Published February 20, 2009

SGX speeds up fund-raising from rights issues

Measures a response to current volatile market, tight credit conditions

By JAMIE LEE

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(SINGAPORE) The Singapore Exchange has introduced new measures to speed up fund-raising by listed companies in the equity capital market.

From today, SGX has raised the limit for issuers to raise up to 100 per cent of a company's share capital through a pro-rata renounceable rights issue, from 50 per cent earlier.

Under existing rules, companies are allowed to seek a general mandate from shareholders to issue new shares on a pro rata basis amounting to not more than 50 per cent of the issued share capital.

'The exchange received feedback that the 50 per cent limit may not meet market needs in the current volatile market and tight credit conditions,' said SGX in a press release yesterday, adding that the time needed to gather shareholders' approval 'subjects issuers and underwriters to prolonged market exposure and compromises fund-raising efforts'.

But SGX said that the issuer must announce periodically on the use of the proceeds when the funds are materially disbursed as well as declare this in the annual report.

This relaxed rule can also apply to real estate investment trusts (Reits), provided that it complies with terms in their trust deeds or other existing shareholder mandate.

The Monetary Authority of Singapore is also looking to make annual general meetings compulsory for Reits, SGX said.

In another significant move, companies can now place out new shares at a discount of up to 20 per cent, compared with a discount limit of 10 per cent earlier.

This came after industry feedback that the 10 per cent limit had an impact on the 'attractiveness and viability' of share placements, SGX said.

But the issuer must seek shareholders' approval in a separate resolution at a general meeting for issues that offer discounts between 10 and 20 per cent, in addition to getting a general mandate for the share placement.

Another move is the scrapping of shareholders' approval for scrip dividend schemes, as long as shareholders are given the option of having their distributions paid in cash.

The above changes are valid up to Dec 31, 2010, and will be reviewed at the end of the period, said SGX.

Companies also no longer need to seek shareholder approval when they want to place out shares to substantial stakeholders, as long as they have no board representation or control over the daily business operations, among other conditions.

The total amount of shares that the substantial shareholder owns after the placement must also be less than the number of issued shares held by the company before the placement, and he or she must not take on the entire placement.

Non-major shareholders can also be included as sub-underwriters of rights offer, while the 'when-issued' trading of rights shares can now begin on the next business day after the offer closes.

Bankers cheered these measures, saying that these would hasten rights issues, which have become more popular amid the credit crunch as companies work to strengthen their balance sheets.

Edwin Low, managing director of Credit Suisse in Singapore, said that the 'proposed measures are positive as they will reduce the time and provide more flexibility for executing an equity issuance'.

'Given current market conditions, issuers and underwriters want to avoid prolonged exposure to volatile markets.'

The measures would greatly cut down the time to process rights issues, said another banker from a local lender.

He also gave the thumbs-up for allowing firms to approach certain substantial shareholders with placement offers, noting that many institutional funds which are back-bencher investors might be keen to take up shares but did not want the burden of waiting for approval.

The higher percentage of discount for share placements would help to raise its popularity, said co-head of Kim Eng corporate finance Ding Hock Chai. 'This should bring about more share placements,' he said.

But David Gerald, president of Securities Investors Association of Singapore, had a word of caution. 'These measures can aid companies to raise money faster and that should benefit shareholders. However, as shareholders may be more vulnerable to misuse by companies, authorities and shareholders need to be more vigilant.'

While applauding the 'careful consideration' of using periodic announcements to shareholders, Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at the NUS Business School, said that there could be significant risk in some cases where 'investors are asked to throw good money after bad'.

'Like government bailouts, there is no guarantee that companies will survive even with the injection of new funds,' he told BT. 'Investors must make their decision carefully as to whether they will play ball, and perhaps this is the time when they should turn their backs on companies that have not been governing and managing themselves well.'

He also urged companies to make full and truthful disclosures of the reasons behind the rights issue.

SGX said that the greater flexibility granted to issuers 'should not be at the expense of shareholders' interest and good corporate governance practices'.

It said that dilution of minority shareholders' interests is alleviated in rights issues, as they can dispose of stakes through trading of nil-paid rights if they choose not to subscribe.