Singapore Business Review Aug-Sep 2012

Page 24

LEGAL BRIEFING

Singapore Exchange proposes new Mainboard listing rules for MOG firms Are the changes enticing enough or are they only adding burdens?

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GX has recently proposed a set of amendments to the Mainboard listing rules aimed at attracting more mineral, oil and gas (MOG) companies. This follows the introduction in 2011 of MOG listing rules for the Catalist board. Rajah & Tann partner Goh Kian Wee believes that the proposed rules cater to MOG companies which may not otherwise meet the stringent quantitative requirements of listing on the Mainboard, considering that they are highly technical in nature and capitalintensive. Herbert Smith partner Richard Nelson has a different view. While the proposed rules include many similarities to the current rules for Catalist, he cautioned that MOG companies could face a more robust regulatory framework. What are the key proposals on initial listing? According to Nelson, the SGX proposes that MOG companies that have not yet met specified profitability and other financial benchmarks have a minimum market capitalisation of at least $300M, as opposed to the existing $80M. They are also required to disclose their plans, proposed capital expenditures and milestones to advance their projects to the production stage. Also, the prospectus would need to include a valuation report of the company’s reserves and resources prepared by an independent qualified person. This could form part of the qualified person’s report (QPR) to be included in the offering document. The proposed rules include detailed guidance on the permitted technical reporting standards and required

“The proposed rules cater to MOG companies which may not otherwise meet the stringent quantitative requirements of listing on the Mainboard.” contents of QPRs – social, environmental, and health and safety factors that may affect exploration or exploitation activities. A MOG company would be required to disclose in its prospectus a legal opinion regarding its compliance with all relevant laws and regulations and title to and validity and enforceability of rights to its assets. According to Nelson, as a possible alternative to disclosing a legal opinion, the SGX has suggested that issue managers provide a statement in the offering document that proper due diligence has been 24 SINGAPORE BUSINESS REVIEW | AUGUST 2012

Goh Kian Wee

Richard Nelson

Sin Boon Ann

conducted on these matters. “Due to the long lead times that are common for MOG projects to move from the exploration stage into the production stage, the SGX proposes that all MOG listing applicants demonstrate sufficient working capital to meet their present requirements and for at least 18 months following listing,” he said. Furthermore, the proposed rules would prohibit disclosure of ‘prospective resources’, which are quantities of oil and gas resources potentially recoverable from undiscovered accumulations not classified as contingent resources or reserves under the applicable technical reporting standard. Nelson said that this proposal may be particularly relevant to early-stage oil and gas exploration companies. “In Hong Kong, by comparison, the disclosure of prospective resources is permitted so long as appropriate risk factors are included,” he explained. What are the key proposals with regards to continuing obligations? Once listed, MOG companies would be required to make an immediate announcement to the market whenever there has been a material change to their reserves or resources, substantiated by a QPR. Also as an additional continuing listing obligation, MOG companies that have not achieved certain profit benchmarks or whose principal assets have not entered into production would be required to make quarterly announcements disclosing the use of their funds during the previous quarter and their projected use of funds for the next immediate quarter. What is the implication to capital markets? According to Drew & Napier deputy managing director Sin Boon Ann, the proposed framework strikes a good balance between granting MOG companies access to Singapore’s capital markets, whilst being subject to safeguards such as listing qualifications and disclosure. “We will be interested to see if MOG listing applicants can pull off the challenging task of giving Singapore’s investing public clear, focussed and relevant information in their offer documents about their businesses, operating environments, and the risks of investing in their shares,” he said. “This may be difficult, given the complexity of their business, the additional disclosure requirements they must meet, and offer documents becoming increasingly bulky in today’s market. However, we believe that the Exchange will continue to refine its approach to regulation in this new area using ongoing feedback once its MOG listing framework is in place,” added Sin.


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Singapore Business Review Aug-Sep 2012 by Charlton Media Group - Issuu