The Mergers & Acquisitions Review: Singapore
Overview of M&A activity
In 2020, Singapore recorded a healthy volume of 482 mergers and acquisitions (M&A) transactions valued at US$59.2 billion, driven by significant outbound investments by Singapore's sovereign wealth funds (SWF).2 Outbound M&As continued to account for the lion's share of M&A value in Singapore at 67 per cent, while domestic M&A value accounted for 22 per cent of total M&A value in 2020. The number of private equity (PE) and venture capital (VC) investments decreased from 166 deals in 2019 to 149 deals in 2020, at a total value of about US$5.2 billion.3 In total, 342 cross-border deals were closed at an approximate value of US$46.3 billion.4
The spread of covid-19 has dealt a blow to the global economy, as governments curtailed economic activity and enforced border controls in an attempt to stem infection rates. Singapore has been no exception. After a phased and gradual relaxation of the 'circuit breaker' declared on 7 April 2020, Singapore experienced a new wave of covid-19 infections in 2021, resulting in a move back to a 'heightened alert' phase from May 2021 to August 2021 where among other restrictions, social interactions and gatherings were limited, dining-in was prohibited, and the occupancy limit in commercial buildings was reduced. Work-from-home was again mandated as the default position for workplaces. Notwithstanding this, as at 18 September 2021, 77 per cent of Singapore's population has been fully vaccinated5 and the economic outlook has improved since 2020 with the Singapore government setting a growth forecast for 2021 at about 6 per cent to 7 per cent.6
In line with the positive economic outlook, deal values have more than doubled from the first half of 2020. Deal volume increased from over 1,000 deals in the third quarter of 2020 to over 1,300 deals in the fourth quarter of 2020.7 Further, M&A activity in Singapore grew 82.4 per cent year on year to US$80.9 billion in the first six months of 2021, the highest semi-annual period on record.8 South East Asia (SEA) recorded a large spike in technology-related investments in the first half of 2021 at a total deal value of US$19 billion9 as compared to US$5.6 billion in the same period in 2020.10 This was driven by Grab's merger with a special purpose acquisition company that will achieve a value of US$40 billion and the merger between Gojek and Tokopedia to create a technology platform worth more than US$18 billion.11 In Singapore, technology startups raised S$5.3 billion from 355 deals in the first half of 2021, as compared with S$3.4 billion from 317 deals the first half of 2020.12
General introduction to the legal framework for M&A
i Statute and common law
The sources of law under Singapore's common law system are legislation, subsidiary legislation and judge-made case law. Parliament passes legislation and subsidiary legislation, which are interpreted by the courts. The validity and interpretation of agreements are governed by the common law principles of contract law and supplemented by legislation.
The Companies Act and the Securities and Futures Act (SFA), and their respective subsidiary legislation, are the key legislation relevant to M&A transactions in Singapore. The Companies Act is the principal legislation governing both private and public Singapore-incorporated companies. It contains, inter alia, provisions that regulate the criteria and processes by which share transfers, schemes of arrangement, amalgamations and compulsory acquisitions are effected.13 The SFA regulates, among other things, offers of securities, notifications when a substantial interest is acquired and market conduct rules, including those relating to insider trading and market manipulation.14
In addition to the above statutes, which apply generally to all companies, companies in certain sectors must abide by additional sector-specific legislation. For example, insurance companies, banks and telecommunications companies are regulated by the Insurance Act, the Banking Act and the Telecommunications Act, and their respective subsidiary legislation, respectively.
ii The Singapore Code on Takeovers and Mergers
The Singapore Code on Takeovers and Mergers (the Code) governs the conduct, timing, approach and documentation in relation to takeovers and mergers of corporations with a primary listing of their equity securities in Singapore, business trusts with a primary listing of their units in Singapore and real estate investment trusts.15 The Code is issued by the Monetary Authority of Singapore, pursuant to the SFA.16 Unlisted public companies and unlisted registered business trusts with more than 50 shareholders or unitholders, as the case may be, and net tangible assets of S$5 million or more, must also observe the letter and spirit of the Code, wherever possible and appropriate.17
The Securities Industry Council (SIC) oversees the administration and enforcement of the Code and, under the SFA, has the power to investigate any dealing in securities that is connected with a takeover or merger transaction.18 The Code itself does not have the force of law; however, a breach could result in sanctions imposed by the SIC.19 Such sanctions include a private reprimand, public censure or, in a flagrant case, further action as the SIC deems fit, including actions designed to deprive the offender temporarily or permanently of its ability to enjoy the facilities of the securities market.20
iii The SGX-ST Listing Rules
Companies listed on the Singapore Exchange (SGX-ST) must additionally comply with the SGX-ST Listing Rules (Listing Rules) contained in the SGX-ST Listing Manual (Listing Manual). The Listing Manual comprises the Mainboard Rules, which apply to companies listed on the Mainboard of the SGX-ST, and the Catalist Rules, which apply to companies listed on the Catalist of the SGX-ST. The Listing Rules applicable to Mainboard and Catalist-listed companies are broadly similar in the context of M&A transactions.21 Listed companies are required to disclose or obtain shareholders' approval (or both) for transactions such as acquisitions and realisations that meet certain thresholds relating to, among other things, net asset value, net profits, aggregate consideration and number of consideration shares issued.22 Where the public shareholdings of the listed company fall below 10 per cent as a consequence of an acquisition, the company may be subject to suspension of trading or delisting.23
Developments in corporate and takeover law and their impact
i Proposed amendments to the Companies Act
The Accounting and Corporate Regulatory Authority of Singapore (ACRA) and the Companies Act Working Group have announced proposed amendments to the Companies Act, aimed at ensuring Singapore's corporate laws and regulatory framework stay competitive.24 A public consultation in respect of the proposed amendments was held between 20 July 2020 and 17 August 2020, the outcome of which has yet to be announced at the time of this publication.25 The proposed amendments aim to strike a balance between an effective and efficient regulatory framework and the compliance burden on companies.26 The proposed amendments noteworthy and of relevance to the due diligence process and the execution of M&A transactions are summarised below.
