Wednesday, 24 January 2018

Dual class shares: another really bad idea (4)

Article at Bloomberg's website:

Singapore Exchange Takes on Hong Kong With Dual-Class Shares

One snippet:

Singapore Exchange Ltd. said it allow companies with dual-class share structures to list, a month after Hong Kong announced a similar proposal, as competition between markets for technology listings becomes increasingly fierce.

Sigh. I think the SGX is making a mistake here: bending backwards in CG terms and complicating rules and legislations in the hope of getting large IPOs like Facebook or Alibaba to list in Singapore. I don't think that won't happen anyhow (SGX is simply not attractive enough at the moment).

A critical article:

SGX's Doubly Bad Idea

Even in the unlikely event that a company will IPO with dual class shares and the company will be a huge success operationally, the result might be limited. Makers of indices are considering leaving out companies with dual class shares, like the S&P 500:

"Farewell, Snap Inc (NYSE: SNAP), we hardly knew ye." That was the message from the Standard & Poor's 500 index on Tuesday, when it suddenly stopped allowing companies with dual-class share structures to join the index.

That means that most likely ETFs who follow indices on Singaporean, ASEAN, Emerging Markets or Global shares will not include companies listed on the SGX with a dual class structure.

Also, many active fund managers will frown upon these companies due to serious CG concerns.

The result would be that these companies trade at a sizeable discount to comparable companies with one class, and deservedly so.

Singapore has in the past actively encouraged mainland China companies to list on the SGX (the so called S-chips), is recently active in ICOs, soon allowing dual class shares and it might require less companies to issue quarterly reports. From a CG point of view, this all seems (very) worrisome.

What do we get next, a S-chip company with half yearly reporting having a dual class share structure issuing an ICO? The possibilities seem endless. But does this all really benefit the Singaporean economy in the long term? I strongly doubt it.

I have a lot of respect for the long term planning and execution in Singapore for instance regarding infrastructure, it is very impressive. But somehow this does not seem to apply to the financial markets.

Malaysia seems to have things better organized; it does not intend to allow dual class shares and issued a very clear warning regarding ICOs.

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