Taking Your Venture Public in Singapore

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Taking Your Company Public In Singapore

There are many reasons why formerly private companies in Singapore chose to go public, including raising additional capital, enhancing the status and financial standing of the company, raising the public profile and level of interest in the company and its products, amongst others. It’s important to note that not all private companies meet the pre-requisites to become Publicly Listed Companies, and care must be taken to ensure that your organisation meets the requirements. Generally, a company that goes public will already be established and dominant in their market or industry and carry significant potential for growth. These companies will generally have ambitious goals – such as becoming a household name in their industry or expanding their operations to a new geographical area or into a new industry.

Companies can be converted from public to private either voluntarily or involuntarily. Voluntary conversion is initiated by shareholders deciding to issue shares to members of the public through a process referred to as an Initial Public Offering (more on this later). Should a company no longer meet the criteria of a private limited company (e.g. the total number of shareholders exceeds 50) the Companies Registrar may declare that the company has ceased to be a private company and will henceforth be subject to the restrictions and regulations applying to public companies.

Ottavia has prepared this guide to provide entrepreneurs and business-owners with a broad overview of the steps required to voluntarily convert a limited partnership to a Publicly Listed Company in Singapore. You’ll also be brief on the benefits and drawbacks of taking your company public, allowing you to make a more informed choice as to whether this is the best choice for your organisation.

Public & Private Companies

Singapore government agencies and statutory bodies recognise two major types of companies – public and private. Below is a short breakdown of the comparative features of the two types of companies:

Private companies:

  1. Have 50 shareholders or fewer
  2. Cannot invite members of the public to either invest or deposit money with the company
  3. Must only raise capital needed by the company from shareholders or through debt financing

Public companies:

  1. Can have 50 or more shareholders
  2. Can acquire capital through the offering of debentures or transferable shares to members of the public
  3. Can be listed on the on the Singapore Exchange (after gaining due approval from Singapore Exchange Limited)

The issuance of shares by a company to members of the public for the first time is referred to as an Initial Public Offering. An Initial Public Offering is the sale of equity in a company, most commonly taking the form of shares of common stock assisted by an investment banking firm acting as an underwriter. These shares are henceforth traded on a recognised stock market such as the Singapore Stock Exchange.

Are you ready to move from public to private?

Making the decision to shift your company from a private limited vehicle to a public company is a serious step with significant, long-lasting consequences. Entrepreneurs and business-owners are advised to carefully consider the implications of this decision and how it could affect the future of your organisation. You should carefully weigh the benefits and drawbacks of going public long before you embark on this course of action.

Advantages of going public

  • Access to capital – One of the most common reasons organisations in any jurisdiction go public is the financial benefit it poses, and Singapore is no exception. The chance to raise a significant amount of capital through an Initial Public Offering is extremely attractive to any business. An Initial Public Offering is the company’s first sale of stock, and is used not only as a way to generate the capital needed to expand but to demonstrate the company’s perceived value and reputation in the market. This capital can be used for a number of reasons such as paying off existing debt, funding capital expenditure, or enabling further growth. Initial Public Offerings have the potential to generate a significant amount of publicity for the company by making the company’s products known to a new and wider circle of potential customers. Additionally, publicly traded companies are by and large better known than private businesses, leading to an enhanced market share for the company. Going public also create a type of currency for the company and its shareholders in the form of its stock, allowing the business to make acquisitions.
  • Unlocking shareholder value – Going public allows you to peg your stock to fair-market-value, allowing you to demonstrate its true value and thus the value of your company, delivering a significant return on investment for shareholders.
  • Compensation – Upon going public, companies in Singapore can henceforth issue their securities as compensation for directors, officers and employers, as securities from a public company typically have an established fair market value at any given time as determined by the price at which the security is sold on the stock exchange.
  • Liquidity – To sell a private company’s stock, a stockholder must individually seek out an individual who is interested in acquiring shares in that particular company – either because it is an area of interest or expertise or a company they personally believe in. Selling the shares of a public company is substantially easier as the company creates a public market for its stock, broadening the circle of buyers and sellers.
  • Prestige – An Initial Public Offering is a fantastic way for a company to raise its standing and gain prestige, helping it create a perception of stability and success in the market. The founders, co-founders and executive and managerial staff gain an enormous amount of personal prestige through association with a company that goes public. This prestige can be extremely useful in recruiting high-value employees and in the marketing of new products and services.
  • Image – Overall, public companies enjoy a better public perception compared to private companies. This is especially important in certain industries where long-term commitments from customers and suppliers are required for the business to succeed. A perception of stability and sustainable growth can help secure this.
  • Publicity – An Initial Public Offering brings your stock prestige, publicity and a great deal of visibility, making it an effective tool not only for the marketing of your stock as a commodity but as a way to raise the profile of your product and service offering. This new level of attention can often lead to newly public companies engaging in new business developments and strategic alliances, as well as bringing them to the attention of potential corporate partners and merger candidates.
  • Mergers and acquisitions – The company’s stock gains value as cash and can be used in the acquisition of other businesses.