Dematerialisation of shares and facilitating digitalisation
The current position under the Companies Act is that a physical share certificate is prima facie evidence of a shareholder's title to his or her shares.27 The proposed amendments to the Companies Act remove the requirement for physical share certificates. In the context of M&A transactions, vendors may not consequently need to locate their physical share certificates for surrender to the company for cancellation at completion or be required to indemnify the company in exchange for the issuance of a replacement share certificate. The proposed amendment would bring the treatment of share certificates in line with existing provisions under the Companies Act which has, since 2016, eschewed physical registers of members in favour of electronic registers of members maintained by ACRA.
Review of company types and refinements to financial reporting criteria
The proposed amendments would introduce two new company types under the framework of the Companies Act: (1) the 'publicly accountable' company and (2) the 'micro' company. The proposed introduction of the publicly accountable company would be for financial reporting purposes and aims to better tailor the financial reporting obligations under the Companies Act to a broader group of stakeholders, based on the public interest or accountability of companies. A micro company, with total annual revenue and total assets of not more than S$500,000, would be permitted to prepare reduced or simplified financial statements.
Streamlining and clarifying financial reporting requirements for companies and foreign companies
The proposed amendments would streamline the financial reporting requirements for local and foreign companies. Under the proposed amendments, the Minister for Finance and the Registrar of Companies would be granted the power to exempt a company from all of the requirements in the Accounting Standards and to require the company to comply with other accounting standards instead. Foreign companies would be permitted to lodge financial statements prepared in accordance with accounting standards that are substantially similar to Singapore's Accounting Standards. Foreign companies with insignificant operations in Singapore (with total revenue, total expenses, total assets and total liabilities arising out of the foreign company's operations in Singapore not exceeding S$5 million) would be permitted to file unaudited branch accounts, instead of an audited statement of assets, liabilities and profit and loss in respect of the foreign company's operations in Singapore. Such amendments would reduce the compliance costs for foreign companies in Singapore.
Removing outdated requirements and clarifying provisions in the Companies Act
Public companies limited by shares would no longer be required to hold statutory meetings and the Registrar of Companies would be granted the power to update changes in appointments of directors and secretaries to enhance the accuracy of information in the registers of directors and secretaries.
ii Proposed amendments to the Companies Act and the Limited Liability Partnership Act
On 2 July 2021, the ACRA and the Ministry of Finance announced proposed amendments to the Companies Act and the Limited Liability Partnerships Act, aimed at increasing transparency of ownership and control of companies and limited liability partnerships (LLPs).28 The proposed amendments were set out in the draft Corporate Registers (Miscellaneous Amendments) Bill (CRMA Bill), which was available for public consultation from 2 July 2021 to 30 July 2021. The outcome of the public consultation has yet to be announced at the time of this publication.29 The proposed amendments aim to reduce opportunities for the misuse of corporate entities for illicit purposes, and are in line with international standards for combating money laundering, terrorism financing and other threats to the integrity of the international financial system.30 The proposed amendments noteworthy and of relevance to the due diligence process and the execution of M&A transactions are summarised below.
Time frame for updating corporate registers
The current position under the Companies Act requires foreign companies to keep a register of their members and is silent on the time frame for updating the registers of members.31 The proposed amendment to the Companies Act would require foreign companies to update the register of members within 14 days after any change in particulars.
