Going public signifies corporate success and marks a major milestone achieved for any private company. In Singapore, it is celebrated with the striking of the gong at the countdown to 9 o’clock on the morning of the first trading day of shares of the listed company at the Singapore Exchange Securities Trading Limited (“SGX”), followed by a euphoric dinner in the night. Most private companies will reach a stage in their corporate development when their growth is constrained by their available capital. Other than obtaining loan financing, opting to seek listing of their shares on a stock exchange is an alternative option to enable the company access to public funds as well as to increase its public profile, thus promoting its corporate branding and image, which can in turn augment its business.
An initial public offering of the shares of a private company (“IPO”) involves the listing and quotation of its shares on either the Mainboard of the SGX or its Catalist board, the sponsor-supervised listing platform of the SGX. During the IPO exercise, a company will offer new shares and/or existing shares held by its shareholders to the general public for subscription. All new shares issued at IPO and existing shares (subject to a moratorium period over certain existing shares of the founders and promoters) are tradable on the SGX, either on the Mainboard or the Catalist board, from the first trading day.
Why do companies choose to list on SGX?
Singapore as a destination with political and economic stability. Given the vast changes which have swept across the political landscapes of many developed countries and developing counties in recent years, Singapore’s political stability is well appreciated and favoured among listed firms and investors. Singapore’s stable economic and financial markets are also important considerations, both for companies seeking listing on the SGX and international investors in their decision to invest in a Singapore publicly listed company.
The emerging Asia. The emerging market in Asia is a wave that has gained traction and is expected to continue to rise in the next few decades. However, some of these markets tend to be affected by currency volatility and unpredictable social issues and changes to political landscapes from time to time. Notwithstanding, each of these emerging markets has immense potential to become an economic powerhouse, due to its large domestic market that is fuelled by the fast pace of growth in its domestic consumption and economic development. Successful companies in these emerging markets seeking to list on an internationally recognised stock exchange will consider the SGX, as it is able to access international investors through its stock markets.
SGX is the Asian gateway. In Asia, the SGX offers an edge over its regional rivals with its stock market in Singapore, being reputed to be a well-regulated international financial centre, which prides itself in promoting high standards of corporate governance practices for its listed companies. This gives confidence to funds and international investors to invest in public companies that are listed on the SGX. In addition, an IPO exercise in Singapore requires the listing applicant to meet the international standard of disclosure requirements, with a high emphasis on transparency and integrity of the management team. This enables the investing public to assess the risk involved in making its investments.
Access to institutional investors. A high proportion of companies listed on the SGX have foreign-based operations and the SGX continues to attract foreign companies to seek listing in Singapore. Due to the quick and efficient secondary fundraising process in Singapore, the listed company can continue to tap and raise funds from the public after its initial fundraising exercise at IPO. With the stable Singapore currency, no exchange control, low-tax rate regime in Singapore and her strong reputation as an international financial centre, institutional investors and international funds are attracted to invest in stocks listed on the SGX.
Parties involved in an IPO exercise
The parties involved in the IPO exercise are mainly:
Company’s management team. Includes the key management personnel such as Executive Directors, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and other key members of the management team.
Issue manager (for Mainboard listing). Must be either a member company of the SGX-ST, a bank, a merchant bank or any other financial institution approved by SGX to manage the IPO process and liaise with SGX on all matters arising from the application for listing.
Sponsor (for Catalist listing). A qualified professional firm engaged in corporate finance and compliance advisory work who will assess the suitability of the company seeking listing on the Catalist board of the SGX, and to assume a continuous supervisory role to ensure the listed company’s compliance with their continuing obligations post-listing. They will also manage the IPO process and liaise with SGX on all matters arising from the application for listing.
Underwriter and/or placement agent. An underwriter and/or placement agent is a licensed broker firm who will promote and sell all of the shares that are being offered in the IPO. In return, the company will pay the underwriter and/or placement agent a commission fee based on a certain percentage from the IPO proceeds raised during the IPO.
