Delistings outpaced fresh offerings on the Singapore stock exchange (SGX) in the first half of 2019, suggesting the bourse may need to focus on more than attracting new listings.
There were a total of nine initial public offerings (IPOs) in the first half of 2019 (H1 2019) and 13 take-private offers, which led to subsequent delistings or mergers, according to a DBS Bank research report released in July 2019.
Among the nine IPOs, seven were SGX Catalist (secondary) board listings while two hospitality-focused REITs – ARA US Hospitality Trust (ARAHT), and Eagle Hospitality Trust (EHT) – were listed on the SGX Mainboard.
Small and medium-sized companies led the spate of delistings, largely due to low trading activity and high fees associated with maintaining their listing status.
The delisting trend will likely continue in the subsequent quarters if the upcoming privatisation offer for Mainboard-listed Health Management International (HMI) backed by private equity firm EQT gets approved by shareholders by the end of this year.
Also, the merger of Ascott Residence Trust (Ascott REIT), and Ascendas Hospitality Trust (A-HTRUST) is likely to see the latter being absorbed into the former’s operations once shareholders approve the deal in October 2019. The move would result in the potential delisting of A-HTRUST by the end of the year.
The DBS Bank research note predicted that Singapore is likely to see further consolidation involving listed companies in some technology-driven sectors, food & beverage (F&B), healthcare and REITs.
Consolidation in REITs this year is expected to be propelled by managers’ desire to achieve economies of scale by owning larger portfolios, while M&As in the F&B sector are likely to be driven by the attractiveness of companies with strong brand equity. In healthcare, smaller listed firms might look for consolidation to address key-man risk and sharpen their competitive edge by expanding their range of services, the note predicts.
The list of privatisation offers on SGX in the first half of 2019:-
|Name of Company||Date Announced||Offer Details||Offer Price (S$/share)||Last Close Prior To Offer (S$/share)||Premium/(Discount) (%)|
|PCI Ltd||4/1/2019||Acquisition by global investment fund Pagani||1.330||1.040||27.89%|
|DeClout||7/1/2019||Voluntary offer by Japan conglomerate Kyowa||0.130||0.110||18.18%|
|Courts Asia||18/1/2019||Voluntary offer by Japan retail chain Nojima||0.205||0.152||34.87%|
|Fabchem||15/3/2019||Mandatory cash offer, after buying stake from substantial shareholder||0.158||0.158||0.00%|
|Challenger Technologies (Lapsed)||20/3/2019||Exit offer by founder; Lapsed||0.560||0.530||5.66%|
|Kingboard Copper Foil||4/4/2019||Second attempt, voluntary offer by Kingboard Chemical||0.600||0.550||9.09%|
|OUE Commercial REIT/OUE Hospitality Trust||8/4/2019||Merger between OUE Commercial REIT and OUE Hospitality Trust||-||-||-|
|Indo Agri Resources (Lapsed)||11/4/2019||Privatisation offer by parent PT Indofood Sukses Makmur; Lapsed||0.328||0.260||26.15%|
|800 Super Holdings||6/5/2019||Privatisation offer by founder||0.900||0.775||16.13%|
|JEP Holdings||13/5/2019||Mandatory cash offer by UMS after increasing stake to 38.8 per cent.||0.150||0.156||-3.85%|
|Memtech International||14/5/2019||Privatisation offer by founder||1.350||1.090||23.85%|
|Boardroom Limited||15/5/2019||Privatisation offer by major shareholder GK Goh||0.880||0.770||14.29%|
|Hupsteel||28/6/2019||Privatisation offer by founder||1.200||0.790||51.90%|
Source: DBS Bank, Bloomberg
Compared to the 13 take-private offers in the first half of 2019, the Singapore exchange saw eight privatisation offers during the whole of 2018, with the most prominent one being a joint offer for telecom operator M1 by Keppel Corporation Limited and Singapore Press Holdings, which valued the telco at S$1.91 billion ($1.40 billion).
In 2017, there were 12 privatisation offers of which two – Spindex Limited and United Engineers Limited – were ultimately unsuccessful.
Right exit pricing key to successful take-private deals
Among this year’s crop of privatisation offers, there were two – Indo Agri Resources (IAR) Limited, and Challenger Technologies (Challenger) Limited – that lapsed due to pricing mismatch, among other reasons.
Many minority shareholders held on to their shares in the companies hoping for a better offer.
IAR’s revised offer of 32.75 Singapore cents in cash failed to garner the required level of acceptance for the deal to proceed. Some analysts had even recommended that IAR shareholders accept the offer, citing the company’s negative earnings trends and low trading liquidity.
Challenger’s voluntary delisting offer of 56 Singapore cents was voted down by minority shareholders on June 27, with 11.36 per cent of them voting against the resolution.
SGX delisting rules require shareholders representing more than 75 per cent ownership to vote in favour and not more than 10 per cent against. Therefore, based on the voting outcome, Challenger will remain a public-listed company for at least 12 months before another offer can be made.
Many minority shareholders of Challenger, including long-time investor Pangolin Investment Management, had deemed the 56 Singapore cents delisting offer as too low.
Global macro trends may affect Singapore’s IPO pipeline
Singapore’s IPO outlook for 2019 will likely be affected by the overall global macro climate, including US-China trade uncertainties, the risk of a hard Brexit in October 2019, the upcoming US Presidential Elections in 2020 and the macroeconomic conditions in Southeast Asia, per a Deloitte research report.
Some of these factors were behind the delay in the recent launch of Prime US REIT’s IPO on the SGX Mainboard. Its US-based manager, KBS Group, had announced its intention to list in Singapore last year. The IPO, which was launched on Monday, was delayed several times in the last year, most recently in May due to an escalation in the US-China trade tensions.
The company also cited sentiments surrounding US tax uncertainties, market volatility and longer time needed to secure cornerstone investors and tailor its offering size to public and placement tranche as reasons behind the delay.
Will lower valuations at SGX lure IPO aspirants?
The Singapore public market is valued at approximately 12.61 times historical twelve-month price-to-earnings (P/E) ratio compared to regional markets such as Vietnam (8.71 times), Indonesia (20.81), Thailand (16.25), Philippines (18.40), and Malaysia (21.24), per Bloomberg data as of December 31, 2018.
The range of historical twelve-month P/E multiples for the Singapore market have typically ranged from 11 to 15 times since 2014. Hong Kong, one of the Singapore bourse’s key rivals, is valued at approximately 11 to 12 times historical P/E.
The Singapore exchange’s low P/E multiples may prove attractive to regional IPO aspirants, feel market watchers. Deloitte Singapore noted that while the Hong Kong Stock Exchange (HKEx) continues to be attractive due to a perceived high valuation, it does face concerns such as high rejection rates, lower subscription rate for IPOs and rising professional fee.