Singapore is often viewed with envy across the region, largely because it is so successful at reinventing itself. Seventy years ago it was a malaria-ridden port; now it is an important regional centre for banking and finance, and the top earner for foreign exchange in Asia.
The wealthy and their private bankers love its low taxes, while its political stability, infrastructure and lack of street crime attract multinationals and tourists alike. Its strong private financing ecosystem – the city is awash with private equity capital – has funded a host of fintech startups, transforming a few, most notably Grab, into pan-regional powerhouses.
Yet there is one thing the city can’t get right. However hard it tries, it cannot seem to inject any life into its primary equity markets. In 2018, a total of just 16 initial public offerings were completed on the Singapore Exchange (SGX), raising $1.54 billion, according to data from Dealogic. Thailand, Vietnam, Australia, India and China each completed more IPOs and raised more capital than Singapore.
Loh Boon Chye, SGX
It was bad enough that Singapore’s main board saw less primary activity in 2018 than in any year since the global financial crisis. But it was equally humbling for the SGX to see its long-standing rival, the Hong Kong Stock Exchange (HKEx), tot up 202 initial stock sales and raise $36.7 billion in total.
Dealogic data show that in terms of pure volume, the SGX accounts for 3.73% of all completed Asian IPOs since the start of the decade; for the HKEx, the figure is over 30%.
Not only that, companies are actually fleeing the SGX, rather than embracing it. Over the last five years, delistings have outnumbered listings, a reflection of the low valuations for many of the listed companies and the availability of private funding, which makes it easier to take such companies private.
The number of companies registered on the SGX fell to 741 at the end of 2018, from a peak of 782 in 2010. In 2018, 24 companies delisted from the main board, including shipbuilder Vard Holdings, which was taken private by its Italian parent Fincantieri, taking with them $19.2 billion in market value.
SGX chief executive Loh Boon Chye has lofty ambitions for the exchange he runs.
“We want to become the preferred fundraising destination for corporates, not just from Singapore and southeast Asia, but from around the world,” he tells Asiamoney. “What I hope will happen eventually is that any organization, corporate or financial institution, when it thinks about accessing, investing in and raising capital in Asia, they think of us first. Asia equals SGX.”
What I hope will happen is that any organization, when it thinks about accessing, investing in and raising capital in Asia, they think of us first. Asia equals SGX- Loh Boon Chye, SGX
For now, that goal feels distant, and even unrealistic. Ravi Menon, managing director of the Monetary Authority of Singapore, the city’s financial regulator, admits that in terms of attracting primary listings, the city is lagging.
“The public equities market is one area of financial services where we are not as strong as we would like to be,” he admits. “Clearly, when it comes to primary issuance, Hong Kong is way ahead of Singapore.”
That raises three questions: first, why does the SGX struggle to attract listing candidates, be they small or big, tech or non-tech, privately owned or state-run? Second, is there a solution to the problem? And finally, if the answer to that question is no, does it really matter?
Singapore’s struggles in this regard are not new. Unlike Hong Kong, it does not have a big, wealthy patron – China – that supplies most of its business.
A handful of mainland Chinese firms, particularly in technology, choose to sell shares in New York. But most are attracted to one of three bourses – Shenzhen and Shanghai onshore and, semi-offshore, Hong Kong. Look at the mainland names that lit up Hong Kong’s IPO market in 2018: infrastructure firm China Tower (which raised $7.5 billion); smartphone maker Xiaomi ($5.4 billion); and food delivery company Meituan Dianping ($4.2 billion).
There was a time when Singapore won a smattering of China listings. In the 2000s, dozens of so-called S-chips made the Lion City their home. But that crashed to a halt following a series of high-profile scandals and corporate governance issues.
After being burned a second time in the penny-stock crash of 2013, when Blumont Group, Asiasons Capital and LionGold Corporation, three firms linked by common boards and executives, lost S$8 billion ($5.76 billion) in just three days of trading, many of the city’s retail investors stayed away from the market for good.
Most assumed the wider region would take up the slack, with the SGX attracting companies from southeast Asia. That didn’t happen either, as most firms opted to stay loyal to their home markets. Instead, the SGX has been overtaken by its own backyard peers.
Martin Siah, Bank of America Merrill Lynch
In 2018, companies raised $2.9 billion and $2.6 billion on Vietnam’s Ho Chi Minh Stock Exchange and the Stock Exchange of Thailand respectively. Since 2010, Singapore has had fewer new stock listings than Bangkok, Jakarta or Kuala Lumpur.
“Southeast Asia is becoming more localised in terms of where listings happen,” says Laksono Widodo, director of trading at the Indonesia Stock Exchange (IDX) in Jakarta. “We need more stocks and better regulation, but we are continuing to improve our basic infrastructure. I see the IDX becoming the largest stock exchange in the region over the next five to seven years.”