IPO lawyers. A qualified team of lawyers, who will advise on all the legal aspects of the listing application such as material contracts, litigation, intellectual property and information systems rights, and other regulatory issues. They assist in the legal due diligence process and drafting the non-financial sections of the prospectus. They will also advise the company regarding the disclosure requirements in a listing exercise.
Reporting accountants/Independent auditors. A qualified professional audit firm who will perform an independent audit on the latest three years of financial statements of the company, which will be attached as part of the prospectus or offer document to provide information to the potential investors regarding the financial performance of the company. They can also provide the company with an initial evaluation of its readiness to go public and assist in advising the company of the necessary requirements relating to its financial controls and other accounting aspects and matters that are important to a listed company.
Planning and kick off. When a company decides to go public, the initial stage for the IPO process is the planning and preparation stage where the IPO professional team is selected, followed by a kick-off meeting involving the IPO professional team and management team. During the kick-off meeting, the issue manager or sponsor will present the IPO indicative timetable and draw up the action plans and deliverables required by the relevant timelines, discuss the due diligence requirements, identify the critical issues that will affect the IPO process and map out the proposed solutions. Each of the other professional team (including the lawyers and auditors) will present their work requirements during the kick-off meeting.
Due diligence process and preparation of the documentation. The execution stage begins with a due diligence exercise where the due diligence process is conducted on the listing entities to ensure the prospectus or offer document complies with the legal or accounting requirements, and prepare the disclosure of the material information. The company will also need to undertake a corporate restructuring exercise to form the holding company (being the listing entity) which will hold the group of companies. The lawyers will work with the company to draft the prospectus or offer document based on the specific requirements of the Fifth Schedule of the Securities and Futures Regulation.
Drafting and verification meetings. The management team and IPO professional team will meet regularly for drafting meetings, which involves the drafting and review of the respective sections required for the prospectus or offer document and the collation of the source documents to support the contents. Due diligence verification meetings will be held to check and verify the contents of the final draft prospectus or offer document prior to the submission to the SGX, lodgement or registration process. This is to ensure that the material statements of fact or opinion contained in the prospectus or offer document are complete and accurate.
Submission to the SGX. The issue manager or sponsor will submit the draft prospectus or offer document to the SGX to seek its approval for the listing of the company. The SGX will review the application and raise queries to the issue manager or sponsor, who will work with the company and other IPO professional team to address these queries in order to obtain the listing approval from the SGX. Once the listing approval is obtained, the company will then complete the restructuring exercise and convert the status of the company from a private to a public company to prepare for the next stage.
Lodgement and registration of the Prospectus or Offer Document. After the listing approval has been obtained from the SGX, the prospectus will be lodged on the website of MAS OPERA (for Mainboard listing) or SGX Catalodge (for Catalist listing). In the next two weeks after lodgement (being the “exposure period”), the prospectus or offer document will be available for public comment. This will provide an avenue for the public to air any serious concerns they may have, which serves as an additional avenue to safeguard the public interest for the listing of the company. After clearing the exposure period, the company can proceed to register its prospectus or offer document and launch its offer for shares to the public.
Trendlines Completes Successful IPO on Singapore Stock Exchange
After the close of the offer for shares, the company will be listed on the Mainboard or the Catalist (as the case may be) and commence trading of its shares thereafter, which will generally take place around one week after the launch of the offer for its shares.
Timeline and preparation
The timeline for an IPO process varies for different companies. Generally, the pre-submission process will take about four to nine months after the kick-off meeting (depending on the readiness of the listing applicant) and the listing approval stage can take between two to three months (depending on the complexity of the listing group and issues arising). Quite often, an IPO process can take in excess of 12 months from the kick-off meeting to complete, and it is not uncommon for delays and postponements to the submission of the listing application to the SGX, as the pre-submission work for the IPO has not been completed.
