will act as the sponsor for the listing. The issue manager must be a member company of the SGX-ST, a bank, a merchant or an investment bank, or another similar person who is acceptable to the SGX-ST. The issue manager will typically also be an underwriter.
The issue manager is responsible for preparing the issuer for listing and for the accuracy of the information submitted to the SGX-ST. It is expected to exercise due care and diligence in ensuring accuracy and completeness of the information in the listing application. The issue manager must be satisfied that the issuer is suitable to be listed, meets the admission requirements, is sufficiently set up to comply with the continuing listing requirements, and has directors that appreciate the nature of their responsibilities and can be expected to honour their obligations under the Mainboard Listing Rules.
The requirement to have an issue manager ends once the issuer is admitted to the Mainboard, although the Mainboard Listing Rules recommend that the issuer retain the services of the issue manager for at least one year following listing.
In the case of a Catalist listing, an approved full sponsor will be appointed, who is responsible for assessing and determining whether the issuer is suitable to be listed on Catalist and who will continue to supervise the issuer's compliance with the continuing listing requirements under the Catalist Listing Rules for at least three years after listing.
An issuer will normally appoint lawyers to advise on the legal aspects of the listing process, conduct legal due diligence, draft the prospectus, prepare all the legal documentation necessary for the listing process (including the Listing Admissions Pack) and negotiate the legal agreements the issuer enters into.
Lawyers appointed by the underwriter will advise on any legal agreements entered into, assist in the preparation of the prospectus, advise the underwriter on its obligations, conduct legal due diligence and assist with the preparation of the legal documentation necessary for the listing process.
The issuer will normally appoint an underwriter for the offering, who will be obliged to subscribe for or purchase the shares or units that are not taken up by investors. If the IPO is large, there will likely be a syndicate of underwriters.
The issuer's auditors will normally be appointed as the reporting accountants who will prepare the auditors' report for inclusion in the prospectus. Auditors are typically required to provide comfort letters to the underwriters and confirmations to the SGX-ST regarding the internal controls of the issuer.
An issuer that is a property investment or development company must also appoint an independent external valuer to conduct a valuation of all its principal freehold and leasehold properties. The independent valuer will prepare a valuation report for inclusion in the prospectus.
Some of the main documents required in an IPO include:
- a prospectus containing the prescribed information under the SFA and the regulations thereunder, and the Listing Rules;
- a product highlights sheet;
- an underwriting agreement to be entered into between the issuer, the underwriter or underwriters, and the selling shareholders or unitholders (other than the issuer), if any;
- lock-up agreements;
- comfort letters by the auditors; and
- disclosure letters and legal opinions by the lawyers.
ii Pitfalls and considerations
Conflicts of interest
Under the Listing Rules, conflicts of interest should be resolved or mitigated prior to listing. Conflicts of interest situations include situations in which interested persons (such as the directors, chief executive officer and controlling shareholder of the issuer and their associates):
- carry on business transactions with the issuer or provide services to or receive services from the issuer or the issuer and its subsidiaries (the Group);
- lend to or borrow from the issuer or the Group;
- lease property to or from the issuer or the Group; or
- have an interest in businesses that are competitors, suppliers or customers of the issuer or the Group.
The SGX-ST may accept a proposal to resolve or mitigate conflicts of interest within a reasonable period after listing.
Promoters of an issuer (namely its controlling shareholders and their associates and its executive directors with an interest in 5 per cent or more of the issuer's issued share capital (excluding subsidiary holdings) at the time of listing) seeking a Mainboard listing are required to give a contractual undertaking to the issue manager to observe a moratorium on the transfer or disposal of their interests in the shares of the issuer. The purpose of a moratorium is to maintain the promoters' commitment to the issuer and align their interests with that of public shareholders.
The moratorium period varies depending on whether the issuer satisfies the profit tests or the market capitalisation test:
- profit test: promoters' 100 per cent shareholdings at the time of listing for at least six months after listing; or
- market capitalisation test: promoters' 100 per cent shareholdings at the time of listing for at least six months after listing, and at least 50 per cent of their original shareholdings at the time of listing (adjusted for any bonus issue, subdivision or consolidation) for the next six months.
A promoter who has an indirect shareholding in the issuer must also provide an undertaking to maintain its effective interest in the shares under moratorium during the moratorium period. Where an indirect shareholding is held through a listed company, the promoter's holding in that listed company is excluded from the moratorium.
Further moratorium requirements apply under the Mainboard Listing Rules to investors that acquired and paid for their shares less than 12 months before the date of the listing application, and investors connected to the issue manager.
