Resources & Latest News
Icon Law Featured in Asian Legal Business as a Firm to Watch
Icon Law has been featured in Asian Legal Business' annual list of "Singapore Firms to Watch", which identifies boutique firms that provide "specialised expertise and personal attention to their clients ... spotlighting such firms that have stood out in the crowd and continued to make an impact on the market".
Asian Legal Business, which is owned by Thomson Reuters, the world's leading source of intelligent information for businesses and professionals, writes:
"... since its explosive start as ZICO Law’s new Singapore member, Icon Law has shown no signs of slowing down. The firm was recently made KPMG Law’s best friend in Singapore, as the latter continues its rapid and successful expansion across Asia. Apart from being routinely featured on ZICO and KPMG’s mega transactions, the Icon Law team is deep-rooted in the Singapore market and has a stellar reputation and track record of delivering quality legal services and presenting innovative and successful solutions. ... Leading the solid team of award-winning talents are Soh Chun Bin and Jeremiah Huang, who are routinely the subject of word-of-mouth marketing and referrals from clients and counterparties.This, coupled with the strategic combination brought by ZICO and KPMG, poises Icon Law for rapid growth, and to become a key name in the corporate space."
The entire feature is available here.
KPMG Law Asia-Pacific Partners Retreat 2023
Icon Law Directors, Soh Chun Bin, Jeremiah Huang and Wong Ee Vin were pleased to be invited to, and to have participated in, KPMG Law Asia Pacific's Partners Retreat 2023.
The retreat took place in Desaru, Malaysia, and was attended by over 70 partners from all across Asia and Australia, France, Germany and the United Kingdom.
Icon Law is proud to be a best friend firm of KPMG Law, and to play an active part in supporting its delivery of end-to-end holistic solutions across the world.
Appointment of Wong Ee Vin as Director of Icon Law
We are pleased to announce the promotion of Wong Ee Vin to Director.
Ee Vin has strong corporate finance and equity capital markets experience and a focus on venture debt, private credit, funds, alternative investment products, and venture capital. He has assisted a broad range of clients with their legal matters, including family offices, venture capital funds, listed companies, and start-ups, often in transactions spanning across Singapore and other Southeast Asian countries such as Indonesia, Vietnam and the Philippines.
"Ee Vin is a valuable and trusted member of the team here at Icon Law and well regarded by his peers and his clients. His promotion to Director is an endorsement of his seniority and a confirmation of his ability to lead transactions and deliver solutions to clients," says Soh Chun Bin, Icon Law's Managing Director.
Ee Vin commenced legal practice in 2017, and worked at boutique and international law firms prior to joining the former Singapore member firm of the ZICO Law Network in September 2019. During his time as a Senior Associate there, he was recognised as a “key lawyer” by the Legal 500.
Ee Vin regularly writes legal articles on legal or corporate matters in Singapore and the Southeast Asian region, some of which are accessible on our website. He graduated from the Singapore Management University with a Bachelor of Law (Cum Laude) in 2016, and is also a candidate for the Chartered Financial Analyst program.
Kazakhstan-Singapore Business Council Appoints Icon Law Director, Jeremiah Huang, as Legal Advisor
The Kazakhstan-Singapore Business Council has appointed Icon Law Director, Jeremiah Huang, as its Legal Advisor in Singapore.
In August 2022, Kazakhstan’s Deputy Prime Minister and Minister of Foreign Affairs, Mr. Mukhtar Tileuberdi, led a delegation comprising Minister of Industry and Infrastructure Development, Mr. Kairbek Uskenbayev, Astana International Financial Centre Governor (and Former Deputy Prime Minister of Kazakhstan), Mr.Kairat Kelimbetov, Chair of Kazakhstan Temir Zholy National Railways Company, Mr. Nurlan Sauranbayev and Chair of Kazakh Invest National Investment Company, Mr. Meirzhan Yussupov, to Singapore. The Kazakh delegation met with, amongst others, the President of Singapore, Mdm. Halima Yacoub, and Singapore’s Deputy Prime Minister and Finance Minister, Mr. Lawrence Wong, and Minister for Foreign Affairs, Mr. Vivian Balakrishnan, reaffirming the warm ties between Kazakhstan and Singapore. Indeed, bilateral trade surpassed $1 billion in 2021, with both countries expecting a 3-fold increase this year.
During their visit, the Kazakh delegation also inaugurated the KSBC, which has been established since 2016 to facilitate commerce, investment and tourism between Kazakhstan and Singapore. Amongst its many esteemed members are Singapore’s CPG International (the corporatised entity of the former Public Works Department ofSingapore, which is now a global leader in developing and managing infrastructure and building facilities) and Kazakhstan’s Kusto Group.
The KSBC is led by a Board of Directors helmed by Mr. Sultan Marenov, Founder & CEO of SNRG Capital and Independent Director of JSC Bank Dabrabyt and Kazpost JSC.
Icon Law Director, Jeremiah Huang, Featured in The Legal 500 (Asia Pacific)
Icon Law Director, Jeremiah Huang, has once again been featured in The Legal 500 (Asia Pacific) as a "Next Generation Partner", which identifies "lawyers with (generally) five years or fewer at partner level, [with] significant recognition from clients and peers in the market, and recent lead roles on multiple matters".