In addition, under the version of the Companies Act currently in force, a Singapore-incorporated company must keep a register of nominee directors, and a director must keep the company notified of any changes and provide necessary particulars.32 However, it is silent as to any obligation to update the register of nominee directors and the time frame to do so. The proposed amendments would explicitly require Singapore-incorporated companies to update their registers of nominee directors within seven days after receiving the notification and particulars.
The proposed amendments would provide clarity on the time frame for updating the register of members and the register of nominee directors.
Requirement to enter particulars of individuals with executive control
The current positions under the Companies Act and Limited Liability Partnerships Act do not require companies and LLPs to enter any particulars into their registers of controllers if no registrable controller, being an individual or legal entity having significant interest in or significant control over the company or LLP,33 has been identified. Under the proposed amendments to the Companies Act and Limited Liability Partnerships Act, where no registrable controller has been identified, this should be noted in the register along with particulars of each executive director and chief executive officer in the case of a company and the partners with executive control in the case of an LLP. Similarly, the register of controllers must be updated as and when there are changes in particulars.
Requirement to maintain non-public registers of nominee shareholders
The proposed amendments to the Companies Act would introduce the requirement for local and foreign companies to keep non-public registers of nominee shareholders to enhance the transparency of ownership and control of local and foreign companies. Under the proposed amendments, a shareholder is considered a nominee if he or she is accustomed or under an obligation whether formal or informal to vote in accordance with the directions, instructions or wishes of any other person and receives dividends on behalf of any other person. Such shareholders must inform the company of his or her appointment as nominee and such prescribed particulars of the nominator, and companies must update the register of nominee shareholders within seven days of any change of nominee shareholders or change in particulars of a nominee shareholder.
iii The Listing Manual
Amendments to the whistleblowing framework
Under the Listing Rules, with effect from 1 January 2022, listed companies will be required to state in their annual report that it has implemented a whistleblowing policy which sets out the procedures for a whistleblower to make a report to a listed company on misconduct or wrongdoing relating to that listed company and its officers.34 To comply with the Listing Rules, listed companies will also have to set up an independent function to investigate whistleblowing reports and ensure that whistleblowers are protected against detrimental or unfair treatment.35
Listing framework for special purpose acquisition companies (SPACs)
The SGX-ST announced its proposals on introducing new listing rules for the listing of SPACs and initiated public consultations in January 2010.36 In March 2021, the SGX-ST once again conducted public consultations on, inter alia, minimum market capitalisation, public float, minimum equity held by founding shareholders, and time frame to complete a business combination. Most recently, in August 2021, the SGX-ST released the amendments to the Listing Rules that will implement the listing framework for SPACs with effect from 3 September 2021.
Under the Listing Rules, a SPAC is defined as 'a company with no prior operating history, operating and revenue-generating business or asset at the point of the IPO, and raises proceeds for the sole purpose of undertaking a business combination in accordance with the business strategy and acquisition mandate disclosed in the prospectus issued in relation to the SPAC's IPO'.37
To list as a SPAC, the issuer must be deemed suitable for listing by the SGX-ST, taking into account factors such as the profile including the track record and repute of the founding shareholders and experience and expertise of the management team of the issuer, securities participation of the founding shareholders and management team in the issuer, alignment of interests of the founding shareholders and the management team with the interest of other shareholders, and the provisions of the constituent documents of the issuer (including whether the issuer will be subject to the Insolvency, Restructuring and Dissolution Act of Singapore for liquidation procedures).38 In addition, the issuer must have a market capitalisation of not less than S$150 million based on issue price and post-invitation issued share capital and at least 25 per cent of its issued shares (excluding treasury shares) must be held by at least 300 public shareholders.39
Minimum securities participation by founding shareholders and management team
The Listing Rules provide for different minimum securities participation, ranging from 2.5 per cent to 3.5 per cent of subscription, by founding shareholders and executive directors and executive officers based on market capitalisation of the SPAC.40 The purpose behind imposing a minimum securities participation is to increase the founding shareholder's skin in the game and to align its interest with the interest of the shareholders.41 The founding shareholders, the management team, and their respective associates are also subject to the same moratorium requirements applicable to other non-SPAC issuers seeking to list on the Mainboard of the SGX-ST.42
Immediately upon listing, the SPAC must place at least 90 per cent of the gross funds raised from the IPO in an escrow account opened with and operated by an escrow agent independent of the founding shareholders, management team, and their associates, and licensed by the Monetary Authority of Singapore. The funds may only be drawn down for the limited purposes, including a business combination or on liquidation of the SPAC.43
The Listing Rules require the SPAC to complete a business combination, being the initial acquisition of an operating business or asset by a SPAC, within 24 months from the date of listing, and the initial business or asset acquired must have a fair market value of at least 80 per cent of the amount in the escrow account.44 An extension of time may be sought by applying to the SGX-ST or by specifically obtaining the approval of at least 75 per cent of votes cast by shareholders at a general meeting.45
In the event that the SPAC fails to complete a business combination within the permitted time frame, fails to obtain specific shareholders' approval for extension of time, or is directed to delist by the SGX-ST, the SPAC shall be liquidated. The amounts held in escrow will then be distributed to shareholders on a pro rata basis.46 The founding shareholders, the management team, and their associates will not be able to participate in the liquidation distribution in respect of equity securities owned or acquired by them prior to or pursuant to the IPO.47
Introduction of mandatory climate reporting
In August 2021, the Singapore Exchange Regulation (SGX RegCo) proposed implementing mandatory climate reporting to be disclosed in issuers' sustainability reports (SRs) amid urgent demand for such information from stakeholders.48 The SGX RegCo proposes to introduce this requirement in stages, starting with implementing climate reporting on a 'comply or explain' basis for the financial year commencing 2022, following by mandatory climate reporting for issuers from selected sectors in the subsequent two years.49 Issuers may take reference from a set of 27 proposed environmental, social and governance (ESG) metrics in preparing their ESG data.50 The SGX RegCo further proposes that issuers be required to subject their SRs to assurance by their internal auditors, and to ensure all directors attend a one-time training on sustainability.51 A public consultation in respect of the consultation paper was held until 27 September 2021, the outcome of which has yet to be announced at the time of this publication While these proposed requirements, if implemented, will increase compliance costs, they may help lenders, insurers and investors make more informed decisions and help issuers foster stakeholder confidence.
