The Securities and Futures (Amendment) Act 2009 was passed by Parliament on 19 January 2009 ("SFAA") to amend the Securities and Futures Act ("SFA"). Following that, the Monetary Authority of Singapore ("MAS") issued a consultation paper on 16 April 2010 to invite comments on the proposed consequential amendments to the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 ("SFR"). The key proposed amendments to the SFR are summarised below.
Pre-deal research reports
An additional criterion for pre-deal research reports is proposed for insertion into regulation 15 of the SFR. This requires the person issuing a pre-deal research report to take reasonable steps to prevent leakage of information contained in the report to any person who is not an institutional investor. This additional criterion follows the proposed amendment to section 251(9)(g) of the SFA, which potentially allows the issue of pre-deal research reports for purely domestic offerings.
Exemption from resale restrictions
Under the SFA, certain sales or issues of securities are exempt from the requirement to issue a prospectus (e.g. small offers or offers made to accredited investors). However, the securities issued or sold pursuant to such exemptions are subject to certain resale restrictions, which prevent the sale of such securities other than to these investors. The SFA was amended to disapply such resale restrictions from listed securities for which a prospectus had previously been issued. The proposed amendment further extends the disapplication of the resale restrictions to listed securities that were listed pursuant to other corporate actions, e.g. offer information statements, introductory documents, shareholders' circular for a reverse takeover, scheme of arrangement document or other similar document.
Amendments to prospectus disclosure requirements
Various changes to the Fifth Schedule of the SFR are proposed to provide clarity on and to amend the disclosure requirements for prospectuses:
Consultants
MAS has noted that some companies seeking a listing may engage consultants to assist them in the offering and listing process. It is proposed that the prospectus disclose the identity of such consultants, if any, and any material relationship between the issuer and such consultants.
Offer price
An issuer should be given the flexibility to vary the offer price and size within a specified range after the prospectus has been issued. In the event that the offer price and size have not been fixed at the time of the registration such that a range cannot be provided, the issuer should be required to disclose the method by which the offer price and size will be determined and how the final price and offer size will be made known to investors.
Use of proceeds
Where a material part of the proceeds raised is used to finance or refinance an acquisition, relevant information of the acquisition should be provided regardless of whether it is in the ordinary course of business, and whether it is an acquisition of an asset, business or entity. For instance, if the proceeds are to be used to finance an acquisition, the status as well as the estimated completion date of the acquisition must be provided by the issuer.
Risk factors
There should be further guidance on the risk factors to be disclosed in a prospectus, including, in relation to the relevant corporation:-
- factors relating to the nature of the business in which it is engaged;
- the countries in which it operates;
- the jurisdiction in which it is incorporated;
- its financial and liquidity position; and
- its compliance with government regulations.
Where appropriate, any potential impact on the issuer's financial position and results should be disclosed as well.
Description of business
The requirement to disclose the marketing activities of an issuer is proposed to be removed, since such disclosure is not significant to investors.
The disclosure requirements for seasonality, government regulations, competition and fixed assets are proposed to be expanded. Any statement on seasonality of an issuer's business must include material effects on the issuer's production, sales, inventory, costs and revenues.
The issuer will also be required to disclose whether it has complied with applicable government regulations and, if not, the reasons for non-compliance and what the impact on the financial position will be.
Where an issuer has made a statement on its position in relation to other competitors, the issuer must provide the basis for such statement.
An issuer will also be required to disclose more details on its fixed assets, e.g. details on legal title, tenure, leases, and production capacity for any interim financial period.
Operating review and prospects
The following additional disclosure requirements for the operating review and prospects of an issuer will be required:-
- details on change in price or volume of goods sold or services performed;
- sufficiency of working capital for the 12 months subsequent to lodgement;
- details on hedging instruments and policy;
- details on credit policy where the amount of trade receivables is material;
- details on historical (most recently completed financial year) and forward-looking (next 12 months) business and financial prospects and trends; and
- in relation to any profit forecast, confirmation from the issue manager that nothing has come to his attention that the assumptions underlying the profit forecast are not reasonable.
The requirement to disclose research and development activities is only required where such activities are material to the issuer's business.
Employee profit sharing plans
It has been noted by MAS that, with regard to the disclosure of compensation for services and given the mobility of key staff from one competitor to another in highly competitive industries, it is not necessary to disclose an individual's profit sharing plan provided that he is not a director or controlling shareholder and the profit sharing portion paid to him will not exceed 1% of profit before tax. However, MAS still maintains that the maximum aggregate amount paid under such plans should be disclosed so as to give investors an approximation of the costs incurred by the company.
Financial information
There will be two situations whereby pro forma financial information requirements need not be prepared:-
- The acquisition or disposal of machinery and equipment in the ordinary course of business and the disclosures of which have been made pursuant to the requirements on material capital expenditures and commitments.
- The acquisition or disposal of an asset, entity or business which was dormant or had not commenced any activity.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