The Legal 500 is considered to be the largest legal referral guide in the world, with rankings thereon based on merit (researched by the editorial team). Indeed, The Legal 500 previously published an anonymous testimonial given to them, "Jeremiah Huang stands out for us. He is very swift and decisive".
Icon Law Recommended in The Legal 500 (Asia Pacific)
Just 3 months after the establishment of Icon Law LLC, it has been featured and recommended in The Legal 500 (Asia Pacific) for "Capital Markets: Equity and Debt: Local Firms". This achievement validates the strong capabilities and market reputation of the team led by Directors, Soh Chun Bin and Jeremiah Huang.
The Legal 500 is considered to be the largest legal referral guide in the world, with rankings thereon based on merit (researched by the editorial team).
For and on behalf of the entire team, we wish to express our sincere gratitude and appreciation to our clients, friends and family who have supported us on our journey, and of course, to The Legal 500.
Icon Law Director, Jeremiah Huang, Featured in Asian Legal Business as Singapore Rising Star
Icon Law Director, Jeremiah Huang, has been featured in Asian Legal Business' inaugural list, "Singapore Rising Stars 2022", which identifies "the next generation of the country’s lawyers who have demonstrated great potential in the industry, while earning wide acclaim from their clients in the process".
Asian Legal Business, which is owned by Thomson Reuters, the world's leading source of intelligent information for businesses and professionals, writes:
"Huang is a proven executor of equity capital markets projects, mergers and acquisitions and corporate transactions. Besides IPOs such as that of Grand Venture Technology Limited (SGX) and Kwan Yong Holdings Limited (HKEX), he has been involved in a long list of notable deals. Most recently, he acted for SGX-listed Hyphens Pharma and its digital healthtech unit DocMed Technology in its Series A round which Metro (the retail giant) participated in, and for leading data centre builder, ACME Associates, in its joint venture with EPC giant, Italthai Engineering (part of Thai conglomerate, Italthai). Clients rave about his work, and he has received various industry recognitions. "Technically sound, commercial and responsive, I can depend on him for solutions at all hours" said Zack Quek, Group General Counsel of NinjaVan."
The entire feature is available here.
Leading Web3 Entertainment Platform Operator, Digital Entertainment Asset, Raises US$10 million from LDA Capital
We are pleased to announce that our Director, Jeremiah Huang, and Associate, Brittany Lau, have advised leading Web3 entertainment platform operator, Digital Entertainment Asset, in its US$10 million fundraise from Los Angeles-based alternative investment group, LDA Capital.
DEA operates, amongst others, the PlayMining platform, which is best known for GameFi games, Job Tribes, Cookin' Burger, Menya Dragon Ramen, Graffiti Racer and Lucky Farmer.
In Bloomberg's coverage of the transaction (available here), it explains: "Players can earn DEP through play, which can be spent on the platform's marketplace to buy NFTs that enhance gameplay, or traded on crypto exchanges including OKX, Uniswap, Gate.io and Bitmart, among others. In addition to GameFi NFTs, the PlayMining NFT market also sells artwork NFTs from some of the most popular Japanese anime and video game artists. The company has paid out over SG$9 million in royalties to both official and fan artists over the past four years, with a mission of creating a fairer distribution channel for creators."
The foregoing transaction comes less than a month after an investment from Rakuten Capital, the corporate venture capital arm of Japanese e-commerce and internet services giant, Rakuten Group.
For more information, please contact Jeremiah Huang or refer to the media's coverage of the transaction and the announcements by each of DEA and LDA Capital.
SGX RegCo Issues Standard for Virtual Meeting Service Providers
Singapore Exchange Regulation (i.e. RegCo), together with the Singapore Institute of Directors (SID) and the Chartered Secretaries Institute of Singapore (CSIS), has today issued a Standard (the “Standard”) for Vendors of Virtual/Hybrid General Meeting Systems (“Systems”) which sets out the functionality standards of Systems which the providers of virtual and hybrid meeting services (“Service Providers”) should aspire towards.
First, to answer the questions that (probably) led you here. Is the Standard mandatory for Service Providers? Are issuers limited to only engaging Service Providers that follow the Standard? No … but both the Foreword and Explanatory Notes to the Standard contain a written encouragement to issuers to, when choosing their Service Provider, have regard to it. Consequently, compliance with, and due regard to, the Standard is voluntary. However:
- The Standard makes clear that there are certain baselines expected of Systems – and functions and matters that are expressed as things that “shall” be included as a part thereof are a “requirement” (as distinct from those stated to be “could” or “may”, which indicate only “recommendations” and “a possibility”).
- You can be sure that if and when things go wrong, the Standard will be used as a metric in any after action review – Service Providers will be asked the extent to which it had been complied with, and issuers will be queried on why and how they chose their Service Provider (particularly, where the Service Provider used was one that did not comply with the Standard).
Broadly, the Standard seeks to address 3 key aspects of the Systems, namely:
- Functional capabilities of the Systems
- Technological risk management
- Measurement, analysis and improvement
Amongst the many “shall-s” of the Standard are the following:
Functional Capabilities of the System
- The Systems shall allow for members to provide relevant information to allow their identities to be verified and shall communicate with the share registrar for verification (implicit in this is the need to ensure that the Service Provider, Systems and share registrar are able to work together).
