Taking Your Venture Public in Singapore
Private companies in Singapore choose to go public for many reasons such as raising of additional capital, enhancing the status and financial standing of the company, increasing public awareness and public interest in the company and its products. Not all private companies are qualified to become Publicly Listed Companies. Companies going public are usually well established companies who are dominant in a particular market sector and have significant growth potential, and who seek become a household name or to expand to a whole new level.
Converting a private company into a public company in Singapore may happen volutarily or involuntarily. Voluntary conversion happens when shareholders decide to issues a shares to public through a process called Initial Public Offering (more on this later). Involuntary conversion is when Companies Registrar declares that a company has ceased to be private company if the company no longer satisfies the critera to be a private limited company (e.g. the number of shareholders exceeds 50). The company from thereon will be subject to the regime that applies to public companies.
The purpose of this guide is to provide an overview of the steps you have to undertake to voluntarily convert your Pte Ltd into a Publicly Listed Company in Singapore. It will also present you with the benefits and drawbacks of taking your private company public so you can decide if going public is the best route for your Singapore company.
Public and Private Companies
Singapore recognizes two major types of companies: public and private. Detailed below are the key features of private companies versus public companies in Singapore.
If you are currently a private company:
- you have 50 or less shareholders
- you cannot invite the public to invest or to deposit money with your company
- any capital needed by your company must be raised from among the shareholders or through debt financing
If you convert to a public company:
- you may have more than 50 shareholders
- you can acquire capital by offering transferable shares or debentures to the public
- you can be listed on the Singapore Exchange (after due approval from Singapore Exchange Limited)
When a company issues its shares to the public for the first time, it goes through a process called Initial Public Offering (IPO). IPO is the sale of equity in a company, generally in the form of shares of common stock, through an investment banking firm. These shares subsequently trade on a recognized stock market such as Singapore Stock Exchange.
From Private to Public: Are you ready?
Converting your company from a private limited to a public company is a serious step and requires taking into account the implications of doing so. You must carefully weigh the pros and cons of going public before deciding to take your Singapore company public.
Advantages of Going Public
- Access to Capital – Singapore companies like in other jurisdictions mainly go public because of the financial benefit — in the form of raising capital. Capital can be boosted through an Initial Public Offering (IPO). IPO is the company’s first sale of stock, and it is often used as a way to generate the capital needed to expand. This capital can be used to fund further growth, fund capital expenditure, or to pay off existing debt. IPOs often generate publicity by making the company’s products known to a new group of potential customers. Publicly traded businesses are usually better known than private businesses. This leads to an increase in market share for the company. Going public also creates a type of currency in the form of its stock. Companies can use this to make acquisitions.
- Unlocking Shareholder Value – Going public is an excellent way of enabling your company’s stock to be based on fair-market-value, whereby demonstrating its true value and creating a significant return on investment for its shareholders.
- Compensation – Public companies in Singapore may issue their securities as compensation for their directors, officers and employees. Securities from a public company, typically have an established fair market value at any given time as determined by the price the security is sold for on the stock exchange, where the security is traded.
- Liquidity – In selling a private company’s stock, a stockholder must find an individual who is interested in the acquisition of the shares. This process becomes much easier when a Singapore company goes public, because the company creates a public market for its stock in which buyers and sellers participate.
- Prestige – A public offering of stock can help a Singapore company gain prestige by creating a perception of stability. A company’s founders, co-founders and managers gain an enormous amount of personal prestige from being associated with a client that goes public. Prestige can be very helpful in recruiting key employees and marketing products and services.
- Image – People have a better perception of public companies. This is particularly important in those industries, where customers’ and suppliers’ long-term commitments are essential to the company’s success.
- Publicity – A public offering of stock brings with it prestige, publicity and visibility. These are effective in marketing your Singapore company and bringing people’s attention to it. This can sometimes lead to new business developments and strategic alliances. It can also attract the attention of potential partners or merger candidates.
- Mergers and acquisitions – The company’s stock is valuable as cash and can be used in acquiring other businesses.
Disadvantages of Going Public
- Loss of confidentiality – Public companies need to disclose a lot of information about its operations as they operate under a close scrutiny of its public shareholders and the regulating authorities.
- Added Cost – The cost of IPO offering as well as complying with ongoing regulatory requirements can be very high. For example, IPO costs can climb to as much as 25 percent of the offering deal. Some of the additional costs include the accounting fees, legal fees, miscellaneous fees and professional adviser fees.