Enhancements to regulatory regime for property valuation and auditors
Under the Listing Rules, with effect from 12 January 2021, stricter requirements will be imposed on property valuation and on auditors. These requirements on auditors include requiring issuers to appoint an auditor registered with the ACRA and to appoint a second auditor to review financial statements under exceptional circumstances, such as where the SGX-ST believes that possible misstatements in the financial statements are pervasive and not evidenced by the incumbent auditor's opinion. Enhancement of the regime for property valuation includes requiring property valuers to meet minimum qualification criteria such as having five years of relevant practical experience, requiring valuations to be performed in accordance with acceptable valuation standards, and requiring disclosure of information set out in the relevant practice guide set by the Singapore Institute of Surveyors and Valuers.
iv The Insolvency, Restructuring and Dissolution Act
The Insolvency, Restructuring and Dissolution Act 2018 (Insolvency Act) came into force on 30 July 2020, as part of a wider consolidation of Singapore's personal and corporate insolvency and debt restructuring laws.52 Section 239 of the Insolvency Act provides that a company trades wrongfully if it incurs debts or liabilities without reasonable prospect of meeting them in full, when the company is insolvent or becomes insolvent as a result of such debts or liabilities being incurred. The Singapore courts can declare any knowing party to such wrongful trading to be personally liable for the company's debts and liabilities so incurred.53 Company directors should be mindful of Section 239, which lowers the bar for establishing personal liability in the event of insolvent trading. The Insolvency Act would now shape the structuring of distressed assets transactions and rescue or debt restructuring transactions. For example, when a company proposes a scheme of arrangement, a creditor of the company may, during a moratorium period, apply to court for an order restraining the company from disposing of its property other than in good faith and in the ordinary course of business or an order restraining the company from transferring any share in the company.54 When a company is in judicial management, a creditor or shareholder may also apply to court for an order requiring the judicial manager to refrain from doing or continuing an act complained of by the applicant.55 Companies and potential purchasers must bear in mind that these scenarios may occur and it may hinder parties from completing the M&A transaction.