- Members attending virtually shall be able to submit questions in the form of text via the meeting platform and to vote on resolutions put before the meeting, with the casted votes recorded for auditability (implicit in this is the need to ensure that the Service Provider, Systems and scrutineer are able to work together).
- The appointment of proxies shall be a functionality, along with the means to split votes (e.g. for X number of shares to be voted “FOR” and Y number of shares to be voted “AGAINST”).
- The Systems shall be able to designate certain members as interested persons or otherwise ineligible to vote and disallow them from doing so.
- The Systems shall include the means for technical support to be provided by distinct channels that are not reliant or dependent on it (which means that there must be a back-up, communicated in advance).
Technological Risk Management
- Service Providers need to undertake comprehensive testing of the stability and availability of the Systems, which must be documented, and the results made available to customers on request (so an argument by an issuer “how can I possibly know that a Service Provider is unreliable?!” does not hold water).
- The historical availability of voting and question and answer modules need to exceed 99%.
- There needs to be alternative webcast channels in the event of a failure of the primary one.
- The Service Provider shall cater for back-ups/fail-over systems.
- The Service Provider shall ensure that the Systems comply with relevant information security standards, such as ISO/IEC 27001.
Measurement, Analysis and Improvement
- Service Providers are expected to regularly monitor, improve and update the Systems independently and on account of any feedback received, to ensure and maintain their continued suitability, adequacy and effectiveness.
While issuers should take active steps to ensure that their Service Provider complies with the Standard, they may also rely on representations and warranties on this point. We would be happy to advise on your service agreement with a Service Provider! If you have any questions or require any additional information, please contact our Jeremiah Huang* and Brittany Lau.
*Disclosure: Jeremiah was one of the representatives of the Law Society of Singapore’s Corporate Practice Committee that participated in the discussions and drafting of the Standard.
The (Outdated) Persistence of REITS and Trust Structures in Real Estate Funds
Real estate funds in Singapore, whether listed or unlisted, have conventionally been constituted as unit trusts. A unit trust is a type of collective investment scheme that is based on a trust over assets (in this case, real estate and real estate-related assets) held by the trustee, and of which beneficial interests are vested in the holders of ‘units’ in the said trust.
That said, the launch of the variable capital company (‘VCC’) structure in Singapore in January 2020 provided a new alternative to structure real estate funds. Briefly, a VCC is a corporate entity that can be used to hold one or more collective investments schemes over any form of property, including real estate and real estate-related assets. It can be structured in a variety of ways, most notably as an umbrella VCC with several sub-funds, each having its own separate and segregated investment objectives, assets and liabilities.
Despite the establishment of over 540 VCCs as of mid-2022, as of the date of this article, there are no real estate funds listed on the Singapore Exchange Securities Trading Limited (‘SGX-ST’) that are constituted as VCCs – most have adopted the unit trust structure. Anecdotally, we have had many clients who request for their real estate funds to be structured as unit trusts, and view VCCs with some degree of unfamiliarity or suspicion.
Borne out of this context (and perhaps a little frustration), we want to delve into the reasons underlying the persistence of the unit trust structure for real estate funds (instead of VCC). Ultimately, we argue below that the VCC offers greater advantages over a unit trust structure and should be the structure of choice for listed and unlisted real estate funds going forward.
The history of unit trust structures in Singapore
Much of the preference for unit trust structures in Singapore for real estate funds can be traced to the widespread use of real estate investment trusts (‘REITs’). REITs were first conceptualised in 1960 by the United States (‘US’) Congress to give all investors, particularly small retail investors, opportunities to invest in real estate without incurring significant capital outlay. Such real estate funds were not corporatised (i.e. they were constituted via trust structures) primarily because of a prohibition on corporations from qualifying as REITs under the US tax laws in force at that time. As such, trust structures have, by reason of precedent, been used to house REITs in the US, although (since certain amendments made to the US tax laws in 1976) the trend in the US has been to corporatise REITs as state law corporations.
Locally in Singapore, market players have followed the trailblazing precedents set by the US, Australia and other foreign jurisdictions. The first listed Singapore REIT (‘S-REIT’), CapitaMall Trust, was constituted as a unit trust and listed on the SGX-ST in 2002. Over the years, the S-REIT landscape has matured, with 43 S-REITs and property trusts having a total market capitalisation of SGD111 billion as at June 2022. A quick sampling of these S-REITs reveal that almost all of them are set up as unit trusts. So prevalent are unit trust structures that the rules of the SGX-ST relating to real estate funds are drafted assuming that the real estate fund is constituted as a unit trust, even though there is no strict requirement to be constituted as such. Therefore, it remains to be seen how such listing rules, requirements and procedures will be applied to a real estate VCC in the future.
Anecdotally in the private unlisted real estate fund industry, we note that clients often have a strong preference for unit trust structures, as documentation is widely available on the SGX-ST and in other exchanges. Such structures are well-understood and ingrained into the public consciousness.
Aside from familiarity, what advantages do unit trusts have over other structures and in particular the VCC? We compare these two structures– and on a balance, argue that the VCC is actually much more suitable to house real estate funds than trusts.