The key factors affecting the timelines of an IPO process are the readiness of the listing applicant for the IPO exercise and the commitment of the management team. Most of the time, the management team does not realise the extent of the time and resources commitment required for an IPO exercise.
One of the common issues for companies facing delays in an IPO exercise is that the audit work for the last three financial years cannot be completed in time as the operational and accounting systems of the group seeking listing are not sufficiently robust to pass the rigorous audit process of the Independent Auditors.
The IPO process will become very costly to the listing applicant when time delays occur during the IPO exercise. Other than facing cost overruns due to the additional work to be performed by the IPO professional team arising from the time delay, the management team will also not be able to use the additional time and resources that have been committed to the IPO process to otherwise generate productive business and revenues for the group. Hence, the key to success for an efficient IPO exercise lies in the management team’s deep understanding of the work requirements, coupled with its commitment and stamina to complete the IPO process.
The organisations involved in the regulatory framework for the listing process in Singapore and their respective roles are as follows:
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The Monetary Authority of Singapore (“MAS”) is Singapore’s de facto central bank, which is established under the Monetary Authority of Singapore Act. MAS is the licensing authority for holders of a capital markets services licence, who are permitted to carry on a business in the regulated activities of dealing in securities, trading in futures contracts, leveraged foreign exchange trading, fund management, advising on corporate finance, securities financing, real estate investment trust management, providing custodial services for securities. SGX is under the supervision of the MAS in relation to the listing of companies and other securities matters in Singapore.
SGX is the primary regulator, whose approval must be obtained before a company can be listed in Singapore. It continues to regulate listed companies after its listing, to ensure that they comply with the continuing listing obligations. Where the company is listed on the Catalist board, the sponsors will assist the SGX in monitoring these Catalist issuers in regard to their compliance with the listing rules. These sponsors are in turn supervised by the SGX.
Listed companies are required to comply with listing rules, which are designed to promote a high standard of disclosure and corporate governance expected of listed companies.
Listing and admission criteria
A company seeking a listing of its shares on the SGX Mainboard and SGX Catalist will need to meet the conditions set out in Rule 210 of the Mainboard Rules of the SGX or Rule 406 of the Catalist Rules of the SGX, respectively.
The listing and admission criteria for a company seeking Mainboard listing is as follows:
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The listing and admission criteria for a company seeking Catalist listing is as follows:
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Disclosure requirements for a prospectus or offer document
Under the Singapore Securities and Futures Act, a prospectus or offer document serves as an important document which is required to contain true and full disclosure of the company seeking a listing. Some of the important disclosures that are required to be made in the prospectus or offer document include:
• the identity of the company’s directors, key executives, professional advisors and agents;
• the offer statistics and timetable;
• key information such as selected financial data, use of proceeds, risk factors and capitalisation and indebtedness;
• information on the company, including the company’s history, business overview, group structure and fixed assets;
• the company’s financial information, operating and financial review and prospects, such as the company’s operating results, liquidity and capital resources, trend information, profit forecasts or estimates;
• research and development;
• information on the company’s substantial shareholders, directors, key executives and employees including their interest in shares, background information and management reporting structure;
• interested persons transactions and conflicts of interest;
• litigation matters;
• information on the offer and listing, including the plan of distribution, dilution effect, expenses of the offer; and
• other additional information of the company, such as the company’s share capital, relevant provisions of the company’s constitutional documents and material contracts.
The SGX is the primary regulator having oversight of the securities market and compliance of the continuing listing obligations by issuers in Singapore. Companies listed in Singapore are required to ensure full, accurate and timely disclosures of material information in order to maintain a fair, orderly and efficient market for the trading of their shares. In addition, listed companies are required to comply with the continuing listing obligations set out in the SGX listing rules, which include the changes in share capital, interested person transactions, acquisitions and realisations by the issuer, takeovers and the issue of circulars and annual reports to shareholders.