Foreign involvement in M&A transactions
Cross-border deals, comprising outbound and inbound transactions, continued to account for most of Singapore's M&A transactions in 2020, at 78 per cent of total deal value.56 Cross-border deals were dominated by outbound investments made by sovereign wealth fund GIC Pte Ltd (GIC), together with its consortium partners. GIC's outbound investments featured prominently in Singapore's deal value rankings, with significant investments in the energy, utilities and real estate sectors,57 and its consortium investment in ADNOC Gas Pipeline Assets LLC, valued at US$10 billion, ranked as the top M&A deal in Singapore in 2020.58 In the first half of 2021, while domestic M&A activity fell 75.1 per cent totalling US$4.7 billion, inbound M&A activity in Singapore increased 545.4 per cent to reach US$37.6 billion while outbound M&A activity went up 75.7 per cent to US$25.2 billion.59
Significant transactions, key trends and hot industries
Real estate continued to be the dominant sector for transactions in 2020, with a total deal value of US$22.5 billion and was also the top sector for both outbound and domestic M&A deals in Singapore.60 This was followed by the energy and the banking, financial services and insurance sectors. Notwithstanding this, the high-technology sector accounted for the majority of the deal-making activity involving Singapore in the first half of 2021, accounting for almost half the market share totalling US$40 billion. This was largely attributed to Grab's US$40 billion merger with US special purpose acquisition vehicle Almeter Growth Corp.61
Other notable outbound M&A transactions in 2020 include CapitaLand Mall Trust's merger with CapitaLand Commercial Trust for a value of US$6.1 billion, and Singapore Life Pte Ltd's merger with Aviva Ltd with a value of US$1.1 billion.62 Notable cross-border transactions include GIC's acquisition of LG Holdings HK Ltd for a value of US$1.1 billion and ARA Asset Management's acquisition of Parc1 Tower II (Seoul) for US$897 million.63
Singapore continued to be a key driver of M&A, PE and VC transactions in the region for 2020,64 with more than half the total number of deals amounting to an aggregate of US$64 billion out of approximately US$81.8 billion in deal value.65 PE/VC investments in Singapore continued to generate significant activity of about US$5.2 billion with the technology sector contributing to 56 per cent of the total deal value.66
While covid-19 has caused some market distress, Singapore has not observed widespread corporate bankruptcies as yet. Notwithstanding this, a notable distressed M&A activity in Singapore in 2020 would be Rawabi Holding Company, an oil and gas conglomerate in Saudi Arabia, committing to invest US$10.0 million in Swiber Holdings Limited.67
There has also been a shift towards a focus on environmental, social and governance matters in M&A investments, with increased due diligence conducted on such ESG guidelines. In addition to the consultation paper published by the SGX-ST described above, Singapore has also announced that it will invest more in building a new green economy and investing in renewable energy.68 To this end, in April 2021, the Singapore government's investment company Temasek and asset manager BlackRock entered into a partnership to launch a series of funds, committing a combined US$600 million in initial capital, to invest in companies that use technology to reduce carbon emissions, including early stage growth companies in areas such as electric and autonomous vehicle technologies, battery storage, grid solutions and emerging fuel sources.69 Temasek has also committed to halve emissions from its portfolio by 2030 and move to net zero emissions by 2050.70 In July 2021, the Sunseap Group also announced that it signed a memorandum of understanding to build a US$2 billion floating solar farm and energy storage facility on the Indonesian island of Batam.71 In the same month, GIC also announced that it would invest S$240 million in Artic Green Energy to support the renewable energy firm's expansion in Asia and Europe.72
In January 2020, the variable capital company (VCC) made its debut on the Singapore investment landscape as a corporate structure for investment funds in Singapore.73 The introduction of VCCs in Singapore aims to boost the fund management ecosystem by encouraging funds to both incorporate and operate in Singapore.74 Under the Variable Capital Companies Act, existing overseas investment funds may redomicile as VCCs in Singapore and existing funds domiciled in Singapore as companies, limited partnerships or unit trusts may restructure as VCCs.75 The Monetary Authority of Singapore has also launched a grant scheme to co-fund qualifying expenses paid to Singapore-based service providers for work done in Singapore in relation to the incorporation or registration of a VCC.76
Key features of VCCs include flexibility in the issuance and redemption of its shares, the ability to pay dividends out of capital and a flexible structure that can comprise a standalone fund or an umbrella fund with two or more sub-funds, each holding its own portfolio of separate assets and liabilities.77 VCCs can also be used for both open-ended and closed-end fund strategies, the former allowing new subscriptions at any time and permitting investors to redeem their investments at their discretion, and the latter having a fixed number of shares and not permitting new subscriptions after the offering period is over.78 By June 2021, there were more than 300 VCCs registered with the ACRA.79 The domiciling of VCCs in Singapore is anticipated to increase the availability of dry powder for M&A and investment opportunities. In December 2020, the MAS also announced that it is looking to relax the requirement for permissible fund managers in Singapore to allow single family offices to manage VCCs, given that the estimated total assets under management by single family offices in Singapore could be around US$20 billion.80
Financing of M&A: main sources and developments
Funding for M&A transactions in Singapore is typically provided by the usual sources of internal financing, bank and financial institution loans and PE loans and investments. In particular, local and major international banks and financial institutions are typically the most common source of financing for M&A deals in Singapore.
For public offers governed by the Code, requirements for financial confirmations apply. Where the offer is for cash or cash alternatives, the offer document as well as the announcement of a firm intention to make an offer should include confirmation from a financial adviser that the offeror has enough cash resources to satisfy full acceptance of the offer.81 Where external financing is to be availed of, the terms of such financing must satisfy the requirements of the financial adviser.
