Acquisition finance in Singapore: overview
A Q&A guide to acquisition finance in Singapore.
This Q&A is part of the global guide to acquisition finance. Areas covered include market overview and methods of acquisition, structure and procedure, acquisition vehicles, equity finance, debt finance, restrictions, lender liability, debt buy-backs, post-acquisition restructurings and proposals for reform.
Market overview and methods of acquisition
Acquisition finance market
Acquisition finance in Singapore comprises the financing of:
Domestic and inbound acquisitions of public companies listed on the Singapore Exchange (that is, the Singapore investment stock exchange).
Local private companies and businesses.
Outbound acquisitions by Singapore purchasers of foreign entities and assets.
The purchasers in these transactions typically include:
Local and foreign corporates.
Private equity and other investment funds.
Sovereign wealth funds.
Banks and financial institutions form the core of financiers in acquisition finance transactions in Singapore and the market remains dominated by the local and major international banks. Singapore banks, in particular, were involved in financing some of the biggest public acquisition deals in Singapore over the last few years. In recent years, certain regional banks (particularly the Malaysian and Chinese banks) have become increasingly active. The lending arms of debt funds are occasional players, particularly in the financing of private leveraged buyouts, but their market share in this space remains relatively small.
Methods of acquisition
An acquisition of a Singapore company can be effected in various ways, taking into account:
The parties' financing preferences.
The general market conditions.
The most efficient method for any particular transaction depends on the circumstances and the objectives of the transaction parties.
The more common methods are the:
Most acquisition transactions are structured as share acquisitions (see below, Share acquisition). However, there may be good commercial, tax or legal reasons for the vendor or purchaser to prefer an asset acquisition. In this regard, the following considerations may be relevant:
A purchaser can choose to acquire only the assets relating to the profitable areas of the business or areas in which it is particularly interested.
A purchaser who pays a proper price can avoid liabilities (subject to some exceptions) other than the liabilities that it specifically accepts. However, it should be noted that some assets and liabilities are transferred by operation of law (for example, the purchaser can "inherit" liabilities with an asset that has been acquired, such as environmental liabilities or property tax liabilities attaching to real estate).
The purchaser may be able to claim capital allowances for each capital asset acquired under the Income Tax Act, Chapter 134 of Singapore, based on the cost paid for the asset.
Generally, interest and other financing costs are deductible for tax purposes if they are incurred on capital employed to produce taxable income (tax shielding). In an asset acquisition, interest and other financing costs incurred by the purchaser to acquire assets for the production of income in a business to be carried on by the purchaser is generally tax deductible. However, structures exist within a share acquisition model which can (in principle) achieve tax shielding.
From a financing perspective, an asset acquisition has the advantage of avoiding many of the issues relating to the granting of security over the acquired assets, such as issues of corporate benefit and, where the acquired assets do not comprise Singapore subsidiaries, financial assistance (see Question 8, Extent of security and Question 10). Accordingly, security over the acquired assets could, in most cases, be taken by the financier at the same time (or at about the same time) as the completion of the acquisition. One possible exception is where consents are required for the security to be created (for example, from counterparties to any acquired contract). However, even in these cases, the necessary consents could be obtained ahead of completion, together with any required consents for the transfers.
In an asset acquisition, the assets are typically acquired free from any security. Therefore, the financier of an asset acquisition can usually obtain first ranking security over the acquired assets. It is, however, still advisable for financiers to carry out all necessary due diligence on the acquired assets.
The advantages of structuring an acquisition as a share acquisition include the following:
The purchaser does not need to be a Singapore company or have a legal presence in Singapore. However, in an asset acquisition, the purchaser must have either a legal presence in Singapore or an acquisition vehicle with a legal presence in Singapore (it is an offence for a foreign company to carry on business or to establish a place of business in Singapore without first having such a presence).
All the assets and liabilities of the target pass to the purchaser through ownership of the shares in the target. Therefore, the potential difficulties with transferring each individual asset of a business and identifying the liabilities to be assumed by the purchaser are avoided.
Any tax incentives which the Singapore target enjoys should generally continue to be applicable after the acquisition, unless the incentive is subject to a "no change of control" condition.
In a share acquisition, the purchaser acquires all the assets and liabilities of the target. Therefore, if the target has any existing borrowings or has granted security over any of its assets to third parties, the financier of the acquisition may not be able to take security over the assets of the target. In this situation, the financier would typically grant additional facilities to the purchaser, to be used to refinance the existing borrowings of the target.