The VCC versus the unit trust structure for real estate funds
One of the often-cited advantages of constituting a real estate fund as a unit trust is the tax transparency treatment of certain specified income distributed by the trustee. Tax transparency means that the specified income will not be taxed at the trustee level, but in the hands of the unitholders. However, while that is true for REITs, we have had to explain to some clients that REITs have a specific meaning – being a trust investing in real estate and real estate-related assets that is constituted as a collective investment scheme authorised under section 286 of the Securities and Futures Act 2001 (‘SFA’) and listed on the SGX-ST. As such, for many of our private clients, they will not be able to avail themselves of the automatic tax transparency treatment and income tax will be levied in the trustee’s hands at the prevailing corporate tax rate. This outcome is therefore similar to a VCC for income tax purposes, as a VCC is treated as a company incorporated under the Companies Act 1967 and subject to the prevailing corporate tax rate. In both cases, downstream distributions from a unit trust to its unitholders or a VCC to its shareholders are exempt from another separate tax.
In addition, while the tax incentive schemes generally available to real estate funds, being the Offshore Fund Tax Exemption Scheme, the Singapore Resident Fund Tax Exemption Scheme and the Enhanced-Tier Fund Tax Exemption Scheme, are applicable depending on its legal structure, similar economic benefit is accorded under these schemes. In each case, the real estate fund must fulfil the specific conditions to prove that its ‘specified income’ is derived from ‘designated investments’, and therefore is exempt from tax. Thus, there is no inherent benefit in constituting a real estate fund as a unit trust. Conversely, certain qualifying expenses incurred in the incorporation or registration of a VCC may be defrayed by the VCC Grant Scheme offered by the Monetary Authority of Singapore (‘MAS’), capped at SGD150,000 per VCC. As at the date of this article, the VCC Grant Scheme is still available.
From a regulatory perspective, the managers of VCCs are required to be regulated by the MAS, and are excluded from relying on the exemption relating to immovable assets under the SFA from holding a capital markets services (‘CMS’) licence for fund management. Accordingly, the additional time and effort involved in the application of a CMS licence for fund management may deter the utilisation of VCCs. In contrast, a manager of a unit trust can invoke such exemption and be deemed to be a ‘restricted scheme investing in non-capital markets products’, provided that (i) the fund invests solely in immovable assets or in securities issued by investment holding companies whose sole purpose is to invest into real estate development projects and/or real estate properties, and (ii) the units in the fund are offered only to accredited investors. The adoption of the unit trust structure therefore appears to be a relatively quicker path to establish a real estate fund.
Yet from a legal perspective, there are benefits in having clearly defined statutory rules governing the segregation of assets and liabilities of the sub-funds of a VCC, that the sub-trusts of a unit trust do not have the advantage of. This is most relevant in considering the protection of the unitholders during insolvency or winding up of the real estate fund. Such segregation laws are statutorily enshrined in the Variable Capital Companies Act 2018 (‘VCC Act’) which states that the assets of a sub-fund of a VCC cannot be used to discharge the liabilities of the umbrella VCC or of another sub-fund. Third party creditors of a sub-fund are therefore ring-fenced into recovery against that sub-fund’s assets by the operation of clearly defined legal rules. In comparison, the unitholders of a sub-trust are not conferred similar protection and must rely on contractual provisions set out in the trust deed to segregate the assets and liabilities of each sub-trust. Legally speaking, such segregation is contractual and only binding on the trustee and unitholders inter se and may not be entirely effective against third party creditors who are not privy to the trust deed and have had no notice of the same. As such, protection of the unitholders afforded by a unit trust is weaker than that rendered to the shareholders of a VCC.
Finally, from a conceptual perspective, it must be highlighted that trust laws do not mandate a limitation of liability between unitholders and their trustee, and therefore theoretically unitholders may be exposed to unlimited liability incurred by the trustee. Unless otherwise agreed, trustees have a right to be indemnified against the trust assets and where insufficient, against the unitholders personally, insofar as the trustee is not in breach of its statutory duties under the SFA. On the contrary, given that the VCC is a company, the liability of shareholders is limited to their subscription into the VCC, and the directors and/or managers of the VCC do not have direct recourse against the shareholders. This is however a conceptual point because to our knowledge, the limits of such personal recourse by a trustee against its unitholders have never been tested in Singapore courts.
In summary, it appears that the VCC has several clear legal advantages over the unit trust structure, and generally enjoys similar tax treatment to a unit trust (which is apposite for unlisted real estate funds). However, a real estate fund constituted as a trust and which is deemed as a ‘restricted scheme investing in non-capital markets products’ need not have a licenced manager, which a VCC is statutorily required to have. This may deter smaller real estate funds from adopting the VCC structure.
The way forward
Having considered both the advantages of the VCC as well as its limitations relative to the trust structure, we set out our thoughts on possible enhancements to the VCC framework going forward to better suit real estate funds.
An important step forward would be to extend the exemption relating to immovable assets under the SFA from the requirement to hold a CMS licence for fund management, to the fund managers of real estate funds constituted as VCCs, subject to the satisfaction of the requisite conditions. By doing so, it would bring the VCC on par with the unit trust structure in this respect. While we acknowledge that the rationale for mandating that fund managers of VCCs be regulated by the MAS is to maintain supervisory oversight and prevent any abuse of the VCC structure, safeguards may be implemented via the introduction of more stringent requirements under the corporate governance framework of VCCs. Nonetheless, it remains a curious case as to why a real estate fund constituted as a trust and which is deemed as a ‘restricted scheme investing in non-capital markets products’ need not have a licenced manager, whereas a real estate fund constituted as a VCC must have a manager that is regulated by the MAS.