i Updates to Dependant's Pass Holders applications
Effective 1 May 2021, any foreigner in Singapore on a dependant's pass (DP Holder) will need to have their own work pass to be employed in Singapore.82 Employers employing DP Holders will now be required to sponsor work passes for these individuals once their current Letter of Consent (LOC) expires. A DP Holder who owns a business in Singapore will be permitted to continue working under an LOC if the business creates local employment. Such a DP Holder will need to (1) be a sole proprietor, partner or company director; and (2) hold at least 30 per cent of the shares in the business.83 Further, that business must employ at least one Singaporean or permanent resident earning at least S$1,400/month and make contributions to the employee's Central Provident Fund account for at least three months. If the DP Holder's business does not meet these criteria, he or she may (1) continue to run that business on an existing LOC until its expiry; or (2) apply for a one-off extension (which would run until 30 April 2022) when the dependant's pass comes up for renewal.84
ii Updates to mandatory notifications extended to all retrenchments
Currently, employers with at least 10 employees are required to notify the Ministry of Manpower (MOM) when it notifies at least five or more employees of their retrenchment within any six-month period.85 The notification to the MOM is made through an online retrenchment notification, and must be made within five working days after the employer provides notice of retrenchment to the affected employees.86 From 1 November 2021, employers with at least 10 employees will be required to notify MOM of all retrenchments regardless of the number of employees affected. The updated requirements on mandatory retrenchment notification will be reflected in upcoming Employment (Retrenchment Reporting) (Amendment) Notification 2021.
iii Proposed updates to Tripartite Alliance for Fair and Progressive Employment Practices
It was announced during the National Day Rally Speech on 29 August 2021 that the Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP) guidelines will be enshrined as law in Singapore.87 In addition, a new tribunal will be created to deal with workplace discrimination issues. This is intended to protect workers against discrimination based on nationality and other kinds of discrimination under TAFEP. A draft of the proposed anti-discrimination laws has not yet been released to the public.
The legal obligation to pay taxes in an acquisition, be it stamp duty or goods and services tax (GST), generally falls on the buyer.88 However, parties are free to contractually negotiate as to who should bear the costs of paying such taxes in connection with the transaction.
The transfer of assets in a business sale may be subject to GST.89 The transfer of a business as a going concern may, however, be exempted from GST subject to certain conditions including that the transfer of assets is made in connection with the transfer of a business and not a mere transfer of assets.90 Transfers of shares are exempt from GST, and there is no capital gains tax in Singapore.91
Transfers of immovable properties and shares are typically effected by way of documentation such as sale and purchase agreements and share transfer instruments. If such instruments of transfer were executed in Singapore, or if they were received in Singapore and relate to property (comprising immovable property and any stock or shares) situated in Singapore, they are chargeable with stamp duty under the Stamp Duties Act.92 Stamp duty relief may be available for the transfer of a company's business undertaking or shares in connection with its reconstruction or amalgamation.93
Tax incentive schemes
The M&A scheme was introduced by the Singapore government in 2010 to encourage companies to grow their businesses through mergers and acquisitions.94 In February 2020, the scheme was extended to 31 December 2025.95 Under the scheme, an M&A allowance will be granted to a company acquiring the shares of another company between 1 April 2010 and 31 December 2025. To qualify for the scheme, certain transaction-related thresholds must be met, and the acquiring companies must be Singapore incorporated entities that are tax resident in Singapore, among other criteria. Under the current terms of the scheme, the M&A allowance for qualifying share transactions is 25 per cent of the value of acquisition, capped at S$10 million.96 The scheme also includes double tax deduction on transaction costs incurred in respect of qualifying share acquisitions, subject to a cap of S$100,000 on acquisition costs.97
Under the Income Tax Act (ITA), companies are exempted from tax on gains or profits derived from the disposal of ordinary shares in another company, where the divesting company legally and beneficially owns at least 20 per cent of the ordinary shares in the target company for at least 24 months before the disposal (exemption).98 The exemption applies to disposals between 1 June 2012 and 31 Dec 2027 regardless of whether the target is a Singapore or foreign-incorporated company, or a listed or unlisted company. The exemption is subject to certain exceptions, including the disposal of shares in a company that is in the business of trading or holding Singapore immovable properties (excluding property development), where the shares are not listed on a stock exchange in Singapore or elsewhere, and the disposal of shares by a partnership, limited partnership or limited liability partnership one or more of the partners of which is a company or are companies.99
i Competition and Consumer Commission of Singapore
The Competition and Consumer Commission of Singapore (CCCS) is the agency tasked with administering and enforcing both the Competition Act and Consumer Protection (Fair Trading) Act (CPFTA).
The CCCS has conducted a number of market studies and has published its findings as well as other research and discussion papers as part of efforts to ensure guidelines and enforcement keep pace with technological and market developments. The market studies include studies on online travel booking sector and e-commerce platforms in Singapore, as well as a research paper on fair, reasonable and non-discriminatory commitments to resolve competition concerns and a discussion paper on data portability. M&A transactions in these sectors may be subject to enhanced scrutiny for any impact on competition in Singapore.