An acquisition can be effected through an amalgamation under section 215A of the Companies Act, Chapter 50 of Singapore (Companies Act). In an amalgamation, if the purchaser is a Singapore company, it can merge with another Singapore company to become an enlarged amalgamated company.
However, in practice amalgamations are rarely adopted because the directors of the purchaser are required to issue solvency statements in relation to the amalgamated company and most directors are (unsurprisingly) unwilling to do so, given their lack of knowledge of the financial position of the Singapore target. Therefore, amalgamations are typically used to facilitate mergers between related companies.
An acquisition of a company can also be effected through a scheme of arrangement under section 210 of the Companies Act (see Question 12, Methods of acquisition).
Structure and procedure
The process typically originates from the purchaser, who reaches out to one or more of its relationship banks to structure a financing package. If a financial adviser advising on the underlying acquisition is already on board, it is common for the financial adviser (assuming it has a lending unit) to also participate in the financing.
Depending on the quantum and the need and/or willingness to tap the broader bank markets, the financing can be structured as a bilateral, club or syndicated facility. Increasingly, sophisticated borrowers with strong relationships with their lending banks can assemble their own club of lenders and assume a proactive role in arranging and structuring the terms of their financing.
Certainty of funding is a hallmark of acquisition financing. For public takeovers and other acquisitions regulated by the Singapore Code on Take-overs and Mergers (Takeover Code), the offer document must include an unconditional confirmation from an appropriate third party (typically the purchaser's financial adviser) that sufficient resources are available to the offeror to satisfy the full acceptance of the offer when either:
The offer for shares is made for cash.
The offer for shares includes an element of cash.
Where the source of funding is debt financing, the financial adviser will give this confirmation after having satisfied itself that the purchaser's financing arrangement is on a "certain funds" basis. A financing that is arranged on a "certain funds" basis is one where the financier is generally obliged to make the funding available except in very limited circumstances. This is typically achieved by limiting the conditions precedent to funding so that, once the purchaser has delivered all the documentary conditions precedent under the loan agreement, the financier will be required to provide the debt financing unless an intervening event that is fundamental to the financier has occurred (such as an intervening illegality, insolvency or change of control).
If the Takeover Code does not apply, there is technically no strict requirement for the financing to be on a certain funds basis. However, purchasers customarily structure their financings in this way. This is because acquisitions in Singapore are rarely structured to be conditional on the purchaser securing financing. Purchasers therefore bear the risk of the financing not being unconditional before the completion of the acquisition.
The purchaser typically incorporates a new limited liability company (Bidco) as the vehicle which will undertake the acquisition. The purchaser can hold shares in the Bidco through one or more intermediate companies. Whether any (and how many) holding companies are required depends on several factors, including whether there is a need to achieve a structural subordination (see Question 7, Structural subordination).
The jurisdiction of incorporation of the Bidco and the holding companies depends on several factors, including:
The tax requirements of the purchaser.
The need to ensure tax efficiency in relation to the Bidco and the target group.
A holding company can be incorporated outside Singapore to take advantage of a favourable tax treaty with Singapore. However, structures set up solely to derive tax benefits can potentially be rendered ineffective if the terms of the relevant Singapore tax treaty contain anti-treaty shopping provisions.
For tax reasons, a business trust can also be used as a vehicle for acquiring shares, particularly for real estate acquisitions.
The equity finance component is commonly structured as a combination of share subscription and shareholder debt. The shares are issued by the Bidco (or any of the holding companies) and can take the form of ordinary share capital or redeemable preference shares. The rights attached to each class of shares can vary, with different classes of shares being issued to co-investors and/or existing management. There is no withholding tax on dividends paid by a Singapore company.
Where equity finance is provided in the form of shareholder debt, the shareholder debt is typically subordinated to any external debt financing provided to the Bidco. Interest paid on the shareholder debt to any person who is not a tax resident of Singapore is subject to Singapore withholding tax at the rate of 15% of the gross payment. This rate of withholding tax may be reduced by a tax treaty between Singapore and the country of the recipient.
Structures and documentation
Debt financing structures
In most cases, debt financing consists of a single class of loans. This financing can be granted by a single lender or a group of lenders. In the latter case, the group of lenders can be a club of relationship lenders of the purchaser, or a group brought together during a syndication process led by certain banks or financial institutions acting as arrangers of the facilities.
