There have been public discussions and media commentaries on the listing structures available in Singapore. In particular, there appears to be some confusion on the nature of these listing structures as reported in several recent commentaries. On 20 September 2011, SGX published an article on the Regulator’s Column clarifying that dual class ordinary voting shares are not allowed to be listed in Singapore. This regulatory column provides further clarification on “stapled securities” so as to correct potential misperception on such stapled structures.
Stapled securities are not the same as dual class ordinary securities. Unlike dual class share structures where different classes of ordinary shares carry different voting rights even though they have the same economic benefits and rights in event of liquidation, all holders of stapled securities have equal voting rights.
What is a Stapled Security?
Stapled securities are created when two or more securities are bound together in a single vehicle such that they cannot be traded separately.
Many different types of securities can be stapled together, for example, a share and a unit of a trust, a share and a loan stock, or a unit of a business trust and a unit of a real estate investment trust (REIT). A common form of stapled securities consists of a share in a company and an interest in a trust stapled together.
Why a Stapled Security?
For Issuers
The rationale for creation of stapled structures varies with each issuer. In some instances, these structures link a passive income security with one that provides more active income. Such a combination makes the stapled security more attractive to investors.
For Investors
A stapled security allows two securities with different legal structures to be traded as one, retaining the rights or obligations attached to each of the individual security in a stapled security. For
example, investors trading in stapled securities can enjoy the tax advantages if one of the securities within the stapled security is issued by a tax transparent entity such as a REIT. Where a stapled security consist of securities issued by two entities established for different purposes (for example, one established for active business operations while the other is for asset holding purposes), it may appeal to investors who value the business and income diversification benefits brought about by this combination. It is the combination of stapled securities that investors may find attractive to manage their own investment appetite and risk.
Adhering to Stringent Regulation and Disclosure
The stapled security structure is an accepted product offering allowed under Singapore laws and regulations. SGX listing rules ensure that stapled securities are subject to the same standard of regulation and governance as like any other listed securities.
In a disclosure based regime, issuers are required to give investors a full and complete account of their listing structure through disclosures in their offer documents and company announcements.
Internationally Recognised Securities Product Offering
Stapled securities are an established and widely applied listed product in many leading international exchanges. Investors in Singapore are already familiar with the nature and product characteristics of stapled securities.
In 2003, SGX listed its first stapled security when the units of Australand Property Trust were stapled to the ordinary shares in Australand Holdings Limited. Investors in Singapore gained further exposure and familiarity to stapled securities when SP Ausnet and CDL Hospitality Trusts listed their stapled securities in 2005 and 2006 respectively.
Protecting A Quality Marketplace
In maintaining a fair, orderly, and transparent marketplace, SGX is obliged to administer its listing rules and require issuers to make disclosure of material information and updates for investors to make informed investment decisions.
However, the market will determine the commercial merits and attractiveness of an offer and market discipline will dictate the success of an offer.
Should there be any breaches of the listing rules and disclosure requirements, SGX will not hesitate to investigate and enforce the appropriate disciplinary actions.
Mohamed Nasser Ismail
Head of Issuer Regulation