Continuing listing obligations
Following the listing on the SGX, the publicly listed company is obliged to comply with the provisions of the SGX listing rules: Mainboard listed companies to comply with Mainboard Rules; and Catalist listed companies must comply with Catalist Rules. Some of the continuing listing obligations of a listed company in Singapore under SGX listing rules are outlined below:
Matters requiring immediate public announcements. A listed company is required to keep its shareholders well informed of any material information relating to the company’s business activities in order to avoid the establishment of a false market in its securities. The following is a non-exclusive list of matters which require immediate public announcement:
(a) a joint venture, merger or acquisition;
(b) the declaration or omission of dividends or the determination of earnings;
(c) firm evidence of significant improvement or deterioration in near-term earnings prospects;
(d) a sub-division of shares or stock dividends;
(e) the acquisition or loss of a significant contract;
(f) the purchase or sale of a significant asset;
(g) a significant new product or discovery;
(h) the public or private sale of a significant amount of additional securities;
(i) a change in effective control or a significant change in management;
(j) a call of securities for redemption;
(k) the borrowing of a significant amount of funds;
(l) events of default under financing or sale agreements;
(m) a significant litigation;
(n) a significant change in capital investment plans;
(o) a significant dispute or disputes with sub-contractors, customers or suppliers, or with any parties;
(p) a tender offer for another company’s securities; or
(q) a valuation of real assets that has a significant impact on the financial position and/or performance.
Disclosure of other price-sensitive relevant information. All information which is necessary to avoid the establishment of a false market or is likely to materially affect the price of securities must be disclosed immediately. Timely disclosure of price-sensitive information is the foundation of SGX’s regulatory policy. To ensure that such information is released to the market on a timely basis, listed companies are obliged to comply with the rules relating to corporate disclosure in the SGX listing rules.
Disclosure of substantial shareholders’ shareholding. A listed company must maintain a register of substantial shareholders, which contains the names of the company’s substantial shareholders together with details of these shareholders’ interest in the shares of the company. A substantial shareholder is a person who has an interest in 5% or more of the voting shares of a company. “Interest” in shares or securities is not restricted to those registered in the name of the shareholder only (i.e.
direct interest). It includes beneficial ownership through nominees or a trust as well as control over voting or disposition of a share (i.e. indirect interest).
Disclosure of directors’ shareholding. Directors of a listed company are required to notify the company of their direct and indirect interests in its shares and securities and subsequent changes thereafter. The listed company must also maintain a register of directors’ shareholdings.
Interested Person Transaction (IPT). The objective of disclosure in relation to IPT is to guard against the risk that such interested persons can influence the listed company to enter into transactions with other interested persons (including directors, senior management, controlling shareholders and their associates) which may adversely affect the listed company. Hence, any transaction entered between the listed company with interested persons will be required to be announced if the transaction value is equal to or more than 3% of the listed company’s latest net tangible assets, and to obtain shareholders’ approval for that transaction value which exceeds 5% or more.
Periodic reporting. Listed companies are required to announce their financial statements for the relevant financial period within 45 days after the end of that financial period. Their financial statements for the full financial year are required to be announced within 60 days after the end of its financial year end. Listed companies must hold its annual general meeting within four months after the end of the financial year, during which its annual report will be tabled for approval by its shareholders.
Sustainability reporting. In June 2016, SGX introduced sustainability reporting on a “comply or explain” basis where listed companies will have to publish a sustainability report at least once a year covering: the material environmental, social and governance (ESG) factors that affect their business strategies; their policies, practices and performance; their targets; their sustainability reporting framework; and a board statement on the organisation’s sustainability actions. The new requirements take effect for the financial year ending 31 December 2017.
Code of Corporate Governance
Listed companies are required to observe the Code of Corporate Governance and disclose in their annual reports corporate governance practices adopted by them. Although the Code of Corporate Governance, which comes under the purview of the MAS and SGX, has no force of law, listed companies are required to explain any deviations from any principles and guidelines.
