More views on the new Singapore takeover code

Shearman & Sterling Stamford''s top legal mind, Lee Suet Fern explains why the code needed to change.

What was the impetus for making changes to the Singapore takeover code? 

Our code was frightfully old, and in fairness to the authorities there had been incremental changes. But to keep us in the number one spot in the region, it's important to ensure that we have rules of the game that are consistent with international norms. I think they have done a fabulous job coming up with the new code. That's one side of it.

Our code was also a relatively brief document. So you had areas such as whitewash resolutions, where as a practitioner I knew what would be required, but there was nothing actually set out. So if a company wanted to do a takeover in Singapore, you wouldn't know when and and under what circumstances you may be likely to get a whitewash resolution. And so now we have notes that make it clear, and so there is clarity and guidance for all players.

Excuse my unforgivable ignorance, but what is a whitewash resolution? 

The typical example is where a white knight is brought in and receives shares for assets and ends up breaching the 30% trigger. It is possible under certain circumstances to go to the shareholders and say "Will you waive your right to a general offer".

A whitewash is not uncommon, especially in times when the economy is a little bit troubled. This practice had been in place in the past but there was nothing in the old code that gave you any guidance whatsoever. Practitioners knew, but that's not where we want to be. We want to be at a level where all players can see how the Securities Industry Council would react to this and other issues. The extensive addition of notes to the new rules has been very helpful.

It hasn't really changed the rules of the game. It's just made it a lot more transparent.

Was it driven by the takeover activity last year in the banking sector? 

I don't think so. I think the process started well before this. It was ongoing and very carefully done. I actually feel they did a very good job, and if my memory serves me well they started some of the consultative papers back in 1999.

The omnibus change we saw on January 1 was preceded by a new rule allowing partial offers. We did the first of these with Elec & Eltek. The holding company here was in Hong Kong and there was a desire to consolidate the results of the listed subsidiary here in Singapore, but they were below the 50% mark. The partial offer rules allowed them to get up to 50% without making an offer for the whole company.

So, what I am saying is there have been some changes, which they started to implement, but January 1 was a completely new code.

Do you think Singapore now has the most advanced code in Asia? 

We have now moved the trigger point to 30%, which is consistent with the UK. Hong Kong has recently also moved it to 30%, down from 35%.

With a lot of regionalization and globalization, there is a convergence of markets and the way sophisticated markets approach matters. We won't be perfectly identical, however. In Hong Kong the creep is still 2% over 12 months and we're now 1% over six. But there's a lot of convergence.
I think everyone is trying to have a set of rules that are equitable to all shareholders, and also create market efficiency.

Does Singapore have any antitrust regulations? 

There are no general antitrust rules, so although people think all the bank consolidation is over, I am optimistic there will be another merger. The government said they wanted two banks. So we still have one more to go.

But back to antitrust. There are some industries that are very carefully regulated like the press, and where it is difficult to buy a substantial stake because of the newspaper press and printing act. But generally, there has been increasing liberalization on restrictions like this.

So you do think there will only be two banks in Singapore? 

I don't know, but I do hope we have one more deal to do. In fact, last year we had a bumper year and according to Thomson Financial tables which ranked Shearman & Sterling number one in Asia ex-Japan for completed M&A deals, and I was delighted to see that was mainly on the back of our little noodle shop here in Singapore in its maiden year. Do I think there will be one more bank merger? I'm not sure.

It may not be the same kind of year as last year but there's still room for some consolidation in the shipbuilding, stockbroking, insurance and finance companies. We are seeing continued privatizations, and short of one big bank merger, they will be smaller deals.

The M1 sale has been put on hold. Will that resurface later in the year? 

Possible. My point is there are some deals to be done, but whether they will be 2002 deals is hard to predict. The government is also going to sell the three gencos, and those would be huge deals, though not governed by the new takeover code.

Why would they not be affected by the code? 

They're private companies. The new code covers listed companies and unlisted public companies where there are 50 or more shareholders. The old code covered all public companies. So in the past companies that had between 20 and 50 shareholders were affected by the code. Now you need to have above 50 shareholders and your net tangible assets need to be above S$5 million before the code kicks in. So the code won't kick in on those sales.

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