Disadvantages of going public

  • Loss of confidentiality – Due to the enhanced scrutiny they operate under from public shareholders and corporate regulators, public companies are required to disclose a lot of information about their operations.
  • Added cost – The cost of staging an Initial Public Offering, as well as the ongoing costs of maintaining compliance with the regulatory requirements can be extremely high. In some cases, the cost of an Initial Public offering can climb to as high as 25 per cent of the offering deal. Many additional costs can apply, including accounting fees, legal fees, professional adviser fees and other miscellaneous fees.
  • Added liability exposure – Public companies, as well as their executives and directors, experience an increased risk of exposure to civil liability resulting from false or misleading statements made in the registration statement. Offers responsible for making misrepresentations in reports filed with the Singapore Exchange or for disclosing false information may face liability.
  • Time consuming – Converting from a private limited to a public company is an extremely tedious and time consuming process. Some companies have had their core business operations disrupted where senior management has devoted too much time and too many resources to the Initial Public Offering process.
  • Loss of control – Public companies are more susceptible to pressures and trends in the market, often leading them to focus more on short-term results rather than stable, sustainable long-term growth. The public trading of shares also puts public companies at greater risk of takeover attempts.
  • Reporting and fiduciary responsibilities – Public companies are required to comply with a range of exchange guidelines and statutory requirements in order to operate in full legality, and must continuously file reports with the Singapore Exchange. This is not only a significant ongoing expense, but can provide information many businesses would prefer to keep private to competitors in their market or industry.

It’s important to have clear, strategic reasons for taking your company public. While a public offering can be an excellent vehicle for the raising of capital and facilitating growth of your company over the long-term, it can greatly complicate the operation of the company and is simply not appropriate for many private limited companies.

How to go public and get listed in Singapore

Upon making the decision to go public, your company will be required to adhere to a rigorous procedure converting it from a private limited company to a public company. This process of conversion requires the preparation of registration statements and other key documents.

Undertaking due diligence is the first step in converting a company from public to private. This involves careful analysis and valuing of a company, and is usually conducted by a professional accountancy firm. Due diligence is a lengthy, thorough process, usually involving a comprehensive look into almost every area of the business. The process is so involved as it forms the foundation upon which all information released to members of the public ahead of the Initial Public Offering is based. Upon completion of due diligence, a value is assigned to the company and an appropriate number of shares are issued,

At this stage, members of the investing public are offered the opportunity to buy shares as part of the Initial Public Offering. When a broker or investment banking firm undertakes this process, they are said to be ‘underwriting’ the IPO. Underwriting is the procedure by which an underwriter brings a new security issue to the investing public in an offering. Through underwriting the IPO, the broke guarantees the company that all the shares that are being offered will be promoted and sold. In return for this promise, the underwriter is paid a commission on every share sold.

The listing process is initiated when an issuer appoints a Singapore-based financial institution such as a member company of the Singapore Exchange, a merchant bank or other similar institution as its sponsor and lead manager. In addition to managing the launch of the IPO, the lead manager is also responsible for submitting the listing application and liaising with representatives of the Singapore Exchange on all matters relating to the application for listing.

In addition to the lead manager, the company will also be required to appoint a lawyer responsible for overseeing the legal aspects of the listing. A Certified Public Accountant will also provide the company with an initial evaluation of its readiness to go public, as well as assisting in upgrading its management capabilities in preparation for the launch. In the run up to and throughout the launch, the company will also have to contract a public relations firm who will help it to enhance the appeal of its shares, while also conveying its corporate messages effectively to the investing public.

Companies considering going public are advised to bring any concerns or ambiguities to the Singapore Exchange prior to the submission of the listing application, in order to minimise the possibility for delays and resulting additional expenditure. Generally, the listing process consists of two parts – pre-submission preparation and post-submission approval and listing. On average, pre-submission preparation can take anywhere between four and nine months to complete, whereas post-submission approval and listing can be completed in five to seven weeks. Depending on the complexity and personal circumstances of the company, the listing process can take between four months and two years.

The Singapore Exchange Listing

The Singapore Exchange exists primarily to provide a fair, orderly and transparent marketing environment for the secure trading of securities. There are two primary methods of listing – Mainboard and Catalist.

To qualify for a Mainboard Listing, a potential listing applicant must meet certain quantitative requirements. These key benefits include an established Mainboard branding, enhanced access to a wider range of institutional investors and greater openness to more product types.

The key feature of the Catalist system is its ‘Sponsor-supervised’ market model. Companies may only be brought to Catalist by approved Sponsors, and no quantitative entry criteria is required by the Singapore Exchange. It is incumbent on Sponsors to decide if the listing applicant is suitable to be listed. Sponsors are qualified professional companies selected by the Singapore Exchange for their experience in corporate finance and compliance advisory work. Regulation is proved by the Singapore Exchange, and strict admission and continuing obligation rules apply. The Catalist system is most suitable to companies with the potential for rapid growth, and offers a number of key benefits including a faster time to market, easier subsequent fundraising, acquisitions and disposals, and ongoing guidance from an accredited, respected Sponsor.

Key differences between the systems:

Sponsor-supervised marketExchange-supervised market
·       Upon admission of a company, a Sponsor will decide on the company’s suitability for listing.

·       After the Initial Public Offering, the Singapore Exchange retains disciplinary rights on listed companies but does not directly supervise them.

·       The supervisory role is filled by Sponsors, who are required to be formally authorised and regulated by the Singapore Exchange.

·       Upon admission of a company, the Singapore Exchange reviews their Initial Public Offering documents and approves the listing of the company.

·       After the Initial Public Offering, listed companies are directly supervised by the Singapore Exchange who retains disciplinary rights.

·       Companies are brought to list by issue managers, but it is important to note they are not formally ‘admitted’ by the Singapore Exchange. Issue managers do not take any supervisory role.

·       Sponsors and their Registered Professionals are required to comply with the admission and continuing obligation rules of the Singapore Exchange. Disciplinary action will be taken should they breach these rules.·       Issue managers are not subject to the rules of the Singapore Exchange.

Choosing the right team

Converting a private limited company to a public company and subsequently listing it on the Singapore Exchange is a complex, time-consuming and difficult process. For the best chance at success, a wide range of carefully chosen competent and experienced professionals must be involved. If you are considering converting your private limited company to a public company, ensure you work with a professional firm with the experience needed to deliver the depth of insight you require to make the intelligent choices and select the best course of action. Contact Ottavia today to find out how we can support your Singapore business.