Moreover, as noted above, the present rules of the SGX-ST pertaining to the listing of real estate funds are drafted in trust language. By providing express guidance as to the applicability of the rules of the SGX-ST in relation to the listing of real estate funds constituted as VCCs, this will provide clarity and aid the decision making in structuring real estate funds as VCCs.
On this note, it is hoped that subsequent revisions of the VCC framework will progressively bolster Singapore’s position as a leading asset management and fund domiciliation hub, in addition to its status as a global REIT hub.
If you have any questions or require any additional information, please contact Soh Chun Bin and Meryl Tan.
 Thompson and Priest, ‘Singapore: Wider Adoption Greater Goal For Singapore VCC’ (Mondaq, 5 September 2022) <https://www.mondaq.com/directors-and-officers/1227428/wider-adoption-greater-goal-for-singapore-vcc-> accessed on 27 October 2022.
 Lee and Foo, ‘Real Estate Investment Trusts in Singapore: Recent Legal and Regulatory Developments and the Case for Corporatisation’ (2010) 22 SAcLJ at 37-38.
 Ibid at 38.
 SGX Research, ‘Chartbook: SREITs & Property Trusts’ (SGX, June 2022) <https://www.reitas.sg/wp-content/uploads/2022/06/SGX-Research-SREIT-Property-Trusts-Chartbook-June-2022.pdf> accessed on 27 October 2022.
 Rule 404(8) of the Mainboard Rules of the SGX-ST.
 Section 43(10) of the Income Tax Act 1947 (‘ITA’).
 Section 13D of the ITA.
 Section 13O of the ITA.
 Section 13U of the ITA.
 Paragraph 5(1)(h) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations.
 Paragraph 6A of the Sixth Schedule to the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005; MAS, ‘FAQs on the Licensing and Registration of Fund Management Companies’ (MAS, 30 March 2022) at 5.
 EC Investment Holding Pte Ltd v Ridout Residence Pte Ltd  4 SLR 123 at .
Venture Debt in Southeast Asia – Observations from a Singapore Practice
In this increasingly austere period of fundraising, debt financing is for many start-ups the only option to tide over this difficult period. Yet, institutional lenders often refuse or are unable to lend to early-stage companies. There is an alternative to institutional lenders – venture debt – nonetheless, from our experience, it remains a relatively unfamiliar option for many start-ups in Southeast Asia. This article aims to shed some light on venture debt, demystifying its terms and the venture lending business in Southeast Asia.
Venture debt is, at its core, debt that is specifically provided to early-stage companies and start-ups. This fundraising paradigm was first conceived and developed in the United States and has grown in deal flow to almost USD30 billion annually in the past few years. As with traditional debt, venture debt can comprise of term loan facilities, revolving facilities or other types of debt financing.
Compared to equity financing, debt is attractive to founders as it permits them to extend their cash runways with minimal or no dilution. This is complementary for early-stage companies seeking to raise capital to meet commercial objectives or to achieve meaningful milestones, so as to justify a higher valuation at the next funding round. However, start-ups and their founders often cannot access financing from institutional lenders, because such lenders assess debt repayability of start-ups based on their financial track records, positive cash flows, and assets over which security can be granted, all of which are not readily available in early-stage companies. To this end, venture lenders try to meet this demand in a manner that benefits all parties.
To compensate for the inherently higher risk assumed by venture lenders by lending to start-ups, venture lenders charge interest rates that are higher than those charged by institutional lenders. Venture lenders may also ask for security in support of their loans. Typical security may include, amongst others, personal guarantees from the founders, all-asset debentures granted by the borrower, and charges on specific bank accounts and/or account receivables of the operating subsidiaries. There is no market standard on the type of security to be provided, and much depends on what is commercially acceptable and reasonable to the parties.
In addition, a common condition for venture debt is the borrower’s provision of share warrants that are redeemable into shares at a specified exercise price. The number of share warrants to be provided is typically expressed as the ‘warrant coverage’ over the loan amount, such as ‘20% of the loans drawn down’. This would mean, assuming a loan amount of USD1 million, that the venture lender can subscribe for an equivalent of USD200,000 in shares at the specified exercise price under the share warrants. Such share warrants are ‘detachable’ and are, after their issuance, often expressed to be transferrable to third parties. However, it must be noted that the terms of the warrants, the exercise price, the type of shares and the warrant coverage are all matters to be negotiated between the venture lender and borrower at the outset. There are no market standards for how such share warrants should be constituted.
Venture debt should not be confused with convertible debt or other equity instruments, as they are not convertible – the share warrants are exercisable upon the payment of the specified exercise price for each share.
Venture lenders vs institutional lenders: differences in perspectives, approaches and processes
While institutional lenders usually comprise banks and financial institutions, venture lenders can include not just such financial institutions but also family offices, private equity, hedge funds and high net worth individuals. Because of the nature of their business, venture lenders are not constrained by capital adequacy and regulatory requirements that are imposed on institutional lenders, and therefore can assume a greater amount of risk.
