A stapled security is an arrangement under which different securities are quoted jointly, for example, shares issued by a company and units issued by a trust. The main feature of stapled securities is that the securities cannot be traded separately as the stapled securities are treated as one security and the combined entity will be traded under one trading name.
The trust component of the stapled entity is managed by a responsible entity. The responsible entity is the legal owner of the assets of the trust and is the decision making body of the trust, i.e. the responsible entity performs both the ‘’trustee” and “manager” roles for the trust.
There is no difference in the way you trade stapled securities from the way you trade ordinary stocks and shares.
Stapled securities are commonly used in Australia for infrastructure businesses, utility businesses and real estate businesses.
There are a number of reasons why infrastructure, utility and real estate investments make use of this investment structure.
In Australia, stapled securities are used to separate operations from asset ownership and to allow distributions to be made to investors in excess of accounting profits. There are approximately 40 stapled securities listed on the Australian Stock Exchange (‘ASX’).
Australian Examples of Stapled Securities
Total market capitalisation of Listed Trusts and Stapled Securities have grown to approx A$100 billion since 1971
*As at 29 November 2005
The distribution stream received by an investor will depend on the instruments comprising the stapled security, as well as their underlying investments.
Typically, the holder of a stapled security should be able to receive income distributions from the trust and dividends from the entities that are stapled together, as well as returns of capital (typically made from the trust).
Income distributions from the trust may comprise interest payments where the trust’s assets include a loan provided to another entity.
Stapled securities are governed by a stapling deed, and the securities cannot be separated except in de-stapling events e.g. termination of the trust. The rights of the security holders may vary for different stapled structures. The details on the rights and obligations attached to a stapled security are usually set out in the stapling deed and constitution documents of the relevant stapled entities.
Each of the entities comprising a stapled security are separate legal entities, and accordingly, may issue individual statements, announcements, shareholders notices or announce dividend payout dates.
However, these entities are generally required to act consistently with one another (as relevantly governed in their individual circumstances) and typically issue joint statements, announcements, shareholder notices, annual reports and announce corresponding distribution dates.
In general terms when securities are stapled together, it does not alter the character of the individual underlying securities. For example distributions from stapled securities may comprise a combination of dividends from companies, distributions of income from a trust, and returns of capital from a trust. Each of these components will be considered for Singapore tax purposes according to its nature.
Singapore tax resident individuals (other than those who invest through a partnership in Singapore) are generally exempt from Singapore income tax on all types of foreign sourced income. Therefore a Singapore tax resident individual, in receipt of distributions from investments in foreign companies, trusts or bonds will be exempt from Singapore tax on that income even if they are listed as stapled securities. Depending on the type of income and the country from which it is received, there may be foreign withholding taxes on the distributions.
If you have further questions on stapled securities, please call 1800 – CALL SGX (1800-2255749)
Note: As stapled securities are mainly created and found in Australia, the facts and information found in this FAQs are primarily based on existing literature in the Australian context.
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Stapled Securities Fact Sheet