Due to confidentiality and timing considerations, any syndication would usually take place after the close of the acquisition. As the purchaser must secure the financing ahead of closing, it is fairly common for the arrangers of the syndication to provide short-term bridging financing to the purchaser. The bridging financing is refinanced by a term-out financing (which may be granted to the target as part of the debt push-down process) after closing, which is then syndicated.
Mezzanine debt can be used to plug any funding gap between the required financing and the level of equity and senior debt available. The mezzanine debt will rank behind the senior debt but ahead of any shareholder loan, and would attract a higher margin to compensate for its higher risk profile. Mezzanine debt can also be coupled with warrants to subscribe for shares in the target (typically exercisable on a sale or listing of the target).
Any security granted in respect of mezzanine debt would typically rank behind any senior debt security. More commonly, a common security trustee will hold the security on trust for both the senior debt and mezzanine debt holders. Any enforcement proceeds will be used to satisfy the senior debt ahead of the mezzanine debt.
In more complex transactions, high-yield bonds can take the place of mezzanine debt, or can be used to refinance the senior and/or mezzanine debt after the closing. However, the use of high-yield terms and structures are relatively rare in Singapore due to, among other things, the relative abundance of bank debt financing.
Singapore law does not impose any restriction on the form of the documentation for debt financing. The main financing documents are:
A facility agreement.
The security documents.
In addition, where different classes of debt are contemplated, an inter-creditor agreement may be required (see Question 7). Singapore law does not impose any restriction on the governing law of the facility agreement or the inter-creditor agreement, except that the governing law of any security document should generally be the same as the law of the place where the secured asset is located.
Financiers and major acquisition sponsors in the Singapore market are familiar with the form of the facilities agreement for leveraged acquisition finance transactions published by the Loan Market Association. This form is often used as a starting point when negotiating the financing documents.
Loan documents are commonly prepared in the English language and (if necessary to comply with local law requirements) translated into a foreign language. For example, loan documents entered into by Indonesian entities or governed under Indonesian law are often translated into Bahasa Indonesia.
Inter-creditor arrangements in Singapore can vary from a vanilla security trust arrangement to a highly structured or bespoke inter-creditor agreement, depending on the complexity of the transaction.
The validity of contractual subordination is based on the 1994 English decision in Re Maxwell Communications Corporation PLC No. 2. Although it is a first instance decision and has not been considered by the higher courts of England and Wales, the 2006 English Court of Appeal judgment in In re SSSL Realisations (2002) Limited was based on this being a correct statement of the law. English decisions are of persuasive effect in Singapore.
Contractual subordination can be effected through either:
A subordination agreement.
Including subordination provisions in the inter-creditor agreement.
In both cases, the subordination provisions provide for the subordinated creditor to hold the proceeds of any subordinated debt received on trust for, and turnover such proceeds to, the senior creditors, subject to provisions for permitted payments.
The subordination of mezzanine debt to the senior debt can be achieved through structural subordination, where the mezzanine creditor lends to an intermediate holding company (Holdco) of the Bidco, while the senior creditors lend to the Bidco directly, to be used for subscription of shares in the Bidco. On the winding-up of the Bidco, the mezzanine creditor only has recourse to what Holdco can recover as a shareholder of the Bidco.
Payment of principal
There are typically no restrictions on any scheduled, mandatory and voluntary payments of the senior debt. Usually, no payment of principal on any subordinated debt is allowed until the senior debt is repaid in full. No repayment of mezzanine and high-yield debt is generally allowed before the senior debt is discharged (subject to any provisions for permitted payment).
Interest payments on senior and mezzanine debt are typically permitted. Usually, no interest payments on subordinated debt can be made (although they can be capitalised), unless certain conditions (such as more stringent financial covenants) are satisfied.
Payment of fees on senior and mezzanine debt are permitted. However, fee payments on subordinated debt are usually prohibited (subject to any provisions for permitted payment).
Inter-creditor arrangements can typically include sharing arrangements similar to those in typical syndicated loan transactions. Any debt recovery proceeds received by a creditor in excess of the amount it is entitled to receive can be clawed back and redistributed to the other creditors in accordance with the inter-creditor agreement.
