Changes mooted for tenure of independent board directors in Singapore

Singapore Exchange Regulation (SGX RegCo) has opened for public consultation its proposal for a hard nine-year limit on the tenure of independent board directors (IDs) and the removal of the two-tier voting mechanism for long-serving IDs.

If directors want to serve beyond the tenure limit, they must be re-designated as non-independent even if their appointment was approved via a two-tier vote previously, according to the consultation paper.

Feedback is also sought on mandating the disclosure of the actual amount and breakdown of the remuneration of board directors and the CEO of listed issuers on a named basis in the annual report. This will bring disclosure requirements on director and CEO remuneration in line with global standards.

Both proposals follow a review of companies’ disclosures based on the Code of Corporate Governance 2018 that SGX RegCo had commissioned*, as well as a study on long-serving IDs by the Nanyang Technological University**. The Corporate Governance Advisory Committee had in its statement on these findings suggested a tenure limit for IDs and disclosure of the exact remuneration of each director and the CEO***.

The Monetary Authority of Singapore already imposes a hard nine-year tenure cap on IDs of Singapore-incorporated banks, insurers and managers of real estate investment trusts (REITs). SGX RegCo has suggested that companies be given a one-year transition period to find suitable ID candidates before the hard tenure limit becomes effective.

“Many companies have used the two-tier vote to retain long-serving directors instead of taking a longer-term view to enhance the independent element on boards. Remuneration disclosures have also been disappointing. Shareholders deserve greater board accountability and transparency. With the proposed rules in place, board renewal will take place at a faster pace, and how remuneration compares with company performance will be better understood,” said Tan Boon Gin, CEO, SGX RegCo.

The public consultation will close on 17 November 2022 and can be found at https://www.sgx.com/regulation/public-consultations.

*The independent review of companies’ disclosures by KPMG in Singapore evaluated information in annual reports and company websites based on the 2018 Code of Corporate Governance. The report is found here.

**The Study of the Implementation of the Nine-Year Rule for Long-Serving Independent Directors by Associate Professor Victor Yeo of Nanyang Business School, Nanyang Technological University, is found here.

***The Corporate Governance Advisory Committee’s statement on the review of companies’ CG Code disclosures is here.

Singapore investors will find it easier to invest in corporate bonds

The Monetary Authority of Singapore (MAS) has introduced two new regulations to facilitate corporate bond offerings to retail investors - individuals who buy securities for personal investment, as opposed to a company for corporate investment.The changes are part of MAS’ overall efforts to widen the investment options available to retail investors through better access to simple investment products that are relatively less risky.

Corporate issuers traditionally look to the wholesale bond market to meet their funding needs due to higher costs involved in tapping the retail market. From today, corporate issuers will find it easier and cheaper to tap the retail market by issuing plain-vanilla bonds through two new frameworks:

First, under the Bond Seasoning Framework, wholesale bonds* released by issuers that meet eligibility criteria stipulated by the Singapore Exchange (SGX) can be offered to retail investors after the bonds have been listed on SGX for six months. These “seasoned” bonds can be re-denominated into smaller lot sizes and offered to retail investors on the secondary market. Eligible issuers can also offer additional bonds to retail investors on the same terms as the “seasoned” bonds without a prospectus. SGX has amended its rules to effect the framework, and issued a practice note to provide guidance to issuers on the relevant procedures and processes**.

Second, under the Exempt Bond Issuer Framework, issuers that satisfy specified thresholds that are higher than the eligibility criteria under the Bond Seasoning Framework*** can offer bonds directly to retail investors at the start of an offer without a prospectus. The new regulations give effect to the policy and legislative proposals consulted on in September 2014 and December 2014 respectively on the Bond Seasoning Framework and Exempt Bond Issuer Framework.

As an additional incentive for eligible issuers under the Bond Seasoning Framework and Exempt Bond Issuer Framework, the Minister for Finance will grant a tax deduction of up to two times to qualifying retail bond issuers for issuance costs attributable to such retail bonds. The tax concession will be available for five years and will take effect today. The MAS has also issued a circular today with further details of the tax concession.

On 1 September 2014, MAS issued a consultation paper proposing changes to the regulatory regime for bond offerings to facilitate greater access by retail investors to bonds.

On 23 December 2014, MAS published its response to feedback on the consultation paper and released a second consultation paper to seek feedback on the draft regulations to effect the proposed changes to the regulatory regime.

MAS has since published its response to feedback on the second consultation paper, which also includes a summary of the eligibility criteria under the Frameworks, the conditions for the prospectus exemptions and the regulations relating to the two new frameworks.

Interested?

Download Eligibility Criteria under the Seasoning Framework and the Exempt Bond Issuer Framework (PDF)

*Wholesale bonds refer to bonds that are offered only to institutional and accredited investors or in large denominations of at least S$200,000. Such offers are exempted from prospectus requirements under sections 274 and 275 of the Securities and Futures Act (Cap 289).

**References at http://www.sgx.com/wps/portal/sgxweb/home/regulation/consult_pub/consult_papers and http://rulebook.sgx.com/.

***For example, an issuer under the Bond Seasoning Framework can satisfy the criteria relating to credit standing if it has issued, or guaranteed the issuance of, bonds listed on SGX of at least S$500 million (or its equivalent in foreign currency) over the previous five years. In comparison, the threshold under the Exempt Bond Issuer Framework is S$1 billion (or its equivalent in foreign currency).