SGX IPO pipeline set for strong 2018 despite lacklustre equities & delistings

A Singapore Exchange logo sits outside their head office in Singapore April 22, 2015. REUTERS/Edgar Su/Files

2017 saw a strong performance by the Singapore Exchange (SGX) with total funds raised through Initial Public Offerings (IPOs) at $3.53 billion being the highest in the past four years.

The year was also marked by 29 delistings while real estate investment trusts (REITs) and business trusts continued to dominate Singapore’s IPO pipeline, according to data from PwC’s ‘Equity Capital Markets Watch – Singapore: 2017 year in Review’ and a report from brokerage Maybank Kim Eng (Maybank KE).

Tham Tuck Seng, Capital Markets Leader at PwC Singapore, said,“The year 2017 was been a brilliant one for IPOs in Singapore. With the market upturn, we see that Real Estate Investment Trusts (REITs) and business trusts (BTs) continue to dominate the market making up 88% of total funds raised.”

SGX saw a total of 20 IPOs with seven listings on the Mainboard and 13 on the Catalist Board in 2017 as well as the listing of NetLink NBN Trust, which raised approximately S$2.4 billion ($1.8 billion) in gross proceeds, making it the largest IPO listing in six years.

However, its lacklustre equities business is facing some structural issues, including a declining turnover velocity caused by a cycle of delistings and privatisations in recent years. According to a Maybank KE report, the turnover velocity, or the total traded value relative to the average market capitalisation, has been trending down across regional exchanges over the past 10 years.

Maybank KE estimates that overall turnover velocity declined from 49 per cent in 2011 to between 27 per cent and 29 per cent between 2014 to 2017. A Maybank KE analyst, Ng Li Hiang, said, “The decline in velocity can be attributed to lower traded value from lower market activities, coupled with a lack of substantial growth in market capitalisation.”

Also Read: Singapore: Centurion Corp dual primary listing in HK sees strong demand

SGX niches

REITs and BTs will continue to dominate SGX, which has seen the listings of eight REITs and BTs raising S$6.6 billion ($4.96 billion) in gross proceeds, contributing to 85 per cent of the total IPO funds, over the past three years.

Singapore-listed property trusts have their strength going beyond the Singapore real estate market with investments in assets spanning across multiple jurisdictions. More than 75 per cent of the listed property trusts invested in assets outside of Singapore. Notably, all property trusts listed in the past three years have 100 per cent of their investments outside of Singapore – the Central European REIT listing being a major example – which indicates that Singapore continues to remain as a listing destination of choice for overseas real estate players.

Another notable industry is the Food and Beverage (F&B) industry, with the SGX seeing the listing of three F&B companies in 2017: Kimly Limited, RE&S Holdings Limited and No Signboard Holdings Ltd. Combined, these three newly listed companies raised approximately S$90.3 million ($67.9 million) in total gross proceeds. Given the impressive performance of F&B counters in 2017, PWC highlights that 2018 could see more F&B listings.

Technology IPOs are also another growing sector for the SGX, given the number of initiatives that SGX has undertaken to help technology companies and startups connect to the capital market.

However, challenges to attract technology companies remain, especially when faced with competition against foreign stock exchanges such as NASDAQ – with which the SGX has a listings collaboration – and the New York Stock Exchange (NYSE) which both offer attractive valuations, in addition to a strong pool of comparable and greater liquidity. In addition, SGX is also up against competition from private equity firms (PE) and individual investors that offer alternative funding opportunities.

Also Read: Myanmar’s Memories Group debuts on Singapore Exchange

Competition with Hong Kong

Lastly, SGX is expected to face more intense competition from the Hong Kong Stock Exchange (HKEx), with a key pull factor being the perception that the HKEx offers higher valuations and liquidity. With this, the number of Singapore-based companies listed on the HKEx has more than doubled in the past year, from six companies in 2016 to 13 in 2017, and PwC foresees that in 2018 local companies will continue listing on HKEx.

The SGX’s equity market capitalisation grew at around 4 per cent compound annual growth rate (CAGR) between 2012 to 2017, however its market capitalisation lags behind its Asia Pacific (APAC) peers. The Hong Kong Exchange’s (HKEX) market capitalisation is close to five times higher than the SGX, and this is due to increased delistings and privatisations in recent years.

The number of listed securities on SGX decreased by 31 from 2010 YTD, with delistings outpacing IPOs in five of the past eight years, with 2017 being the worst with 29 delistings vs 17 IPOs. Generally, the number of IPOs has been on a downward trend since 2010.

According to Maybank KE, the SGX has been unable to attract large IPO listings due to a number of factors. Some of these are lower trading volumes, higher listing and administrative costs, as well as alternatives from private equity (PE) funds. One issue that emerged was low valuations which saw corporates delisting due to a lack of liquidity and value – making them potential privatisation targets.

Some highly notable Singapore-based firms such as Razer and Sea Ltd have chosen to list on the HKEX and NYSE respectively, due to these issues.

Indeed, whilst the net market cap of IPOs turned positive for the first time at $5 billion, according to Maybank KE data, almost 50 per cent originated from the listing of Netlink NBN Trust.

Tham concludes: “As we live in a globalised world, local companies looking for growth will increasingly look beyond the Singapore market. As Singapore companies pursue growth in the region, SGX will face increased competition from regional bourses and must differentiate itself in order to continue to be a premier location for capital fundraising.”

“We are seeing market sentiment improve and this should bode well for SGX. We hope the momentum will continue into 2018 as the local bourse continues to strengthen its core and grow in new areas.”

Also Read:

Singapore: Clearbridge Health debuts on SGX Catalist

Australia bourse counts single-board structure as key to attracting overseas listings

Bourse with strong retail capacity a key element in IPO: Lavinia Koh, MyRepublic

SGX is for companies with strong fundamentals, not risk: Dinesh Bhatia, SportsHero

 

 

 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.