Subordination of equity/quasi-equity
As a matter of general law in Singapore, claims of shareholders (in their capacity as such) automatically rank below the claims of creditors on a company's insolvency. However, certain instruments (such as redeemable preference shares or perpetual bonds) with quasi-equity or near-equity qualities may benefit from an express subordination to assure senior creditors that these instruments will not be redeemed during the tenure of the senior debt.
Extent of security
As Bidco typically has no assets other than the shares in the target, in the absence of recourse against a sponsor or any of the sponsor's material assets, financers generally expect the target and its subsidiaries to provide guarantees and security over all their assets.
If the target has numerous subsidiaries the bidder can (subject to a cost-benefit assessment between the parties (see below)) negotiate for the guarantees and security to be provided by only certain subsidiaries. These subsidiaries could be identified based on:
Its contributions to the earnings before interest, taxes, depreciation and amortisation (EBITDA) of the target group.
Percentage of the consolidated gross assets of the target group held by that subsidiary.
This "material subsidiary" test is often subject to an overarching guarantor coverage requirement, where the bidder must ensure that the guarantors contribute no less than a certain percentage of the EBITDA or consolidated gross assets of the target group.
Security over the target group's assets is typically granted in accordance with certain security principles agreed between the purchaser and the financiers. It is often agreed that the security will not be created or perfected to the extent that it would:
Result in a breach of corporate benefit, financial assistance, fraudulent preference or thin capitalisation rules or other similar laws or regulations.
Result in significant risk to the officers of the security provider, including a breach of fiduciary duties.
Result in costs that are disproportionate to the benefit obtained by the beneficiaries of that security.
A company can generally give guarantees or security in respect of the borrowing of other members of its corporate group. However, as guarantor or security provider, the company must be aware of issues of corporate benefit (see below) or financial assistance (see Question 10), and be mindful not to contravene any other relevant provisions of the Companies Act.
Corporate benefit can be easy to establish in a downstream guarantee, where a holding company secures the obligations of its subsidiary. Conversely, where the guarantees are upstream or cross-stream, it can be difficult to establish corporate benefit to the guarantor guaranteeing the debts of its holding company or sister companies. This is often the case where the target and its subsidiaries guarantee the purchaser's liabilities. When confronted with such issues, the unanimous approval of the shareholders of the company seeking to give the guarantee should be sought. Alternatively, the guarantee can be justified where the guarantor is itself receiving the proceeds of the loan (through inter-company loans, for example) or where it receives indirect benefits such as reduced cost of funding or stronger or maintained financial capability of the parent.
Directors must "act honestly and use reasonable diligence in the discharge of the duties of his office" (section 157, Companies Act). Directors must always act in good faith (bona fide) when considering what is in the best interests of the company itself (and not what is in the best interests of the company group as a whole). Directors must therefore be careful not to sanction the giving of any guarantee that does not result in any corporate benefit to the company itself. The same issues apply to the giving of security for the purchaser's borrowings.
Types of security
The most common forms of security interest used for acquisition financings are the mortgage, fixed and floating charges and assignments.
Shares. Shares in Singapore are either:
Scripless shares. These are typically the shares of a local or foreign company listed on the Singapore Exchange (SGX). Scripless shares are either held:
directly with the Central Depository (Pte) Limited. If the shares are held in this way, security can be created over those shares by way of statutory assignment or statutory charge in the form prescribed by the Securities and Futures (Central Depository System) Regulations 2015 (Regulations); or
in a nominee account with a depository agent. If the shares are held in this way, security is taken under common law, pursuant to Regulation 23 of the Regulations, with perfection subject to certain requirements such as the serving of notice of charge/assignment on the depository agent.
Scrip shares. Security can be taken over scrip shares by way of:
legal mortgage. Here, the shares are registered in the name of the mortgagee with the mortgagor retaining an equity of redemption; or
equitable charge. This is more conventional than a legal mortgage. It involves the delivery of the physical share certificates to the chargee together with share transfer forms executed by the chargor in blank. The terms of the share charge will provide that the chargee is entitled to complete the share transfer forms once the share charge becomes enforceable.
Inventory. The nature of inventory means that a security over it often takes the form of a floating charge. The chargee often relinquishes control over the inventory such that the chargor is able to deal with the inventory in the ordinary course of its business. The charge only crystalises on:
The occurrence of an event of default.
Where the lender gives notice.
Bank accounts. Security over bank accounts can take the form of a floating charge, but are typically be taken by way of a fixed charge. The security document will provide that:
The chargor can withdraw from the bank account for certain pre-agreed purposes based on the chargor's operational requirements.
