Latest Amendments to the SGX Listing Manual

October 2011 – On 14 September 2011, Singapore Exchange Securities Trading Limited (“SGX”) announced amendments to its Listing Manual to strengthen corporate governance practices and foster greater corporate disclosure. These amendments are effective from 29 September 2011 and will apply to entities that are listed on either the SGX Mainboard or Catalist (the “Issuers”). Some pertinent amendments are highlighted below:
Loan Covenants Linked to Controlling Shareholder

This new Rule 704(31) requires an Issuer to make an immediate announcement where it or its subsidiaries enter into a facility agreement or issue debts securities that contain a condition which:

1. makes reference to the shareholding interest of its controlling shareholder; or
2. places restrictions on any change in control of the Issuer; and the breach of such condition will cause a default in respect of the loan agreement or debt securities, significantly affecting the Issuer’s operations.

Even where only one facility agreement has such a provision, the Issuer should ensure that a default under this single agreement should not render a cross-default in other facility agreements.
Issuers should note that this new Rule 704(31) is also likely to be applicable where a change-in-control provision triggers a prepayment event (notwithstanding that a prepayment event is technically not an event of default under the terms of a loan agreement) if such prepayment significantly affects an Issuer’s operations.

Company Action Required
Rule 704(31) would apply also to existing loan agreements and debt securities entered into or issued by an Issuer before 29 September 2011. Therefore, an Issuer should check if it or its subsidiaries have any existing loan agreements and debt securities documents which were to be announced pursuant to Rule 704(31) by 29 September 2011. Where an Issuer had difficulty making such announcements by 29 September 2011, it may wish to consult SGX on whether it can be granted a grace period to comply. We understand that SGX has to date, granted various Issuers a grace period of one month, i.e., up to 29 October 2011 to comply with the latest amendments to the Listing Manual.

An Issuer must disclose in its announcement the details of the relevant condition and the aggregate level of the facilities (bearing in mind the possibility of cross-defaults) that may be affected by a breach of the condition. An Issuer must also disclose any breach of the terms of the loan agreement or debt issues which may have a significant impact on the Issuer’s operations.

Undertaking by Controlling Shareholders for Share Pledge Arrangements

This new Rule 728 should be read together with Rule 704(31). Rule 728 obliges an Issuer which has entered into loan agreements or issued debt securities contemplated under 704(31) to obtain an undertaking from its controlling shareholder(s) to notify it when such controlling shareholder(s) enter into share pledge arrangements in respect of their shares and know of any event which may result in a breach of the Issuer’s loan covenants, so that the Issuer can disclose details of such share pledge arrangements.

Company Action Required
Likewise, Rule 728 applies to both new and existing borrowings and loans of an Issuer and its subsidiaries. An Issuer should proceed to obtain the above undertaking from its controlling shareholder(s) if it and/or its subsidiaries have any existing loans or borrowings pursuant to Rule 704(31).

Upon notification by the controlling shareholder(s), an Issuer must immediately announce the following information:

1. name of the controlling shareholder;
2. class and number of shares and the percentage of the Issuer’s issued share capital that is the subject of the security interest;
3. party or parties in whose favour the security interest is created or financial instrument given; and
4. all other material details which are necessary for the understanding of the arrangements.

For More Information

For further information, please contact Lo Kim Seng at 6311 0048 (DID) or email at kslo@duanemorrisselvam.com.