Which leaves only Singapore as a source of fresh meat for the SGX, and while there is clearly no lack of potential listing candidates – the city-state is abuzz with young firms swimming in money, particularly in fintech – the challenge is to convince them of the appeal of a local flotation. That is easier said than done.
“There is a virtuous circle, where more IPOs mean more liquidity, and we haven’t quite got into that cycle yet,” admits MAS chief Menon.
“The SGX has been trying to break out of this cycle for three years,” a local equities banker adds. “They’ve changed leadership, changed origination teams, consulted with banks and lawyers and industry consultants, but there is no easy answer.”
When we meet in July, a Singapore-born investment banker points out that the last non-property IPO took place on the main board two years earlier, when recruitment firm HRnetGroup raised $122 million.
“In the last 18 months, the main listing hall has been used only four times for big-board listings,” he says. “I’ve been hauled in front of the MAS and asked: ‘Why are there no IPOs?’ I tell them why, and they nod their heads. You can’t create primary activity by magic.”
Of course there are some listings. Real estate investment trusts (Reits) in particular can’t get enough of the place.
ARA US Hospitality Trust’s $498 million IPO in May this year was followed two weeks later by Eagle Hospitality Trust’s $677 million sale. In July, Prime US Reit, which owns property in nine North American cities, joined the party, raising $813 million from its offering. That pushed the amount raised on the SGX in the first seven months of 2019 to $1.56 billion, passing last year’s total.
Chief executive Loh hails the SGX’s “reputation as Asia’s largest international Reit platform”, and pointed to this year’s trio of stock sales, which “added to the depth and breadth of our Reits sector”.
At the end of 2018, the bourse was home to 42 Reits and property trusts, with a combined market capitalization of $65 billion, making it the largest market of its kind in Asia outside Japan.
In terms of property trusts, “nowhere competes with Singapore”, says Martin Siah, head of Asia Pacific real estate, gaming and leisure, and head of southeast Asia, global corporate and investment banking, at Bank of America Merrill Lynch.
The market is so large and mature it is even followed by M&A bankers. In October 2018, Viva Industrial Trust and ESR-Reit combined to form a single vehicle worth $1.87 billion, while in April, OUE Hospitality Trust and OUE Commercial Reit announced plans for what would be Singapore’s biggest merger.
There’s a reason this market is so active. Reits offer bond-like features that typically bear higher yields than you would expect from fixed income. Add to the mix a stable operating climate and the city’s status as Asia’s leading centre for wealth, with private banks overseeing more than $2 trillion in assets, and the result is an environment that is catnip for property investors.
The five locally listed US Reits represent an average distribution yield of 7.4% in 2019, and 7.6% in 2020.
But could property be the SGX’s undoing?
“Wealth loves Reits,” notes a local investment banker. “The big shift here over the past eight years has been from institutional wealth to private wealth. Family offices are hugely influential – these are the guys who put down $20 million, $50 million, when a Reit comes to market. But of course, wealth doesn’t invest in equities.”
After all, why take the risk when these yields are so attractive.
And therein lies a large part of the problem. When unlisted companies sell equity, in an ideal world they target a healthy mix of institutional and retail wealth. Singapore has a shortage of both. Too many retail investors were burned by S-chip and penny-stock scandals and never returned. There is no Singaporean version of Li Ka-shing, the Hong Kong billionaire whose mere presence in an IPO is enough to bring out punters in droves.
But a bigger problem is Singapore’s paucity of cornerstone investors. They aren’t always welcome or indeed ideal – in Hong Kong, they can skew the balance of sales. That was evident in September 2016, when Postal Savings Bank of China raised $7.4 billion from an IPO that was three-quarters covered by cornerstones, mostly state-run enterprises. Yet they do offer smaller investors the hope that the sale will fly and that everyone will pocket a profit.
Singapore lacks its own clique of cornerstones. The cash-rich Chinese state firms that often underpin Hong Kong IPOs are absent from local sales.
Lavanya Chari, Deutsche Bank
Nor does it have handy home-grown replacements. Yes, there’s the Central Provident Fund, and the twin sovereign wealth funds, Temasek and the Government of Singapore Investment Corporation (GIC). Each plays a different role. The CPF helps local Singaporeans plan for retirement, while the other two invest in a mix of local and foreign assets.
But for different reasons, none of them invests in active IPOs (though both GIC and Temasek can, and do, put their cash to work in enterprises before they are listed). When asked why, bankers scratch their heads.
“If the authorities want to give a boost to stock offerings, all they need to do is talk to GIC,” says one. “Get them involved, and I guarantee you the man on the street would consider buying shares. Whenever the regulator asks, that is the answer I give.”
For Singapore’s authorities, the biggest source of frustration has been the fruitless battle to convince local fintechs to make the SGX their home.
