Shortening of rights issue exposure period
Based on industry feedback received by SGX and MAS, the current exposure period for rights issue poses significant risks to issuers and their underwriters. SGX is working with industry professionals to shorten the rights issue exposure period. The measures to be introduced are likely to include shortening the notice period for books closure date, reducing the review time by the Exchange, and accepting submission for all rights issue applications prior to announcement. These measures are expected to be announced in January 2009. Allowing sub-underwriting arrangements with major shareholders subject to safeguards SGX and MAS have also received feedback that in the current market environment, underwriters are unwilling to make a commitment without major shareholdersâ agreement to take up their entitlement and/or sub-underwrite a portion of the excess rights shares. Such arrangements may involve a fee to be paid to major shareholders. By making an upfront commitment, the major shareholder foregoes his ability to trade his rights entitlement. The major shareholder may also sub-underwrite more than his entitlement for which there is an underwriting fee.
To protect the interest of other shareholders, an issuer undertaking a rights issue where a major shareholder receives a sub-underwriting fee without specific shareholder approval, must meet certain conditions including the following: (a) The issuerâs board provides assurance that the terms of the sub-underwriting arrangement are fair, and are not prejudicial to the issuer and to other shareholders. The board must provide the basis for their opinion; (b) The issuerâs board confirms that terms agreed between the issuer and the underwriter (including the commission payable to the underwriter and the major shareholder) are on arms' length and normal commercial terms; and (c) The underwriter must be a financial institution licensed by MAS to conduct underwriting activities.
SGX listing rules already allow underwriting arrangements as described above but with specific shareholder approval. Requiring shareholder approval extends the rights issue exposure period and increases the risk and uncertainty for issuers and underwriters. Hence, the need for current changes is to ensure that Singapore listed issuers are not disadvantaged when raising funds from the secondary market. Such arrangements give greater assurance of a successful fund raising exercise. In the current market environment, it is particularly important that issuers should not be impeded from raising funds in a timely manner. The practice of sub-underwriting arrangements without shareholdersâ approval is allowed in certain major jurisdictions.
The new arrangements will hold for a period of two years until 31 December 2010. SGX will review their effectiveness at the end of the period.
Ongoing Efforts To Address Market Needs
To improve fund raising in the market, SGX welcomes feedback from the industry. SGX, in consultation with MAS, will continue to look into appropriate initiatives to address the needs of the market.