- Added Liability Exposure – There is an increased risk of exposure to civil liability for public companies, executives and directors for false or misleading statements in the registration statement. Officers may face liability for misrepresentations in reports filed with the SGX or for disclosing false information.
- Time Consuming – Converting into a public company is also a tedious and time consuling process. Thus, business operations may be disrupted if senior management is too much caught up in the IPO process.
- Loss of control – Public companies are faced with the pressures of the market. This would likely cause them to focus more on short-term results rather than long-term growth. Furthermore, public companies are at greater risk of takeover attempts due to its public trading of shares.
- Reporting and Fiduciary Responsibilities – Public companies must continuously file reports with SGX and comply with exchange guidelines and statutory requirements. This is not only costly but also provides information to competitors.
Overall, you must have strategic reasons for taking your company public. Although a public offering may be an excellent vehicle for raising capital and facilitating the growth of your company, it comes with its fair share of complications and is not appropriate for majority of the private companies.
How to Go Public and Get Listed in Singapore?
Once the decision to go public is made, you will have to adhere to a procedure set out to convert you private limited company into a public one. The process of converting into a public company centers around the preparation of the registration statements and other relevant documents.
The first step in converting from private to public is to undertake a process called due diligence. Due diligence is the analysis and valuing of a company and it is usually performed by a professional accountancy firm. It will involve a comprehensive look into almost every area of the business. This due diligence is the foundation upon which all information disclosed to the public is based. A value is then assigned to the company and an appropriate number of shares are issued.
At this stage,the investing public is offered an opportunity to buy the shares. This is called the Initial Public Offering (IPO). When a broker undertakes this process they are said to “underwrite” the IPO. Underwriting is the procedure by which an underwriter brings a new security issue to the investing public in an offering. By underwriting the IPO, the broker is guaranteeing the company that they will promote and sell all of the shares that are being offered. In return, the company that is listing pays the underwriting broker a commission for every share that is sold.
An issuer initiates the listing process by appointing a Singapore-based financial institution, either a member company of SGX, a merchant bank or other similar institutions, to be its sponsor and lead manager. Other than managing the IPO launch, the lead manager also submits the listing application and liaises with SGX on all matters arising from the application for listing.
Apart from the lead manager, the company needs to appoint a lawyer to oversee the legal aspects of listing. In addition, the appointed Certified Public Accountant will provide the company with an initial evaluation of its readiness to go public, assist in upgrading its management capabilities and in preparing the launch. Prior to and during the launch, the company will have to engage the service of an experienced public relations firm to help enhance its appeal and convey its corporate messages effectively to the investing public.
Prior to submission of the listing application, the company is advised to consult the SGX on all ambiguous issues to reduce possible delays. Generally, the listing process consists of two parts – the pre-submission preparation and the post-submission approval and listing. On average, the pre-submission preparation will take about four to nine months whereas the latter will take about 5-7 weeks to complete. Depending on the complexity of the companies, the listing process may vary between four months to two years.
The Singapore Exchange Listing
The principal function of the Singapore Exchange is to provide a fair, orderly and transparent market for the trading of securities. There are two methods of listing – mainborad and catalist.
A Mainboard Listing involves a potential listing applicant meeting certain quantitative requirements. The key benefits include: established Mainboard branding; access to a wider range of institutional investors; and openness to more product types.
The key feature of Catalist is its “Sponsor-supervised” market model. Companies on Catalist are brought to list by approved Sponsors. There are no quantitative entry criteria required by SGX. Instead, Sponsors decide if the listing applicant is suitable to be listed. Sponsors are qualified professional companies experienced in corporate finance and compliance advisory work. They are authorized and regulated by SGX through strict admission and continuing obligation rules. Catalist listing is suitable for fast growing companies. The key benefits include – faster time to market; easier subsequent fundraising, acquisitions & disposals; and ongoing Sponsor guidance.
Finding the Right Professionals
Converting your private limited company to a public company and get listed on Singapore stock exchange is a long drawn process, involving a range of competent and experienced professionals. If you are considering of taking your private limited company for public listing, you should consult with a professional firm that can review your situation in details and advise you on the best course of action.
Are you ready to make your company public?
Hawksford are renowned for working closely with entrepreneurs and foreign companies in Singapore to make the most of their decisions.Find out how Hawksford can help