Things become less straightforward when minority shareholders do not fully subscribe. For the most part, shares left untaken, commonly referred to as excess rights shares, are reallocated. Major shareholders may apply for these excess shares to ensure the fundraising succeeds, although such allocations are not automatic.
That’s because rules are in place to prevent unintended shifts in control. In essence, board directors are required to prioritise the rounding of odd lots and ensure that they and substantial shareholders do not use undersubscribed rights issues to consolidate influence at the expense of others.
In a pickle
What begins as a routine capital-raising exercise can therefore involve judgment calls with governance and regulatory implications. For Stamford Land Corporation, a property developer and owner-operator of high-end hotels, those judgment calls have now become the subject of a dispute before the Singapore High Court.
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In December 2021, Stamford Land announced a non-underwritten rights issue with the aim of raising $239 million in net proceeds to help fund property development in Australia, its main market. This was its second rights issue since its 1989 listing.
Investors were offered nine rights shares at 34 cents each for every 10 ordinary shares held. Ow Chio Kiat, Stamford Land’s controlling shareholder and executive chairman, as well as parties related to him, agreed to take up all the shares to which they were entitled. This entire block represented 45.9% of the rights shares.
The company appointed United Overseas Bank (UOB) as lead manager for the exercise. Among other things, UOB was to propose an appropriate basis for allotting excess rights shares that ensured minority shareholders were not shortchanged. The rights issue ended up oversubscribed after excess applications outstripped the pool of rights shares not taken up by entitled shareholders. The new shares started trading in February 2022.
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On the face of it, the exercise appeared routine. But capital raisings are not judged solely by their end results. From the perspective of the Singapore Exchange Regulation (SGX RegCo), the way the deal is run and whether it complies with the rulebook matter at least as much.
Stamford Land’s stance was that it followed UOB’s advice to the letter at every stage of the rights issue. On its part, the bank was persistent in its view that everything it proposed to its client fully complied with the law. In the end, advice UOB believed to be legally sound was found to be at odds with SGX’s Listing Manual.
At the heart of the dispute is Rule 877(10), which requires excess rights shares to be allocated first to round up shareholders’ odd lots, while directors and substantial shareholders with influence over the company, or representation on its board, must be considered last when any excess shares are distributed.
In a statement issued jointly with Stamford Land on Dec 15, 2023, SGX RegCo set out its view of the property group’s allocation. It noted that Stamford Land and its directors had relied on UOB’s advice, which prioritised minority shareholders over directors and controlling shareholders, but still allowed excess rights shares to be allocated to insiders before all minority applications were fully met.
The regulator rejected that interpretation. It stated that Rule 877(10) is meant to prevent conflicts of interest and that its wording is “clear and obvious” in allowing directors and controlling shareholders to receive excess shares only after all minority applications have been fully satisfied.
The issuer pays
According to documents filed with the High Court, Stamford Land was first alerted to this matter in August 2022, when it received a show-cause letter from SGX alleging that the allocation of excess rights shares potentially breached listing rules. A shareholder had apparently filed a complaint with SGX about the distribution. The regulatory consequence of that disagreement was directed squarely at the company.
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SGX’s Listings Disciplinary Committee (LDC) subsequently filed proceedings against Stamford Land. The company ended up hiring law firm Drew & Napier to defend itself in the LDC proceedings.
Those proceedings carried potentially serious consequences. Falling foul of listing rules isn’t just a technical slap on the wrist. Sanctions can go beyond warnings and fines to trading suspensions and, at the outer edge, delisting. Companies can be saddled with costly independent reviews and effectively locked out of the market, while board directors and senior executives can be forced out of office.
In Stamford Land’s case, however, the proceedings did not run their full course. They were discontinued in December 2023 after the company and SGX RegCo reached a resolution. Rather than unwind the transaction or impose formal sanctions, the regulator resolved the matter by accepting a $2 million donation by Ow to the SGX Investor Education Fund, without any admission of liability by Stamford Land.
Notably, no regulatory action was taken against UOB, which continues to maintain that its advice was compliant, despite SGX RegCo’s clear disagreement with the allocation of the excess rights shares. By then, the rights issue had long been completed, and the property firm had spent $1.9 million in legal fees to engage Drew & Napier.
The sequence of these events matters. Before this case, there appeared to be little, if any, precedent for directing enforcement action at an issuer in circumstances where the regulator itself acknowledged reliance on professional advice.
Such reliance is neither novel nor improper. Company law recognises that directors are not expected to be experts in every technical or regulatory domain. They are, in fact, allowed, when acting in good faith, to rely on professional or expert advice, provided they have reasonable grounds to believe it is competent. This reflects commercial reality: boards routinely depend on issue managers, lawyers and accountants to navigate complex transactions.
The case also invites reflection on whether regulators should play a more active role upstream, by offering clearer guidance or earlier intervention, rather than leaving issuers to absorb the full consequences after the fact.
Advice on trial
Having borne the regulatory consequences of the advice it relied on, Stamford Land squared off against UOB in the High Court this past week, seeking $1.9 million in damages for costs it incurred in hiring Drew & Napier. Over two days of hearing from Jan 20 to 21, three UOB employees who worked on the rights issue maintained that the bank had done no wrong.
On its part, Stamford Land said it could not have made any move to allocate the excess rights shares without relying on UOB’s guidance.
Taking the stand on Jan 20, Ow told the court that after engaging a “top three” bank to ensure he was acting properly, he was not prepared to “go and face a firing squad” simply to test whether the advice would be upheld. By that, he meant pressing on with the LDC proceedings, which could have resulted in fines, disqualification and lasting damage to both Stamford Land and his own career.
The unusual nature of the case was not lost on the court. Justice Dedar Singh Gill, who heard the case, said towards the end of the hearing that this was one of those rare situations where either outcome would favour Stamford Land: losing would still bring certainty and closure without a finding of breach, while winning would mean the LDC’s regulatory action should never have been taken at all. The judge’s observation illustrated why Ow chose closure over the uncertainties of a drawn-out regulatory battle.
Closing submissions from lawyers representing Stamford Land and UOB are due in March, after which the court will deliver its verdict.
From the looks of it, the entire episode exposes a structural asymmetry in Singapore’s capital markets. Advisers play a central role in shaping transactions and interpreting rules. But when those interpretations are later rejected, accountability and regulatory consequences rest overwhelmingly with the issuer.
Banks and issue managers may face commercial or reputational fallout, but formal sanctions, public censure and remediation costs are borne by listed companies and, by extension, their shareholders.
Until that imbalance is more clearly addressed, boards will continue to discover that even when they act in good faith on professional advice, the risks of regulatory disagreement remain theirs alone to bear.