No withdrawals would be permitted in a default scenario.
A notice of assignment should also be issued to the account bank.
Receivables. Security can be taken over receivables by way of an assignment or charge. Given that assignments/charges often deal with contracts which are material to the security provider's business or which provide significant cashflow, lenders may also:
Require the deposit of payments received into a specified bank account.
Take security over the accounts into which the receivables are paid.
An express notice of assignment must be delivered to the provider of the security in order for a legal assignment to be perfected.
Intellectual property rights (IPRs). Security can be taken over IPRs by way of assignment or charge. Where the IPRs are registered, the assignment or charge must be recorded in the appropriate register at the Intellectual Property Office of Singapore.
Real property. Security over real property in Singapore can take the form of a legal or equitable mortgage/charge. If the title to the land is registered under the Land Titles Act (generally the case for most real estate in Singapore), the legal mortgage must:
Take the statutorily prescribed form.
Be registered with the Singapore Land Authority (SLA).
If the title has not been issued under the LTA, the lender takes an equitable mortgage over the sale/lease/building agreement. This is executed in escrow such that the mortgagee is able to perfect the security by registering the mortgage once the separate title has been issued for the land. Mortgagees often protect their interest in the land by lodging a caveat with the SLA.
Under Singapore law, there are no limitations relating to the amount of debt which can be guaranteed, apart from any restriction that exists within a company's constitution. There are also no limitations as to time: if a guarantee is expressed to be a continuing guarantee, past and future obligations may be guaranteed as well as present obligations.
Corporate benefit issues should also be considered when providing guarantee (see Question 7, Extent of security).
The role of trustees is recognised in Singapore. Therefore, it is fairly common for security to be held on express trust for lenders by a security trustee. There are several requirements for an express trust to be validly constituted. To be valid, there must be certainty as to the:
Settlor's intention to create the trust.
Identity of the subject matter.
Identity of the beneficiaries.
In addition, a trust over immovable property must be both (section 7, Civil Law Act, Chapter 43 of Singapore):
Manifested and proved in writing.
Signed by a person able to declare the trust.
Where security is also to be taken in jurisdictions that do not recognise the trust structure, parallel debt provisions are customarily included in the inter-creditor agreement. Under these provisions, the security providers acknowledge an additional debt owed by it to the security agent that exists in parallel with the debt owed by the security providers to the lenders. Any payment to the lenders discharges the parallel debt owing to the security agent, and vice versa. Security is granted by the security providers to secure the parallel debt.
A public company (or a company whose holding company or ultimate holding company is a public company) is restricted from providing financial assistance, whether directly or indirectly, to any person in the acquisition or proposed acquisition of shares in that company or the holding company or ultimate holding company of that company (Companies Act).
The provisions relating to financial assistance are widely framed. For example, financial assistance can be committed by the target even where a party seeking to acquire shares in a target company procures the target company to charge its assets to refinance a loan taken by the offeror to acquire the target company.
However, although financial assistance is restricted, it is not a prohibited activity under the Companies Act, it is possible to "whitewash" financial assistance if the company:
Obtains its shareholders' approval by special resolution. A special resolution requires the approval of a majority of not less than 75% of shareholders present and voting at a general meeting for which not less than 21 days' prior notice has been given. If the company is a subsidiary, the ultimate holding company, if listed or incorporated in Singapore, must also obtain its shareholders' approval for giving the financial assistance.
Complies with sections 76(10) to 76(14) of the Companies Act. This involves:
the filing of certain prescribed forms with the Accounting and Corporate Regulatory Authority of Singapore (ACRA);
publishing a notice of intention to give financial assistance in the daily newspaper; and
allowing objections to be made by shareholders, debenture-holders, creditors and the ACRA.
If the members of the target group are the companies to which the financial assistance restrictions apply, the target and each of the target's subsidiaries must complete the necessary "whitewash" procedures before that company can either:
Grant guarantees and security to secure any financing taken up by the purchaser.
Undertake any debt push-down (see Question 16).
Completion of the "whitewash" procedures and the granting of such guarantees and security by the target and its subsidiaries are typically required to be completed prior to providing funding in the financing documents.
It is possible for financial assistance to be permitted in certain circumstances, for example, where both of the following are satisfied:
Amount of financial assistance is not more than 10% of the company's paid-up capital and reserves.