In making a lending decision, unlike institutional lenders, venture lenders focus beyond the start-up in question and will also consider the private equity, angel investor and/or venture capital firms (collectively referred to as “venture capital firms”) involved with the start-up. This is for several important reasons:
- Traditional metrics for assessing debt repayability do not work on start-ups. Venture lenders must decide based on their assessment of the long-term sustainability of the start-up, as well as the possibility of follow-on fundraising. However, venture lenders may not (unlike venture capital firms) have specialist knowledge or the technical skill to assess the underlying products or services. In addition, unlike the comprehensive due diligence carried out by venture capital firms, there is little or no due diligence carried out in venture lending. As such, the involvement of a good venture capital firm serves as a powerful indicator of start-up quality, to the extent that venture lenders generally do not extend venture debt to start-ups until venture capital firms are involved.
- From a logistical perspective, the assumption of debt, the undertaking of security and the grant of share warrants are often board reserved matters and/or shareholder reserved matters. Without the consent of venture capital firms and their nominated directors, venture lending cannot proceed.
- Venture lenders face a great deal of information asymmetry. While venture lenders usually have monitoring mechanisms and covenants built into their facility documentation, they do not have the benefit of a board seat, veto rights or other forms of operational control over the company. As such, having a good venture capital firm involved and actively monitoring the financial health of such start-ups is complementary to the venture lender’s ongoing monitoring of their borrowers.
- There is often an implicit understanding that some portion of the future rounds of fundraising may be used to repay venture debt, which would otherwise be impossible without the close cooperation of venture lenders with venture capital firms.
In addition, the manner in which negotiations are run by institutional lenders and venture lenders are different. Institutional lenders assume that borrowers are sophisticated, capable of understanding complex documentation, and have the resources to engage qualified advisors. When default occurs, institutional lenders have recourse through their transaction security and recoverability is high. However, start-ups do not have the same resources and collateral as their established counterparts and are often under-represented or even unrepresented. As such, the consequences of the borrower’s negligence, breaches and defaults are much heavier to a venture lender. Consequently, some venture lenders choose to take a greater degree of control in the lending process, such as requesting for voluntary disclosures from the borrower (which will be elaborated further below), assessing if the required consents under the borrower’s constitution and shareholders’ agreement have been properly obtained, and providing template resolutions, registers and other documents which the borrower must use.
Finally, while institutional lenders may rely on a variety of financial covenants to monitor borrower’s risk profile, the risky nature of start-ups means that venture lenders place heavy emphasis on monitoring the cash runway and bank account balances of their start-up borrowers.
Venture lending in Southeast Asia from a Singapore perspective
Having explained what venture lending is and how it differs from institutional lending, how does venture lending in Southeast Asia compare to other regions such as the United States or Europe?
We set out below some observations we have noted in our deals in the past few years.
- Despite recent improvements, the legal landscape of Southeast Asia remains fragmented and divergent relative to the United States and/or Europe. It is not uncommon for the fundraising holding company of a Southeast Asian start-up to be incorporated in one jurisdiction and its operating subsidiaries in various jurisdictions with each entity being subject to different laws on borrowing from offshore entities, taking and enforcing security, and foreign ownership. In this context, venture lending is often extended to the holding company (being the entity under which venture capital was raised), pursuant to a facility agreement governed by laws and in a format comfortable to the lender, and some of the supporting transaction security may be granted by the operational subsidiaries pursuant to foreign law security documentation of that jurisdiction.
- As noted above, institutional lenders assume borrowers understand the loan documentation as a sophisticated party. Where the representations and warranties set out in the documentation may not be accurate or complete, institutional lenders assume that borrowers will negotiate limitations or exceptions and disclose the reasons why. In the institutional context it is unheard of for borrowers to give disclosure letters to such representations and warranties. However, in the Southeast Asian venture lending context, where recoverability is limited and borrowers may not be sophisticated, some clients have insisted on borrowers giving disclosure letters – with the sole purpose of forcing their management team to read through the representations and consider the documents in great detail. We can attest that this method works: we have had deals under which no comments were received during the negotiations of the loan documentation, but disclosures were subsequently made when the borrower was forced to draft the disclosure letter.
- Given the financial conservatism of Southeast Asian lenders and longer runways to future equity fundraising rounds, venture lenders are often hesitant to extend venture debt if there are too many loans on the start-up’s books. Venture lenders often make exceptions for existing loans granted by institutional lenders and may be happy to rank junior to such loans, but will otherwise scrutinise other types of debt, including shareholder loans and convertible notes. In such situations, some venture lenders will require that these other lenders expressly subordinate their debt to their venture debt.
- In the United States, we understand that some venture lenders do not use extensive loan covenants – going so far as having ‘no-covenant’ or material adverse change clause-only deals as the market standard. In the Southeast Asian context however, venture lenders are more risk-adverse and have extensive positive and negative covenants relating to, amongst others, the dissipation of assets, the assumption of further debt, and the use of loan proceeds. Nevertheless, the fast-changing and unpredictable nature of start-up businesses means that waivers are often requested for many of these covenants, which renders their compliance irrelevant in the first place. Venture lenders are aware of this and use such covenants to maintain a conversation with start-up borrowers and venture capital firms, so as to find mutually acceptable compromises for all parties.