The CCCS' focus is on evaluating the impact of a merger in Singapore and how competition between the merger parties and their competitors may change as a result of the merger.
ii The Competition Act
The merger provisions of the Competition Act will apply to mergers that have infringed, or anticipated mergers that if carried into effect will infringe, the Section 54 prohibition, unless they are excluded or exempt under the Competition Act. A merger infringes the Section 54 prohibition if it has resulted, or may be expected to result, in a substantial lessening of competition (SLC).100
An M&A situation can lead to an SLC if it creates, maintains or enhances the following types of market power: (1) 'non-coordinated effects' – which arise when there is a loss of competition between the merging parties and the merged entity finds it profitable to raise prices or reduce output or quality, or both; or (2) 'coordinated effects' – which arise if the merger raises the possibility of firms in the market coordinating their behaviour to raise prices, reduce quality or output.
The CCCS has issued guidelines on the analytical framework for assessing the competitive effects of M&A. Merger parties may use the framework to conduct a self-assessment for potential SLC before implementing the M&A.
iii Responding to changing business conditions
In light of the unprecedented business challenges presented by the covid-19 pandemic, the CCCS issued a Guidance Note on collaborations between competitors to provide businesses with some clarity on collaborations that would otherwise have infringed the Competition Act. For collaborations put in place from 1 February 2020 and expiring by 31 July 2021 that sustain or improve the supply of essential goods or services in Singapore, which are limited in scope and time and do not involve price-fixing, bid-rigging, market sharing or output limitation, the CCCS would assume these collaborations would be likely to generate net economic benefits and thus unlikely to infringe the Competition Act and would generally not be subject to investigation by the CCCS.
In reviewing the prevailing market sentiment and rapidly changing business conditions, the CCCS noted that businesses had to adapt rapidly and may desire to collaborate with one another on their own or through trade associations beyond the challenges presented by covid-19, and beyond the supply of essential goods or services. The CCCS recognised there would be collaborations that would be pro-competitive or generate net economic benefits, and such collaborations should be encouraged. With the expiry of the Guidance Note, the CCCS sought public comments on a proposed Business Collaboration Guidance Note that would clarify the CCCS' position on six common types of busines collaborations and how the CCCS would assess such collaborations for compliance with the Competition Act. The public consultation closed on 27 August 2021.
From January 2021 to September 2021, there are eight notifications on the public register,101 among which one was withdrawn and one closed following commitments by the parties.
Under the Competition Act, mergers that result in, or may be expected to result in, a substantial lessening of competition in Singapore are prohibited.102 Merger notification is voluntary under the Competition Act, but parties to an M&A transaction should conduct self-assessments against the guidelines published by the CCCS to determine if there may be a substantial lessening of competition and a merger notification is necessary.
The CCCS has set out the following indicative thresholds that when crossed will likely require further review to determine if there is a substantial lessening of competition: the post-merger market share of the top three undertakings is at least 70 per cent, and the market share of the merged undertaking is at least 20 per cent; or the merged undertaking has a market share of at least 40 per cent. The assessment of whether there is a substantial lessening of competition is qualitative and factual and may be undertaken even if the indicative thresholds are not met.103 The CCCS will consider various factors in this assessment, including barriers to entry, market transparency and countervailing buyer power.104
Failure to adhere to merger control procedures may result in financial penalties of up to 10 per cent of the merger parties' turnover (for up to three years) in addition to other remedies such as the dissolution of the merger or subsequent divestments.105
Corporations should be alert to competition law concerns that may arise in their commercial dealings or even in industry gatherings, bearing in mind that the CCCS is empowered to and does conduct investigations into unnotified mergers and that offenders will suffer both financial and reputational losses.106
At the time of writing, while covid-19 cases continue to be on the rise globally as a result of the highly transmissible Delta variant, vaccination rates have also picked up in key advanced economies and the recovery in external demand for Singapore for the rest of the year remains largely on track. As at 18 September 2021, 77 per cent of Singapore's population has been fully vaccinated.107 The Ministry of Trade and Industry in Singapore has upgraded Singapore's GDP growth forecast for 2021 to 6 per cent to 7 per cent in August 2021, from 4 per cent to 5 per cent in May 2021.108 Domestically, the electronics and precision engineering clusters, the finance and insurance sector as well as the information and communications sector remain positive. These industries are supported by strong semiconductor demand, increase in domestic and foreign credit demand, as well as demand for digital solutions and services.109
While the pandemic may present acquisition opportunities, cautious investors may want to adopt more protective provisions and contractual outs, in the event of any adverse changes in the current volatile business environment. Such clauses can include material adverse change and force majeure provisions, to permit the buyer to walk away or revalue the target in the event of a material adverse change adversely affecting the business or value of the target. There will also be a greater use of digital tools for the conduct of due diligence exercises and management meetings in cross-border transactions as travel restrictions look set to stay for the foreseeable future.