Resolution to provide the financial assistance receives the unanimous approval of the shareholders.
Further, a new exception to the financial assistance restriction was introduced in the Companies (Amendment) Act 2014. Under this rule, a company is permitted to provide financial assistance where all of the following are applicable:
The giving of the assistance does not materially prejudice the interests of the company or its shareholders or the company's ability to pay its creditors.
The board of directors of the company passes a resolution that the company should give the assistance.
The terms and conditions under which the assistance is proposed to be given are fair and reasonable to the company.
It is possible for the target company and its subsidiaries to complete this new "whitewash" procedure, and grant the required guarantee and security, shortly after or even contemporaneously with the completion of the acquisition.
Regulated and listed targets
Singapore is generally an open economy with minimal foreign ownership or investment restrictions. However, certain statutes relating to particular industries affect takeover activity in Singapore. These statutes generally limit or require prior regulatory approval before share ownership can be engaged in those industries. Generally, these are industries perceived to be critical to national interests, such as banking, finance, insurance and media.
Examples of these statutes include the:
Banking Act, Chapter 19 of Singapore.
Finance Companies Act, Chapter 108 of Singapore.
Insurance Act, Chapter 142 of Singapore.
Newspaper and Printing Presses Act, Chapter 206 of Singapore.
Telecommunications Act, Chapter 323 of Singapore.
In addition to share ownership restrictions, it should be noted that a foreign person (including a foreign-owned company) cannot own residential property without the approval of the Controller of Residential Properties.
Effect on transaction
The effect on the transaction depends on the specific facts. For example, where the target is an entity that publishes newspaper in Singapore, no person can enter into any agreement or arrangement with respect to the acquisition of more than 5% of the voting shares in the target without government approval.
Specific regulatory rules
Takeover Code. The Takeover Code applies to the acquisition of voting control of public companies. The Takeover Code applies directly to:
Listed registered business trusts.
Listed real estate investment trusts (REITs).
In addition, where possible and appropriate, unlisted public companies and unlisted registered business trusts or REITS must also observe the letter and spirit of the Takeover Code if they have both:
More than 50 shareholders or unit holders.
Net tangible assets of S$5 million or more.
The regulator which oversees the Takeover Code is the Securities Industry Council (SIC).
The Takeover Code applies to all offerors, regardless of whether or not they are:
Resident in Singapore.
Citizens of Singapore.
Corporations or unincorporated entities.
Carrying on business in Singapore.
The Takeover Code also extends to acts done or omitted to be done in and outside Singapore.
While the Takeover Code contains General Principles, Rules and Notes, the SIC can also issue rulings on the interpretation of the General Principles and Rules, therefore setting out the practice to be followed by parties to a takeover offer. These rulings on interpretation are final and are not capable of being challenged in court.
The Takeover Code does not have the force of law and does not give rise to criminal proceedings. However, any breach of its provisions can result in the imposition of sanctions by the SIC. These can include:
Actions designed to temporarily or permanently deprive the offender of its ability to enjoy the facilities of the securities market.
SGX Listing Manual. Where either the purchaser company or the target company is a company listed on the SGX, the SGX Listing Manual (Listing Manual) also applies. The Listing Manual contains rules regulating the general affairs of listed companies and therefore, its provisions must be taken into account if either the acquiring company or the target company is listed on the SGX.
The listing rules set out in the Listing Manual do not have the force of law. However, a failure to comply can lead to disciplinary action being taken by the SGX. Sanctions which can include:
The Listing Manual sets out the continuing listing requirements and corporate disclosure policy which a listed company must comply with. A listed company must keep the SGX, its shareholders and other holders of its listed securities informed of all material information relating to it. This includes information in relation to a takeover, merger or acquisition. Therefore, a listed company intending to make an acquisition, or which is the target of an offer, must make the necessary disclosures in a timely manner.
Competition Act. Section 54 of the Competition Act, Chapter 50B of Singapore (Competition Act), prohibits mergers, including the creation of full-function joint ventures that result, or may be expected to result, in a substantial lessening of competition within any market for goods or services in Singapore. This involves an evaluation of how the competitive incentives of the merger parties and their competitors may change as a result of the merger. The examination of the competitive effects of the merger rests on a sound understanding of the competitive constraints under which the merged entity will operate, identified through a market definition analysis.