If the issuer is seeking a Mainboard listing with a DCS structure, holders of the multiple voting shares are required to 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 of their interests in both the multiple voting shares and ordinary voting shares at the time of listing, for at least 12 months after listing.
In a Catalist listing, promoters are to give moratorium undertakings in respect of their entire shareholding at the time of listing for at least six months after listing, and no less than 50 per cent of their original shareholding at the time of listing (adjusted for any bonus issue, subdivision or consolidation) for the next six months.
Listing application (for Mainboard listings)
The issue manager is required to highlight in the listing application the key issues for listing, including whether:
- there is any non-compliance with laws and regulations that may cast doubt on the character and integrity of the directors, key executive officers or controlling shareholders of the issuer;
- there is any non-traditional or complex shareholding structure, such as those resulting from legal restrictions;
- the issuer has not obtained any key approval or licence, or the application for renewal is pending approval or the remaining validity is less than 12 months;
- there has been any non-compliance with laws and regulations by the issuer; and
- the issuer has rectified all material internal control weaknesses.
iii Considerations for foreign issuers
Additional requirements apply to a foreign issuer seeking a listing on the SGX-ST:
- a foreign issuer must have a minimum number of independent directors who are resident in Singapore (two for a Mainboard listing and one for a Catalist listing);
- a foreign issuer must make arrangements satisfactory to the SGX-ST to enable shareholders in Singapore to register their shareholdings promptly; and
- any change in law in the foreign issuer's place of incorporation that may affect or change shareholders' rights or obligations over its securities must be announced on SGXNET immediately.
The constitutive documents of the foreign issuer must also contain the requisite provisions stipulated by the Listing Rules.
An issuer listed on the Mainboard must comply with continuing listing requirements set out in the Mainboard Listing Rules, the key areas of which are listed below. Similar requirements are set out in the Catalist Listing Rules.
i Continuous disclosure obligations
Disclosure of material information
Subject to limited exceptions set out in the Listing Rules, a listed issuer must announce any information known to the issuer concerning it or its subsidiaries or associated companies that is necessary to avoid the establishment of a false market in its securities or would be likely to materially affect the price or value of its securities.
Subject to the below, an issuer must announce its financial statements on a half-yearly basis immediately after the figures are available, but in any event no later than 60 days (in the case of full-year financial statements) or 45 days (in the case of half-year financial statements) after the financial period.
Following feedback from a public consultation, effective 7 February 2020, an issuer is no longer subject to quarterly financial reporting, unless (1) it has received an adverse opinion, qualified opinion or disclaimer of opinion from its auditors on its latest financial statements or (2) its auditors have stated that a material uncertainty relating to a going concern exists in the issuer's latest financial statements.
Code of Corporate Governance
The issuer must describe in its annual report its corporate governance practices with specific reference to the principles and the provisions of the Code of Corporate Governance (the Code). The issuer must comply with the principles of the Code.
Where its practices vary from any provisions of the Code, the issuer must explicitly state in its annual report the provision from which it has deviated, explain the reason for the variation and explain how the practices it has adopted are consistent with the intent of the relevant principle.
ii Changes in capital
A listed issuer must obtain the prior approval of its shareholders for:
- the issue of shares, securities convertible into its shares or options over its shares; and
- the issue of shares, convertible securities or options by its principal subsidiary that results in the principal subsidiary ceasing to be a subsidiary of the issuer or a percentage reduction of 20 per cent or more of the issuer's equity interest in the principal subsidiary.
The issuer may obtain a share issue mandate from its shareholders, subject to the parameters prescribed by the Listing Rules.
The issue of shares by the issuer must comply with the requirements set out in the Listing Rules, which may include limits on discount to the market price, prohibition on issue of shares to directors and substantial shareholders (unless specific shareholder approval is obtained) and announcement requirements.
iii Interested person transactions
Interested person transactions (IPTs) are transactions between an entity at risk2 and an interested person.3 A listed issuer must immediately announce any IPT of a value equal to or greater than 3 per cent of the latest audited net tangible assets (NTA) of the Group.
If the aggregate value of all transactions entered into with the same interested person during the same financial year amounts to 3 per cent or more of the Group's latest audited NTA, the issuer must make an immediate announcement of the latest transaction and all future transactions with that interested person during that financial year.
The issuer must obtain shareholders' approval for any IPT of a value equal to or greater than 5 per cent of the Group's latest audited NTA, or 5 per cent of the Group's latest audited NTA when aggregated with other transactions entered into with the same interested person during the same financial year (subject to certain exceptions).
An IPT below S$100,000 is not subject to announcement or shareholders' approval requirements.
