Singapore: SGX Unveils Catalist, Sponsor-Supervised Listing Platform For Fast Growing Companies

Last Updated: 13 February 2008
Article by Nicole Tan

The Singapore Exchange Limited (the "SGX") lauched "Catalist1", its sponsor-supervised listing platform for fast growing local and international companies on 26 November 2007. Catalist is the transformed SESDAQ (Stock Exchange of Singapore Dealing and Automated Quotation system), SGX's then second board. The transformation was a bold move taken by SGX following an extensive study of other market models, and a public consultation in May 2007.

The rules for Catalist, announced on 27 November 2007, took effect on 17 December 2007. On the same day, SESDAQ was renamed Catalist. The first group of sponsors is expected to be announced by January 2008, which is when Catalist will be open for initial public offerings (IPOs) under the new regime.

Key features Of Catalist

The sponsor

A company that wishes to list on Catalist must appoint a sponsor and, once listed, must be sponsored at all times.

There are two types of sponsors, Full Sponsors and Continuing Sponsors. Full Sponsors will be involved in bringing a new company to list on Catalist as well as advising the company on its continuing listing obligations and overseeing its compliance with these obligations. In contrast, a Continuing Sponsor will only be allowed to engage in activities relating to the latter. The SGX has stipulated the minimum contractual terms of sponsorship.

Sponsors will be subjected to a strict admission process, as well as on-going requirements, with Full Sponsors having to fulfil additional requirements. Sponsors have to submit annual audits so that the SGX may review the performance of and protocols adopted by sponsors. Sponsors have to declare their independence from the issuer and maintain such independence throughout their sponsorship.

The sponsors are required to keep in close contact with their issuers and be available to advise on all listing and corporate governance issues. On the admission of a new issuer, the sponsor has to conduct due diligence on the issuer, and determine and declare to the SGX, the suitability of the issuer to list.

Post-listing, the issuer must retain a sponsor at all times or face delisting. The sponsor bringing the issuer to list must sponsor the issuer for at least three years post-listing. If the sponsor intends to end the sponsorship within three years of the issue's listing, it must obtain the SGX's approval. Post-listing, the sponsor's duty is to advise and guide the issuer on compliance with its listing obligations. Where other professionals are involved, the sponsors have to be satisfied with their suitability and competence. A sponsor must also establish arrangements by which it would be aware of any unpublished price-sensitive information in the issuer's possession and advise the issuer on disclosure requirements. A sponsor is also to monitor the trades of the issuer's securities and alert the issuer to any leakage of sensitive information so that swift action can be taken.

Although the sponsor is laden with a multitude of responsibilities, it will not be penalised if the issuer fails to heed its advice. The sponsor is expected to "whistle-blow" to the SGX and ultimately terminate the sponsorship of an errant issuer.

The issuer

Offer document. The offer document required for listing on the new board is similar to the prospectuses currently issued by issuers in connection with a public offering on the main board. A new issuer on Catalist is to produce an offer document that is to comply with the requirements of the new rules, including in particular, satisfying the requirements of Part II to XI of the Fifth Schedule of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations (the "Fifth Schedule").

SGX had indicated that it would obtain an exemption from the Monetary Authority of Singapore ("MAS") for an exemption from the relevant sections in the Securities and Futures Act (the "SFA"), such that an offer of securities on Catalist will not require a prospectus and thus the offer document would not be lodged and registered with MAS or be subject to MAS review. Instead, the offering document will be lodged with the SGX. As an additional safeguard and in order to afford the public an avenue to air their misgivings, the offering document will be posted on the SGX's Catalodge website for at least 14 days.

However, there is no change to the disclosure standards for offer documents, as it is the basis for investors to make informed decisions. To support this disclosure requirement, provisions relating to civil and criminal liability in the SFA will still apply to an offer document as if it were a prospectus.

No track record requirement. The SGX will no longer determine the suitability of listing. An issuer will be listed on Catalist based on the sponsor's assessment of suitability. However, the SGX will retain the right to delay or refuse admission, a right it may exercise only in exceptional circumstances. As a result, the SGX will not prescribe on the issuer's track record. Instead, directors and the sponsor will have to state in the offering document that the issuer's available working capital is sufficient for its present purposes and for 12 months from listing.

