When Singapore Inc throws its weight behind something, the effect can be huge. This month this kind of effort was on display as the city hosted a week-long fintech “festival” that involved everyone from the regulator and the city’s biggest banks to tiny start-ups. It attracted thousands of attendees, supporting Singapore’s claim to leadership of the sector in the region.
But away from the headlines and the hype, the city kicked off another debate in the same week on a rather older topic that could yet have as big bearing on perceptions of the Lion City — that of introducing dual-class listings to the Singapore Exchange.
Proponents, led by bankers and lawyers, argue that dropping Singapore’s one-share-one-vote rule would give it an edge in the region in attracting Asian stars like Alibaba and global headliners such as Manchester United. Both chose New York over Hong Kong and Singapore because the US was more receptive to their desire to weight voting rights in favour of small groups.
Both US exchanges have allowed dual-class shares since the 1980s when the New York Stock Exchange, faced with the threatened loss of such blue-chips as General Motors to Nasdaq, dropped its 60-year opposition to the practice.
Today’s opponents in Singapore argue that allowing more than one class of shares would start a race to the bottom among the region’s exchanges. They contend that would exacerbate the governance problems inherent in sprawling family-run empires and state-owned groups.
“The SGX will look like a desperate dancer who hitches up their skirt at the end of the night to get attention,” said David Smith, head of corporate governance for Aberdeen Asset Management in Asia. “The SGX is a commercial entity, I know. But many dual-class supporters do each transaction and move on. Investors are left holding the shares and I don’t see why we should allow this.”
Singapore changed its laws earlier this year to allow the prospect of weighted voting rights. The SGX’s Listings Advisory Committee then backed the idea. Next up will be a formal consultation.
Opponents of dual-class shares fear that Singapore’s establishment will embrace the idea much as they have taken to fintech — making it harder to fight. As one investor put it: “What tycoon doesn’t want cheap control of his company?”
But pragmatists admit the SGX needs to do something dramatic to entice new listings. While its derivatives business has boomed, it has raised just $13.5bn via initial public offerings in the past five years — less than half the funds raised by any of its regional rivals, according to data from Dealogic. Most bruising of all, Hong Kong, its bitter rival, has raised $119bn in that time.
“Hong Kong has the world’s biggest capital markets opportunity with China in its backyard, admittedly,” said one senior equities banker in the region. “Singapore needs to tap its neighbours and convince those companies it offers something better. That is not easy.”
Hong Kong just deliberated for two years on the same topic only to have its proposals shot down in short order by the regulator.
If Singapore moved fast to implement new rules, it could steal a march since few in Hong Kong have the appetite to take up such a painful topic any time soon.
Singapore is expected to consider safeguards, such as each share class listing needing SGX approval, and sunset clauses to limit a family’s control over generations.
“We could find the right balance which would also allow investors to benefit from these arrangements when the companies do well under the right management,” said Chen Yih Pong, a principal in the securities practice at Baker & McKenzie Wong & Leow.
But in a sign of how contentious the issue still is, Singapore’s official consultation, originally due this month, has been pushed into early 2017. The exchange has decided to consult more widely first.
A quick process after that seems unlikely too, if the two-plus years taken by both New York and Hong Kong are any guide — let alone their different outcomes.
Singapore’s dual-class detractors and supporters will have to dig in for a long battle ahead. Neither side has a clear advantage just yet.