In connection with an IPO, lapses which attract liability under the Securities and Futures Act include making false or misleading statements in the prospectus or offer document, omission of material information required to be included in the prospectus or offer document, as well as new circumstances which have arisen since the lodgement of the prospectus or offer document.
Lapses may also be discovered during the period between the registration of the prospectus or offer document and close of the offer. For instance, if it is confirmed that there are misstatements in the prospectus or offer document which were discovered after the launch of the IPO but prior to the close of the offer, the listing applicant can withdraw the offer and refund application monies to investors.
Due diligence review and disclosure requirements
Due diligence plays an important role in the IPO process from the kick-off through to the submission of the listing application to the SGX, as well as the lodgement and registration of the prospectus or offer document. An effective due diligence process supported by the relevant source documents is essential, especially if the issue manager or any other relevant party wishes to rely on the due diligence defence under the Securities and Futures Act when the need arises. An effective due diligence process would also help issue managers and sponsors to identify issues and concerns that must be addressed, and providing adequate disclosures in the prospectus or offer document.
The IPO process requires that the professional advisers exercise great care and diligence to ensure that the disclosures in the prospectus or offer document in relation to the IPO and the listing group are true, accurate and complete. As such, it is important to put in place an efficient process through which material and relevant information relating to the listing group is made available by the management team to the IPO professionals for disclosure in the prospectus or offer document. This process is a continuing process from the kick-off meeting until the first trading day of the shares of the listed company.
The statutory prescribed information to be disclosed in the prospectus or offer document is found in the Fifth Schedule of the Securities and Futures Regulation. The Association of Banks in Singapore has also issued its latest set of Listings Due Diligence Guidelines in 2016 to provide guidance to issue managers and sponsor in their conduct of the due diligence work in the listing process.
Persons liable for matters arising in the listing exercise
Under the Securities and Futures Act, persons who could be liable for any false or misleading statement in the prospectus include:
(a) the issuer and its directors;
(b) the selling shareholders (if any) and the directors of the selling shareholders (if the selling shareholder is a corporate entity);
(c) the issue manager;
(d) the underwriter or placement agent;
(e) persons considered to be experts for the purposes of the prospectus; and
(f) any other person who intentionally or recklessly makes a false or misleading statement, or omits to state information or circumstance.
Directors of the listed company are subject to collective and individual legal responsibility for the contents of the prospectus or offer document, and they must ensure that all material information of the listing group is fully disclosed and statements therein are true, complete and accurate in all material respects. Directors of the listed company must also ensure that the listing group has adequate internal controls and risk management systems to safeguard the assets and finances of the listed group, as they are responsible for the proper corporate governance and accountability of the listed group.
In addition, the issue manager or sponsor is primarily responsible for ensuring that the listing applicant satisfies all the listing criteria and conditions under the SGX listing rules. The issue manager in a Mainboard listing is in charge of the overall coordination of the IPO process. This role is undertaken by the sponsor in a listing on the Catalist board. They are involved in the selection of other suitable professional advisers and experts, and a commercial investigator to assist in the IPO exercise.
Liability for issuing a misleading prospectus
If there is any false or misleading statement or non-disclosure of a material fact in a prospectus or offer document, the responsible persons listed in the above will be subject to criminal liability. In addition, these responsible persons are subject to civil liability to pay compensation to all persons who subscribe to or purchase shares in the listed company arising from any loss or damage sustained by reason of the false or misleading statement or non-disclosure.
Under the Securities and Futures Act, the MAS is empowered to stop an offer if, inter alia, the prospectus or offer document: (i) contains any false or misleading statement; (ii) has omitted any material information that should be included in a prospectus or offer document; or (iii) does not comply with the Securities and Futures Act in any other way. Although the disclosure-based regime under the Securities and Futures Act places responsibility on issuers and their professional advisers to ensure that pros--pectuses or offer document contain adequate and accurate information for investors, the MAS has the power to issue a stop order if the same is discovered to be deficient after registration.