SGX Shortens Time-To-Market for Secondary Fund Raising

SGX Shortens Time-To-Market for Secondary Fund Raising:

• Announcement 
• Rule Amendments for Main Board 
• Rule Amendments for Catalist Board

Key Points

• Singapore Exchange announced measures to facilitate and shorten time-to-market for secondary fund raising. These measures will take effect from 1 January 2011 with amendments to the securities listing rules applicable to both the Mainboard and Catalist board. 
• Temporary measures on fund raising were initiated in January and February 2009 to enable companies to raise capital efficiently under tight credit conditions during a global credit crunch. Following a public consultation and review conducted earlier this year, SGX will formalize a majority of the temporary measures in the interests of both shareholders and listed issuers.
• The measures that will be effective from 1 January 2011 are as follows:

1. Shortening the notice of books closure date from 10 to 5 clear market days;
2. Allowing issuers to undertake non-renounceable rights issue without specific shareholders' approval, provided the rights shares are priced at a discount not exceeding 10%;
3. Allowing issuers to issue scrip dividends without shareholders' approval, provided shareholders are given a cash option; and
4. Introducing a new practice note in the Listing Manual to provide guidance on sub-underwriting arrangements, including the need to seek specific shareholders' approval where sub-underwriting fees are paid to controlling shareholders and substantial shareholders.

Author's Note
With the new measures, rights issue can now be undertaken without specific shareholders' approval if rights shares are priced at a discount not exceeding 10%. The discount is with respect to the weighted average price for trades done on the Exchange for the full market day on which the rights issue is announced. Looking back at the rights issue exercises of Reits for the past couple of years, I cannot recall any with discount of less than 10%.

The pricing of rights shares is a very tricky business. Pricing it too low may result in the need to issue more new units in order to raise a certain amount of money, thereby diluting the per unit metrics such as distribution per unit and NAV per unit by a greater extent. Pricing it too high may discourage the existing share holders to subscribe to the rights shares. This may in turn result in the sponsor of the Reit having to take up the excess rights.

From the perspective of the Reit, it is more favourable for the price of rights shares to be as high as possible as more money can be raised for the same number of new units issued. Pricing it too low may have a long term impact on the per unit metrics of the Reit, as the Reit will have less money to make use of to bring up the per unit metrics.

There has been a number of successful private placement exercises with discounts of less than 10%.  These private placement exercises generally do not have much impact on the per unit metrics as the percentage increase in share base is very low. The Reit can thus raised the money for acquisition of new properties without causing too much dilution of the per unit metrics. Only thing about the private placement exercises is that unlike the rights issue, they are not open to all the existing share holders. With the new measure, it may be possible for the Reit to conduct more regular rights issue with discounts of less than 10%, and at a smaller percentage increase in share base similar to the private placement exercises.