Failure to follow merger control procedures where it would otherwise have been advisable to do so can result in financial penalties of up to 10% of the turnover (for up to three years) of the parties to the transaction. This is in addition to any other remedies that may be imposed by the Competition Commission of Singapore on parties to the transaction, such as a direction for the merger to be unwound or for divestments to be carried out.
Methods of acquisition
The more common methods for listed companies are cash purchases and/or share swaps and schemes of arrangement. The amalgamation process, as set out in Sections 215A to 215K of the Companies Act, can also be used.
A purchaser can offer cash, shares or other securities (or a combination of the above) as consideration for the takeover bid. In a cash purchase, the purchaser makes an offer and acquires the shares of the target company for cash only.
In a share swap arrangement, the purchaser acquires shares in the target company from the shareholders of the target company, and in return, provides shares in itself.
In a scheme of arrangement, the target company cancels its existing shares and issues new shares in the target company to the purchaser, in consideration of the purchaser paying cash or issuing new shares in the acquiring company (or a combination of both cash and shares) to the shareholders of the target company. Alternatively, outstanding shares in the target company can be transferred from the shareholders of the target company to the purchaser. As the scheme of arrangement is an arrangement between a company and its members, only the target company can initiate a scheme of arrangement. It is, therefore, not available as an option in a hostile acquisition.
As an alternative to the scheme of arrangement, an acquisition of a public company can be effected through an amalgamation process. This process can involve either:
Two or more companies amalgamating and continuing as one company.
Two or more companies amalgamating and forming a new company.
One advantage of the amalgamation process is that it does not require the sanction of the High Court, unlike a scheme of arrangement. The clearance of the SIC is required for the exemption of certain provisions of the Takeover Code. These provisions include those relating to the offer timetable, acceptances, keeping the offer open for 14 days after it is revised, and the right of acceptors to withdraw their acceptances.
If the offer is for cash or involves an element of cash, the offer document must include an unconditional confirmation that the offeror has sufficient resources available to satisfy full acceptance of the offer (Rule 23.8, Takeover Code). Generally, an offer made the Takeover Code cannot be conditional on the offeror obtaining adequate and unconditional financing.
An offeror who acquires not less than 90% of the issued target company shares pursuant to a takeover offer (excluding the shares held at the date of the offer by the offeror or its holding company, subsidiary or fellow subsidiary) can compulsorily acquire any remaining shares of the target (section 215, Companies Act). Conversely, the dissenting shareholders of the target company have a right to be bought out by the offeror if the offeror and its subsidiaries hold 90% or more of the issued target company shares.
If, in the case of an SGX listed target company whose shares are subject to an offer, the offeror fails to acquire a sufficient number of target company shares to compulsorily acquire the remaining target company shares, the offeror can request the target company to apply to the SGX to be delisted if it satisfies the requirements for a voluntary delisting under the Listing Manual. The de-listing must:
Be approved by a majority of at least 75%.
Not be voted against by 10% or more of the target company shares voted at the general meeting.
The directors and controlling shareholders of the target company are not precluded from voting on the resolution. A reasonable exit alternative, which is normally in cash, must be offered to the shareholders and the target company must appoint an independent financial adviser to advise on the exit offer. SIC's approval is also required for certain exemptions that would be applicable to the offer.
Private pension schemes are not common in Singapore. Instead, the government of Singapore implements a compulsory comprehensive savings plan known as the Central Provident Fund. Under the Central Provident Fund Act, Chapter 36 of Singapore, businesses must make monthly contributions for its employees who are Singapore citizens or permanent residents. This obligation is assumed by the new employer on an asset transfer.
There are few precedent cases in Singapore on lenders being held liable to third parties (such as shareholders and counterparties of the target company) for performing its obligations under the financing documents.
In particular, Singapore law does not recognise the doctrine of equitable subordination. Any such liability would likely be founded in tort. A lender can be liable for negligence if it breaches its duty of care to that third party. Three elements must be established before a duty of care can be imposed on a defendant:
Sufficient legal proximity between the plaintiff and the defendant.
The absence of policy considerations that ought to negate a duty of care.
A lender can also be liable to a third party for inducing a breach of contract, if it knowingly and unlawfully induced the counterparty's breach of contract with that third party.