The issuer may seek a general mandate from shareholders for recurrent transactions of a revenue or trading nature, or those necessary for its day-to-day operations, but not in respect of the purchase or sale of assets, undertakings or businesses.
iv Acquisitions, realisations and provision of financial assistance
The Listing Rules classify transactions4 into categories depending on the size of the relative figures computed on prescribed bases, such as:
- the net asset value of the assets to be disposed of, compared with the Group's net asset value;
- the net profits attributable to the assets acquired or disposed of, compared with the Group's net profits;
- the aggregate value of the consideration given or received, compared with the issuer's market capitalisation; and
- the number of equity securities issued by the issuer as consideration for an acquisition, compared with the number of equity securities previously in issue.
The transaction is classified as:
- non-disclosable if all of the relative figures amount to 5 per cent or less;
- disclosable if any relative figure exceeds 5 per cent but does not exceed 20 per cent; or
- major if any relative figure exceeds 20 per cent.
The transaction may also be a very substantial acquisition or reverse takeover if it is an acquisition of assets where any relative figure is 100 per cent or more or that will result in a change in control of the issuer.
A listed issuer must make an immediate announcement of a disclosable transaction after terms have been agreed. A major transaction must be immediately announced after terms have been agreed and also made conditional upon shareholder approval. In addition, a very substantial acquisition or reverse takeover is subject to approval of the SGX-ST.
Outlook and conclusion
i Recent developments
Proposed listing framework for SPACs
The SGX-ST recently sought market feedback on a proposed regulatory framework for the listing of special purpose acquisition companies (SPACs) on its Mainboard. The proposed regulatory framework seeks to create a balanced regime that effectively safeguards investors' interest against certain concerns posed by the unique features of SPACs, while meeting the capital raising needs of the markets.
It includes, among other things, broad admission criteria (including a minimum market capitalisation of S$300 million and at least 25 per cent of the total number of issued shares to be held by at least 500 public shareholders at IPO), moratorium on the shareholding interests held by the key parties (e.g., the founding shareholders and controlling shareholders) at various junctures and business combination requirements.
Enhancement of the ABS Listings Due Diligence Guidelines
The Association of Banks in Singapore (ABS), in close collaboration with Singapore Exchange Regulation, updated the ABS Listings Due Diligence Guidelines to raise standards of due diligence conducted on companies planning to list on the SGX-ST.
Key updates include increased focus on the assessment of the adequacy and effectiveness of the issuer's internal controls, assessment of the sustainability and viability of the issuer's business and targeted guidelines for due diligence on issuers operating in specialised, restricted or niche industries or in higher risk jurisdictions.
Extension of enhanced share issue limit for Mainboard issuers
The Singapore Exchange Regulation extended the availability of the enhanced share issue limit for Mainboard issuers, whereby issuers will have until 31 December 2021 to seek or renew a general mandate for the enhanced share issue limit.
Under the enhanced share issue limit, Mainboard issuers can seek a general mandate for pro-rata issuance shares and convertible securities of up to 100 per cent of their share capital (excluding treasury shares and subsidiary holdings), compared with the 50 per cent stipulated in the Mainboard Listing Rules.
The SGX-ST has pursued various initiatives, including the following:
- a joint venture with Trumid and Hillhouse Capital to enhance liquidity and execution in the Asian bond market for global clients with the launch of a new Asian bond trading platform;
- a partnership with a Temasek digital assets joint venture (Marketnode) and Covalent Capital to build the Asia-Pacific's first end-to-end digital infrastructure in the fixed income space; and
- a partnership with Temasek to advance digital asset infrastructure in capital markets.
1 Tan Tze Gay and Wu Zhaoqi are partners at Allen & Gledhill LLP.
2 Entity at risk means (1) the listed issuer, (2) a subsidiary of the issuer that is not listed on the SGX-ST or an approved exchange, or (3) an associated company of the issuer that is not listed on the SGX-ST or an approved exchange, provided that the Group, or the Group and its interested persons, has control over the associated company.
3 Interested person means, in the case of a company, a director, chief executive officer or controlling shareholder of the listed issuer, or an associate of any such person or entity. The SGX-ST also has the power to deem any other person to be an interested person.
4 An acquisition or disposal of assets, or the provision of financial assistance, by a listed issuer or any of its subsidiaries that is not listed on the SGX-ST or an approved exchange, and includes an option to acquire or dispose of assets, but excludes a transaction that is in, or in connection with, the ordinary course of its business or of a revenue nature. It also excludes the provision of financial assistance to the issuer, or its subsidiary or associated company.