In conclusion, aside from equity funding and institutional lending, venture debt is another fundraising option that start-ups should consider and explore. While there are differences between venture debt and traditional debt, we have endeavoured to demystify such differences and explain the dynamics between the parties involved in the venture lending process.
If you have any questions or require any additional information, please contact Soh Chun Bin and Wong Ee Vin.
 Darian M Ibrahim, ‘Debt as Venture Capital’ (2010) 4 University of Illinois Law Review 1169, 1194.
 Marina Temkin, ‘Large-scale investors flock to venture debt’s ‘phenomenal returns’ (PitchBook, 30 September 2022) <https://pitchbook.com/news/articles/venture-debt-financing-blackstone-KKR> accessed on 27 October 2022.
Establishment of Icon Law and Joining of the ZICO Law Network
Icon Law is pleased to announce its establishment and joining of the ZICO Law network as the member firm in Singapore effective Monday, 3 October 2022.
Founded and led by Soh Chun Bin and Jeremiah Huang, Icon Law showcases diverse legal talent, with decades of award-winning corporate, finance and transactional experience.
Icon Law is an evolution from the former Singapore member firm of the ZICO Law network, with a deep-rooted and select team dedicated to providing innovative and high-quality legal services that keeps pace with the ever-changing demands of one of the world's fastest-growing markets, Southeast Asia.
We provide local, multi-ASEAN and multinational clients with timely, commercial and effective legal advice and assistance in Singapore, and together with the rest of the ZICO Law network, across all ASEAN.
Regional Managing Partner of ZICO Law, Hanim Hamzah said, “Singapore has been and remains a vital market for ZICO Law and we are delighted to continue to strengthen the network through the familiar team of Icon Law.”
For more information on Icon Law and the ZICO Law Network, please visit: www.iconlaw.sg and www.zicolaw.com.
About ZICO Law
ZICO Law is the first network of leading independent local law firms with a full presence in all 10 ASEAN countries. Being in 18 cities in 10 out of 10 ASEAN countries, ZICO Law’s 300+ lawyers enable clients to enjoy value-added legal services by leveraging a combination of local expertise and regional insights.
Acquisition of 12 Units at Prudential Tower for S$49 Million
We are pleased to announce that our Director, Jeremiah Huang, has recently in 2 separate transactions, successfully acted for 3 HNWIs in their acquisition of 12 units at Prudential Tower, for S$49 million from one of the world's largest asset manager. The transactions were carried out via acquisitions of shares of special purpose vehicles, and Jeremiah was lead and coordinating counsel for the buyers’ professional teams, which spanned different jurisdictions. The deal reinforces our ability to leverage domestic strengths and deliver cross-border solutions, however complex. Assisting Jeremiah were Katherine Tan, Meryl Tan and Brittany Lau.
Metro Invests S$6m for 10% Stake in Hyphens Pharma's Digital Healthtech Unit, DocMed Technology
SGX-listed property and retail giant, Metro Holdings (SGX:M01) ("Metro") has agreed to invest S$6 million for 10% in SGX-listed Hyphens Pharma International's (SGX:1J5) ("Hyphens") digital healthtech unit DocMed Technology ("DocMed"). The investment represents a Series A round of funding for DocMed, giving it a post-money valuation of S$60 million based on the subscription price.
As part of the transaction, Hyphens will undertake a restructuring exercise to transfer its shareholding in Pan-Malayan Pharmaceuticals to DocMed, making Pan-Malayan a wholly-owned subsidiary of DocMed. The restructuring is part of plans to consolidate all digital assets of the group under DocMed to develop an integrated digital healthtech platform.
DocMed plans to use the investment to further its growth plans, which include developing an integrated healthtech platform, incorporating various healthtech solutions to cater to healthcare stakeholders in Singapore and the Asia-Pacific region. The investment will help DocMed expand in the region, while leveraging on Hyphen's and Metro’s regional presence.
Leading the transaction team for Hyphens and DocMed was Jeremiah Huang, Director with Icon Law, with support from, Katherine Tan, Meryl Tan and Brittany Lau.
For more information, please contact Jeremiah Huang or refer to the media's coverage of the transaction and the announcements by each of Metro and Hyphens on SGXNet.
Taking the Payment Services Act to the Moon – A Gentle Reminder on the Financial Services and Markets Bill
With the second reading of the Financial Services and Markets Bill (“FSMB”) last week (4 April 2022), Singapore’s regulatory stance towards digital payments tokens (“DPTs”), and particularly, service providers in that space (encapsulated in the Payment Services Act 2019 (“PSA”)) is closer than ever to being taken to the moon. While the FSMB’s overarching purpose is to allow for a financial sector-wide regulatory approach (as distinct from regulating based on the type of entity/activity), it also enhances the regulation of virtual asset service providers and thus, supplements the PSA’s position.
