SINGAPORE Singapore Exchange's (SGXL.SI) coup in luring Manchester United MNU.UL to the city is threatening to turn sour as the bourse comes under fire for plans to let the club list using a structure that will minimize the influence of new shareholders.
The SGX is set to approve the initial public offering of up to $1 billion from the English Premier League champions this week or next, two sources with direct knowledge of the listing said.
The Red Devils have spent the past few weeks courting Asia's major institutional and sovereign investors including Singapore state investor Temasek TEM.UL, said the sources, who were not authorized to talk to the media about the plans.
But the club's plan to use a two-tier system of shares to ensure the Glazer family, which owns soccer's biggest brand, will retain control has some investors and experts calling foul.
"I believe this is a backward step for the SGX to take from the perspective of good corporate governance and minority shareholders' rights," said Mak Yuen Teen, a professor at the National University of Singapore who helped draw up the code of corporate governance for listed companies in Singapore.
"It reflects an inclination toward issuers and controlling shareholders as opposed to institutional and other minority shareholders," he said.
An SGX spokeswoman said the exchange was unable to say anything about the discussions with the club.
"We do not comment on speculation nor about our dealings with individual companies," she said.
Sources with knowledge of the club's early discussions with potential investors say it has steered clear of talking about the structure, flagging instead expectations for underlying profit margins to top 30 percent and its strong Asian fan-base.
Most investors are wary of shareholder structures that make it harder for them to monitor and change a company's management.
"Economic interest and ownership interest are not aligned in these structures, and you can find someone with 4 percent of shares controlling the company, for example," said David Smith, head of Asia corporate governance research at Institutional Shareholder Services.
Manchester United wants to raise cash to help reduce a debt pile near $500 million. Its choice of Singapore was aimed at expanding the club's huge Asian fan base as well as tapping the region's stronger growth and investment climate.
Many fans remain unconvinced about the proposal.
"They (the Glazers) will still control the purse strings and the political machinations," said Manchester United season ticket holder Paul Davidson, a teacher.
The club was tipped to list in Hong Kong but lawyers say Singapore, which has struggled to compete with its rival for big ticket listings, may well have been more willing to accommodate Manchester United's demands.
"I wouldn't be surprised if the SGX is showing them some flexibility, they do tend to be more willing than most of the other exchanges," said one lawyer, who asked not to be identified as his firm may become involved in the deal.
Any evidence the exchange has given special treatment to one particular company could be damaging to the SGX in the long-term.
"The general principle is quite clear. No regulator or stock exchange should bend their rules for specific cases such as prestige listings or large listings. That is a very bad precedent to set," said Peter Taylor, Asian equities investment manager for Aberdeen Investment Management without directly commenting on Manchester United's reported plans.
RISK OF INVESTOR TURN-OFF?
Full details of the IPO are yet to be disclosed but sources have said some of the shares issued will be a two-tier share structure.
Lawyers say it is unlikely the club will go down the route of having the two-tier A-share/B-share structure seen in countries like the United States, where some ordinary equity shares carry no voting or fewer voting rights.
For a start, that is banned by the Singapore Companies Act which states there should be one vote, and one vote only per equity share.
But lawyers say it is likely the club will instead make a significant part of its offering in preference shares -- equities that carry no voting rights but get priority over ordinary shares for dividend payments and in the event of liquidation.
SGX CEO Magnus Bocker indicated such a structure might be feasible in a television interview on Thursday.
While the principle of one vote per ordinary equity share is likely to stay in place for the time being, companies can vary their capital structure with preferred equity instead, Bocker said.
"Preference shares are underestimated," he told CNBC.
Manchester United may also have to face the prospect that the share structure could dent the value of their $1 billion offering, which has raised eyebrows for being overly optimistic from the outset.
The Glazers are deeply unpopular with many of Manchester United's estimated 333 million global fans after buying the club in 2005.
"Clearly the degree of control by one majority shareholder has to be a major concern for any conventional investor thinking of purchasing shares primarily seeking a return on investment," Duncan Drasdo, chief executive of the Manchester United Supporters Trust, told Reuters.
"In fact perhaps they should seek medical advice before they seek financial advice given the reaction we've seen from the financial press so far."