Lenders should be cautious of being liable as mortgagee in possession by reason of holding any secured assets. Where applicable, a mortgagee in possession has a duty to exercise due diligence in finding rent or disposing the property. The mortgagee must account for all rents and profits received, including those rents and profits he ought to have received had he managed the property with due diligence. Such a duty also applies where possession of the property is taken with a view to a sale. Where there is unreasonable delay in selling the property, the mortgagee in possession is accountable for rent for the duration of the delay. The mortgagee in possession is also liable to keep the mortgaged property in repair.
Lenders dealing with companies in distress may be concerned about being liable as shadow directors of the company. A shadow director is someone in accordance with whose directions or instructions, the directors of the company are accustomed to act, and would have the same duties and responsibilities as a director (although he is not officially appointed as one).
Debt buy-backs are relatively rare in Singapore. Instead, borrowers and financial sponsors tend to prepay or refinance loans.
Loan documentation can be structured to expressly permit debt buy-backs. However, the following issues should be considered when engaging in a buy-back:
The purchaser of the debt must be an entity that the lenders are permitted to transfer or assign to.
Typically there is a disenfranchisement on debt buy-back transactions entered into by the affiliates of the borrower.
Debt push-downs and amalgamations are among the most significant categories of post-acquisition restructurings in Singapore, particularly in a share acquisition.
In a debt push-down, the target obtains a refinancing facility, the proceeds of which are on-lent to the purchaser for the repayment of the acquisition debt. In an amalgamation, the Bidco and the target combine into a single entity. In both cases, the objective is to have the acquisition debt serviced out of the operating cashflow of the target.
The Takeover Code was revised on 25 February 2016 by the Monetary Authority of Singapore on the advice of the Securities Industry Council. The key changes to the Takeover Code include changes that:
Provide certainty in cases of competing offers.
Encourage pro-active offeree boards.
Ensure shareholders and investors are apprised of material information on a timely basis.
Codify and streamline existing practices.
The revisions take effect on 25 March 2016.
In addition, the Ministry of Law in Singapore is currently drafting an omnibus insolvency bill to consolidate bankruptcy and corporate insolvency laws into a single piece of legislation. The bill is expected to introduce significant changes to the insolvency laws in Singapore.
Kok Chee Wai, Partner
Allen & Gledhill LLP
Professional qualifications. Singapore Bar, 1992
Areas of practice. Banking and finance; energy, infrastructure and projects.
Advising the lenders of the acquirer on the multi-billion cash offer for a leading Singapore conglomerate with businesses in the food and beverage and publishing and printing industries.
Advising SEA9 Pte Limited an indirect subsidiary of a fund advised by Headland Capital Partners, on the financing of the S$445.6 million acquisition of Kreuz Holdings, one of the world's leading provider of integrated offshore subsea services to the oil and gas industry.
Advising the mandated lead arrangers and bookrunners on the US$388 million term and revolving loan facilities to various subsidiaries of Halcyon Agri Corporation. The facilities were used to, among other things, refinance the acquisition of all the shares in Anson Company (Private) Limited as well as existing working capital loans of the group and to finance working capital purposes.
Publications. Woon's Corporations Law (Chapter F (Shares, Debenture and Changes) Update), LexisNexis, 2013.
Lim Wei Ting, Partner
Allen & Gledhill LLP
Professional qualifications. Roll of Solicitors of England and Wales, 2008; Singapore Bar, 2003
Areas of practice. Banking and finance
Advising Oversea-Chinese Banking Corporation, as borrower, on the HK$38.7 billion term loan facility to finance, among others, the pre-conditional voluntary offer for Wing Hang Bank. This was among the largest takeover financing transactions in Singapore in 2014.
Advising 68 Holdings Pte Limited on the S$1.025 billion term loan facility to finance, among others, the offer for Hotel Properties.
Professional associations/memberships. Law Reform Sub-Committee on Financial Collateral, Singapore Academy of Law; Singapore Documentation Committee, Asia Pacific Loan Market Association.
Aloysius Ng, Partner
Allen & Gledhill LLP
Professional qualifications. Singapore Bar, 2010
Areas of practice. Banking and finance; Islamic finance.
Non-professional qualifications. Bsc, Economics and Management, University of London
Advising the mandated lead arrangers on the S$3 billion term loan facility to the acquirer to finance its acquisition of a leading diversified property group in Australia.
Advising the lenders of the acquirer on the multi-billion cash offer for a leading Singapore conglomerate with businesses in the food and beverage and publishing and printing industries.