Singapore Compared to Others: Where is the line drawn?
One may ask, why do these thresholds differ? At a certain level, these thresholds in practice are arbitrary. However, they have clear welfare implications of changing these thresholds. For example, in the value attached to toehold acquisitions. Which are requiring to be considering before changing them. The difference, perhaps, can be explaining by looking at the shareholdings and the ownership structures prevailing in these countries. Looking at Singapore, there is a very limited number of companies that are widely held. Most companies are government link (where the government owns 20% or more of the share capital), government owned or family controlled.
Controlling interest in terms of voting power.
There are also significant crossholdings across these firms which are again, ultimately, control by these same families. Therefore, in these companies, a person or group of persons not only exercise control over the company. But also have a controlling interest in terms of voting power. Consequently, a high number of shares would be requiring in order challenging this kind of control thereby justifying the 30% threshold. Unlike Singapore, however, in the UK, ownership of most companies is widely dispersed and has been so since the beginning of the 20th century for several reasons. With the rise of institutional investors, a large amount of the equity shareholdings in the majority of the UK firms are control by them.
Family ownership and/or control over companies are very low as compar to other European countries. However, since controlling stakes is hold by institutional investors. It is very difficult to acquire control over the voting rights in the company. Thereby, justifying the high threshold. Turning to the odd man out, India has taken to the Anglo-American system despite the unique features of Indian corporate culture. It has an ownership system which is a hybrid of the English and Singaporean systems. On one hand, India has an insider model of corporate governance where the dominant corporations were control by a small bunch of “insider” shareholders. Such a group is usually a family or the State and the inter-locking and pyramiding of corporate control within these groups helps secure their position and control over the company. It also increases the potential for violation of the rights of the minority shareholders.
Securities & Futures Act (“SFA”)
However, when one looks at the absolute ownership. These persons or groups own relatively small percentages of the voting rights in the company, much lesser than a majority percentage although they exercise considerable control over the corporations. A large amount of equity capital is own mostly by their institutional investors, both, domestic and foreign. Further, there are a wide number of disperse shareholders across the country.
Thus, even a threshold as low as 15% can sometimes affect the amount of control exercised in a company, thereby justifying the low threshold. In Singapore, Section 140 of the Securities & Futures Act (“SFA”) makes it an offence for any person to make an offer without an intention to make or honour or without any reasonable grounds for believing that he will be able to perform his obligations if the offer is accepted or approved punishable with fine and/or imprisonment of up to 7 years.
SFA and STC
Further, the SFA and the STC prohibit persons in possession of price sensitive information from dealing. And the SFA also provide for criminal sanctions for insider trading. However, breach of the STC itself does not attract any criminal liability per se. Although the SIC has the power to invoke such sanctions (including public censure) as it may decide for breach of the rules. Also, if SIC has reason to believe that a criminal offence is committing. Then it can recommend the Attorney General to prosecute the offender.
India, UK and Singapore
When the following are comparing – India, the UK and Singapore. We can realize that India has a bit stronger penalties for the common violation of their rules under takeover regulations, while the UK and Singapore do not. Going moreover, when it comes to the case of the UK. This is true despite the fact that the Takeover Panel is statutorily empower to impose compensatory liabilities where breach results in requiring pecuniary payments, a power it has rarely exercised.
Thus, UK and Singapore appear to have taken a softer stand on the issue as compared to India. This can be understood by, once again, examining the context in which these rules operate. The researchers believe that many of the aforementioned reasons for such a system in the UK also explain the situation in Singapore. Further, it can also be explain by the principles and features that were emphasis in its drafting. Emphasis is lay on speeding up the takeover process, providing flexibility and preventing contentious litigation.
Equity share capital
Further, as has already been discussed, the Singapore market is a relatively small market with key families and the government controlling a large portion of the equity share capital. Additionally, these are the most likely persons to act as bidders in a takeover process. Therefore, not only is it easy to enforce compliance with the STC by the SIC. But it is also in the best interests of these various players in the market for corporate control who cannot afford censure from the market in which they hope to operate in the future.
Finally, the business environment and policies behind regulation in Singapore is very different from the West. The government has a conscious policy of not regulating areas unless absolutely necessary. In an attempt to make Singapore as business friendly as possible. The government is hesitant to increasing business costs and legislate on issues that can otherwise be voluntarily addresse by companies. Not only that, it employs a mixture of consensus building and the incentivising compliance. Rewarding a good corporate behaviour and providing great guidelines to help companies get to that point and wished goal.
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