The regulator has long been “great at spotting good fintechs and creating an environment conducive to them surviving and thriving,” says Lavanya Chari, head of global products and solutions at Deutsche Bank Singapore.
But when they choose a listing destination, it’s often one as far away as possible.
“In respect of public listings, many growth companies tend to choose other listing venues, and Singapore’s performance there has not been so sparkling,” says MAS chief Menon.
In October 2017, gaming and e-commerce company Sea raised $884 million from its listing on the New York Stock Exchange. A month later, Razer Inc, a gaming hardware firm, made its debut on the HKEx after raising $528 million.
[Singapore is] great at spotting good fintechs and creating an environment conducive to them surviving and thriving- Lavanya Chari, Deutsche Bank
The two companies were Singapore-born-and-bred, and saw their shares jump on debut: Sea by 8% and Razer by 18%.
Razer’s decision to bypass the SGX and make a beeline for the HKEx was keenly felt.
“It was our flagship success story,” says a local ECM banker. “It was founded by a local guy; its headquarters are still here. It was a pity.”
That the firm was partly funded by capital from GIC made it even more hurtful.
Yet is it so hard to understand the decision, made by Tan Min-Liang, Razer’s Singapore-born co-founder, chief executive and creative director?
Boosted by backing from Li Ka-shing, the public portion of Razer’s offering was 290 times oversubscribed. Compare that with this year’s Singapore IPO by Eagle Hospitality Trust, which sold less than half of the securities in the retail portion of its sale, forcing bookrunners and underwriters to pick up the slack. At the debut on the SGX main board, its units slid 6% and, at the end of August, were still trading below their IPO price of 78 cents.
What the authorities want and need is for a big, unlisted name to embrace the SGX. “It will certainly help if we have one or two big unicorns listed here,” says MAS managing director Menon. “[The] SGX is actively talking with growth companies, asking them what they need to consider a primary listing here. If we can get one or two big name listings here, that will create the momentum and improve the liquidity and more firms will list here.”
All eyes will be on Singapore-based Grab, the region’s leading ride-hailing company, which was valued at $14 billion in March. Seeing Grab’s ticker on its main board would not only be a fillip to the bourse, but would also add some much-needed fresh blood to its gene pool. Banking makes up 40% of the benchmark Straits Times Index, with property and telecoms accounting for 23%.
It’s not as though the authorities have turned a blind eye to the problem. In January, MAS unveiled a S$75 million grant that encourages young firms to list on the Singapore Exchange by defraying some of their listing costs.
Ravi Menon, Monetary Authority
SGX chief Loh points to co-listing partnerships with Nasdaq and the Tel Aviv Stock Exchange, forged with the aim of giving local firms a chance to tap fresh sources of foreign capital.
Like most ambitious bourses, the SGX never seems to sit still. Its £87 million ($107 million) takeover of London’s Baltic Exchange in 2016 provided it with a “springboard into London and the rest of Europe,” Loh says. “Prior to the acquisition, we were a team of six in London; now we have over 40 people in the UK and Europe working with customers and industry partners.”
It has introduced dual-class shares that give some company owners superior voting rights. It has also diversified into derivatives (Morningstar reckons the exchange earned more from futures and options than from cash equities in 2018) and has bought or invested in several fintechs, including London trading platform BidFX, and Freightos, an online international freight market place based in Hong Kong.
In June 2018, the SGX announced its biggest shake-up in years. It merged its fixed income, currencies and commodities business into one unit, hiring Lee Beng Hong, a former China head of institutional clients at Deutsche Bank, to run it, and amalgamated its cash equities and equity derivatives operations.
It also created a new unit spanning global sales and origination, whose priority, says Loh, “is to expand our international footprint”, notably in London and the US.
Some say Singapore doesn’t need a stock market buzzing with new activity. After all, the city is financially stable and flooded with private wealth, a good portion of which washes into thriving young firms. Loh expects private funding markets to continue to grow “as corporations and institutional investors seek additional investment opportunities outside of public markets”.
But listings matter, and always will. They offer attractive exit options for private equity and venture capital funds. Without them, stock exchanges look less appealing, and the longer Singapore struggles to convince even its own best young firms to sell shares to the public at home, the harder it will get.
Loh knows this all too well.
“It’s important that companies see SGX as a capital continuum; raising capital via debt and equity as well as in private and public markets,” he admits. “We are a key market for corporates raising equity and debt, and for fintechs seeking to raise funding from venture capital and private equity firms. After listing, companies also need to continually raise funds. Secondary fundraising at SGX is usually multiple times our primary fundraisings.”
It’s one thing to admit the problem, quite another to solve it. As hard as the exchange tries to, in Loh’s words, be the “preferred fundraising destination” for companies from “around the world”, it still has not found the solution.