It will no longer be enough that your DPT/DT services are not provided in Singapore
If the FSMB comes into force, you will no longer be able to rely on the excuse “but .. but .. BUT I AM NOT PROVIDING THE SERVICE IN SINGAPORE!!!” *sad puppy eyes*Under the FSMB, any individual or partnership who has a place of business in Singapore and is carrying on a business of providing any digital token (“DT”) service (such as those set out below and also includes services involving DPTs) outside Singapore must have a valid licence in force. Additionally, Singapore corporations must not carry on a business of providing any DT service, whether from Singapore or elsewhere, without a valid licence in force. This approach is consistent with the Financial Action Task Force’s call for persons to be licensed in their host jurisdiction of their place of business, and for corporations to be licensed in their jurisdictions of incorporation (regardless of their place of business).And before you CRYPTOBRO BIG BRAIN TIME, it does not matter that the DT service only relates and/or is incidental to another main or primary business that is not subject to or is exempt from regulation – the FSMB presumes that such DT service is separately provided as a secondary business and is therefore independently subject to regulation.
An expansive category of DT services will be regulated, that is much wider than that under the existing PSA
Under the proposed FSMB, the following services involving DTs will be regulated:
- dealing in DTs (i.e. buying and selling of DTs in exchange for money or other DTs);
- facilitating the exchange of DTs;
- accepting (whether as principal or agent) DTs from one DT account, for the purposes of transmitting or arranging for the transmission of the DTs to another DT account;
- inducing or attempting to induce any person to enter into or to offer to enter into any agreement for or with a view to buying or selling DTs in exchange for money or other DTs;
- safeguarding DTs, where the service provider has control over the DTs;
- carrying out for a customer an instruction relating to any DT, where the service provider has control over the DT;
- safeguarding a DT instrument, where the service provider has control over one or more DTs associated with the DT instrument;
- carrying out for a customer an instruction relating to one or more DTs associated with a DT instrument, where the service provider has control over the DT instrument; and
- providing advice, whether directly or through publications or writings, or issuing or promulgating research analyses or research report, in each case relating to the offer or sale of DTs.
The foregoing is actually slightly wider than the existing PSA and even the upcoming Payment Services (Amendment) Act 2021 (the bill of which has been passed by the Singapore Parliament and which will come into force at a later date). Notably, the FSMB regulates advice on DTs which the existing PSA and the Amended PSA does not. Based on the above, apart from the usual suspects such as cryptocurrency exchanges and brokers, we set out below some examples of who may be regulated:
- Certain decentralised applications such as decentralised finance applications (“DeFi”): the term “decentralised application” (“DApp”) is often used to describe programs running on decentralised networks such as Ethereum, Solana and Terra. If a DApp is involved in the exchange of DTs into fiat currency or other DTs (most notably DeFi applications), the creators, owners, operators or other persons who maintain control of influence over that DApp may be regulated under the FSMB. This is especially the case where the DApp in question is highly centralised amongst a few parties – for example, the creators or operators of the network and/or application may have the ability to develop and change functions of the DApp and collect fees;
- Custodial and escrow services: custodial wallet service providers and escrow agents may be providing safeguarding services and carrying out instructions relating to DTs and/or DTs associated with a DT instrument;
- Certain DT managers: the managers and administrators of certain non-traditional fund structures may be subject to the FSMB. For example, Singapore funds that are directly involved in the buying and selling of DTs and/or providing advice relating to the offer or sale of DTs may be regulated under the FSMB; and
- Financial advice on DTs: a service of rendering financial advice on DTs in readable or understandable forms (e.g. online investment advice, cryptocurrency investment seminars and reports) are likely to be regulated under the FSMB.
The above is not intended to be exhaustive and should not be taken as legal advice for your specific circumstances. This is especially since there are certain exceptions to the scope of regulation that may be applicable (for example, technical service providers that are involved in, amongst others, the processing and storing of data, providing a communication network and/or providing and maintaining any terminal or device used for any DT service are exempted). Businesses are expected to carry out their own due diligence and seek legal advice, where necessary, on whether the FSMB applies or not.
You are expected to check whether other service providers that are engaged in or outsourced by your DT business are subject to prohibition orders
Under the FSMB, the Monetary Authority of Singapore (“MAS”) is empowered to issue prohibition orders against any person if it is satisfied that the person is not fit and proper. Regardless of whether you are licensed or exempted under the FSMB, you are prohibited from employing or entering into any arrangement with a person subject to a prohibition order to the extent that the activity, business, service or relevant function provided by that person is prohibited by the prohibition order. The prohibition orders are intended to forestall harm being caused to the financial industry by service providers who have demonstrated such propensity by their own misconduct. Engaging any such prohibited person to carry out any prohibited activities is an offence under the FSMB. DT businesses should therefore ensure that sufficient due diligence is carried out prior to engaging or outsourcing to any service provider, including checking the “enforcement actions” page on the MAS’ website.
I may be regulated. Now what?
Get licensed, or better yet, get in touch with us .. or GET REKTED. If you have any questions or require any additional information, please contact Jeremiah Huang and Wong Ee Vin.
Leading Data Centre Builder, ACME Associates, Enters JV with Italthai Engineering
Singapore’s foremost data centre builder, ACME Associates Pte Ltd, has entered into a joint venture with Thailand’s EPC giant, Italthai Engineering. The newly established ITE-ACME JV Company will provide turnkey data centre services in Thailand covering everything from site selection, design, construction, testing, commissioning and maintenance.
Leading the transaction team for ACME was Jeremiah Huang, Director with Icon Law, and Threenuch Bunruangthaworn, Executive Partner with ZICOlaw (Thailand) Limited. Also assisting on this matter was Counsel, Tan Wy Lu.
For more information on this matter, please contact Jeremiah Huang.