1 Sandra Seah, Marcus Chow and Seow Hui Goh are partners at Bird & Bird ATMD LLP. Jolie Giouw is a counsel at Bird & Bird ATMD LLP. The authors are grateful to Jonathan Kao, Natasha Cheng and Chern Yeh Jia for their kind assistance with this chapter.
2 Duff & Phelps Transaction Trail Annual Issue 2020.
7 Mergermarket Deal Drivers Asia Pacific Q1 2021.
10 Cento Southeast Asia Tech Investment 1H2020.
13 Section 126, Section 210, Section 215A and Section 215 of the Companies Act (Chapter 50), respectively.
14 Section 240, Section 135, Section 218 and Section 198 of the Securities and Futures Act (Chapter 289), respectively.
15 The Singapore Code on Takeovers and Mergers: Introductory Paragraph.
21 The main differences in the Listing Rules applicable to Mainboard and Catalist-listed companies relate to the thresholds at which shareholders' approval must be obtained and the criteria by which transactions qualify as 'major transactions'.
22 SGX-ST Mainboard Listing Rules: Rule 1006.
23 SGX-ST Mainboard Listing Rules: Rule 724.
27 Section 123(1) of the Companies Act (Chapter 50).
31 Section 379 of the Companies Act (Chapter 50)
32 Section 386AL of the Companies Act (Chapter 50).
33 Section 386AB of the Companies Act (Chapter 50) and Section 32B of the Limited Liability Partnerships Act (Chapter 163A).
34 SGX-ST Mainboard Listing Rules: Rule 1207(18A) (with effect from 1 January 2022).
35 SGX-ST Mainboard Listing Rules: Rule 1207(18B) (with effect from 1 January 2022).
37 SGX-ST Mainboard Listing Rules: Definitions and Interpretation.
38 SGX-ST Mainboard Listing Rules: Rule 210(11)(a) and Practice Note 6.4.
39 SGX-ST Mainboard Listing Rules: Rules 210(11)(b) and 210(11)(c).
40 SGX-ST Mainboard Listing Rules: Rule 210(11)(e).
41 Response to Comments on Consultation Paper: Proposed Listing Framework for Special Purpose Acquisition Companies dated 2 September 2021.
42 SGX-ST Mainboard Listing Rules: Rule 210(h)(i).
43 SGX-ST Mainboard Listing Rules: Rule 210(i)(i).
44 SGX-ST Mainboard Listing Rules: Rules 210(m)(i) and 210(m)(iii).
45 SGX-ST Mainboard Listing Rules: Rule 210(m)(ii).
46 SGX-ST Mainboard Listing Rules: Rule 210(n)(ii).
47 SGX-ST Mainboard Listing Rules: Rule 210(n)(iii).
53 Section 239, Insolvency, Restructuring and Dissolution Act 2018 (No. 40 of 2018).
54 Section 66, Insolvency, Restructuring and Dissolution Act 2018 (No. 40 of 2018).
55 Section 115, Insolvency, Restructuring and Dissolution Act 2018 (No. 40 of 2018).
56 Duff & Phelps Transaction Trail Annual Issue 2020.
60 Duff & Phelps Transaction Trail Annual Issue 2020.
62 Duff & Phelps Transaction Trail Annual Issue 2020.
64 Singapore, Malaysia and Indonesia.
65 Duff & Phelps Transaction Trail Annual Issue 2020.
73 Variable Capital Companies Act 2018 (No. 44 of 2018).
75 Variable Capital Companies Act 2018 (No. 44 of 2018).
77 Variable Capital Companies Act 2018 (No. 44 of 2018).
81 Rule 3.5, Takeover Code.
85 Section 3(1)(b), Employment (Retrenchment Reporting) Notification 2019.
86 Section 4, Employment (Retrenchment Reporting) Notification 2019.
88 Third Schedule, Stamp Duties Act (Chapter 312).
89 Goods and Services Tax Act (Chapter 117A).
90 Section 34, Goods and Services Tax Act (Chapter 117A).
92 Section 4, Stamp Duties Act (Chapter 312).
93 Stamp Duties (Relief from Stamp Duty upon Reconstruction or Amalgamation of Companies) Rules.
94 M&A Scheme, Inland Revenue Authority of Singapore.
98 Section 13Z of the Income Tax Act (Chapter 134).
100 Section 54, Competition Act (Chapter 50B).
101 The public register contains information relating to decisions, directions and certain notices by the CCCS.
102 Section 54 of the Competition Act (Chapter 50B).
103 CCCS Guidelines on the Substantive Assessment of Mergers 2016.
105 Section 69, Competition Act (Chapter 50B).
106 Section 62, Competition Act (Chapter 50B).
108 Press Release: MTI upgrades 2021 GDP Growth Forecast to '6.0 to 7.0 Per Cent' issued by the Ministry of Trade and Industry on 11 August 2021.