Spread requirement. The general requirement is that the overall distribution of shareholdings should be expected to provide a secondary market that is orderly when trading commences and unlikely to be cornered. For Catalist, the proportion of post invitation share capital in public hands must be at least 15% at the time of listing. Existing public shareholders may be included in the minimum percentage of shares to be held in public hands, however, they must not account for more than 5% of the issuer's post-invitation issued share capital. The number of public shareholders of the securities must be at least 200,

Restrictions on vendor shares. To commit the promoters to the company and for continued involvement, the SGX will impose a moratorium preventing promoters from selling vendor shares if, at IPO, they either collectively own less than 50% of issued capital or if such sale will cause their collective shareholding fall below 50% of the post-invitation share capital.

Moratorium. The moratorium imposed on promoters of SESDAQ companies remains unchanged: 100% of the promoters' shareholdings at IPO must be moratorised for six months after listing, and 50% for the next six months. This is in addition to the restrictions on vendor shares.

Continuing obligations

Most of the on-going requirements of the Mainboard will apply to Catalist. Some changes are:

  • Only one (instead of two) Singapore-resident independent director is required. The SGX felt that this would ease compliance cost for foreign issuers.
  • All pre-IPO investors (instead of only those holding at least 5% of the shares) are bound to observe a moratorium period of 12 (increased from six) months in relation to 100% of their profit portion. This seeks to align pre-IPO investors' interest with the public shareholders' and to ensure that they believe in and are committed to the issuer.
  • An issuer can obtain shareholder mandate to issue new shares amounting to up to 100% (increased from 50%) of its share capital, subject to a cap of 50% (increased from 20%) on a non pro-rata basis. This would make it easier for changes in capital to be made.
  • An issuer may acquire or dispose assets up to but not including 75% (increased from 20%) and 50% (increased from 20%), respectively, of the relevant bases (that is, group net assets, profits, market capitalisation or equity securities issued) without shareholder approval. This allows the issuer to take advantage of business opportunities quickly. There is no change in the reverse take-over regime in relation to acquisitions above 100% of the relevant bases, or resulting in a change of control of the issuer.

Transition to Catalist

The new rules came into effect on 17 December 2007. The rules relating to sponsors were implemented first to allow a pool of sponsors to be established.

The transition period is at least two years. Twelve months after the rules come into force, the SGX will conduct a review to set the final deadline for current SESDAQ companies to comply with the new rules. The final deadline will be at least 12 months from the review period.

During the transition period, SESDAQ companies that qualify for the Mainboard will be transferred to the Mainboard. Other SESDAQ companies will continue to be supervised and regulated by the SGX while they seek to adopt the new rules (including finding a sponsor), failing which the companies may be delisted, upon which they may be required to offer a reasonable exit alternative (which should normally be in cash) to their shareholders.

Companies that submitted their SESDAQ admission applications prior to the new rules taking effect may be admitted under the SESDAQ rules for a period of time. The SGX will announce a time when they, too, must comply with the new rules and appoint sponsors.

Conclusion

Light regulatory touch and reduced cost

There is a correlation between investor confidence and regulation (and thus compliance cost), and balancing the two is delicate. The scale could easily be tipped on the side of disproportionate regulation in reaction to corporate scandals, causing compliance costs to spiral upwards.

On the Singapore front, some SESDAQ-listed companies expressed concerns about the experience of the sponsors and the possible increase of overhead costs, which might be exacerbated by the limited supply of experienced sponsors. On the other hand, investor confidence will be boosted by the knowledge that the new companies are being closely supervised. This confidence could translate to premium valuations which might outweigh any compliance costs incurred. The new companies themselves, particularly those from emerging economies, which are less exposed to the corporate disclosure and dealings involving market sensitive information, will also benefit from more-involved supervision.

Footnotes

1 "Catalist" is a combination of the words "catalyst" and "listing". The name signifies a listing on the platform acts as a catalyst to propel growth of a company.

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.

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