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Cai Jin

Catalist: What's next after a fruitful decade?

The listing venue for less mature firms has attracted big players, local and foreign

Catalist - the board set up by the Singapore Exchange to attract young, promising and fast-growing firms to its fold - celebrates its 10th anniversary later this year.

In Catalist's first five years, new listings raised about $468 million. Over the next four years, fund-raising from new listings more than doubled to $1.03 billion as Catalist grew in popularity.

It is the same success story in the secondary market. Firms raised $1.42 billion from share placements and rights issues in Catalist's first five years and another $1.75 billion in the next four years.

With the recent addition of Malaysian spray paint maker Samurai 2K Aerosol, 186 firms, with a combined market capitalisation of over $10 billion, are now listed on Catalist.

As it is, there are plenty of attractions to list on Catalist, as the board matures and gains recognition as a venue for both local and overseas firms to raise funds.

Mr Mohamed Nasser Ismail, SGX's head of equity capital market for small and medium-sized enterprises, said: "There are firms which like the flexibility which Catalist offers them. Thus, even though a few of them can make it to the mainboard, they choose to list on Catalist first."

Over the years, Catalist attracted firms with names familiar to Housing Board heartlanders, such as pawnbroker Maxi-Cash, to list on it. Now, 186 firms, with a combined market capitalisation of over $10 billion, are listed on the board.
Over the years, Catalist attracted firms with names familiar to Housing Board heartlanders, such as pawnbroker Maxi-Cash, to list on it. Now, 186 firms, with a combined market capitalisation of over $10 billion, are listed on the board. ST FILE PHOTO

To qualify for a mainboard listing, a company needs a market value of at least $150 million if it was profitable in its last financial year, or a minimum pre-tax profit of $30 million. Otherwise, it needs to have a market capitalisation of $300 million or more when it lists.

But Catalist, which replaced Sesdaq as the listing venue for less mature firms, does away with the need for a company to formally demonstrate a business track record. Once a company is listed, it also gets a freer hand to raise funds. It includes perks like being able to issue up to 100 per cent of its existing shares without having to go back to shareholders for approval.

Such privileges, however, spawned early fears that Catalist would descend into a cheery port of call for start-ups - a turn-off for better-established firms not keen to rub shoulders with such businesses.

This was a concern Catalist overcame as it attracted firms with names familiar to Housing Board heartlanders, such as pawnbroker Maxi-Cash and jeweller Soo Kee Group, to list on it.

Mr Nasser noted that companies such as restaurant operator Jumbo Seafood could have qualified for the mainboard, based on their profitability and market capitalisation, when they were listed on Catalist. "But they chose Catalist because they feel that they are at that stage of development when a Catalist listing is more beneficial."

Tech firm DeClout stays listed on Catalist even though it has spawned a mainboard spin-off, Procurri. Catalist has also spawned biggies such as healthcare services provider TalkMed Group, headed by the renowned oncologist Ang Peng Tiam and has a market capitalisation of $723 million.

It is a point not lost on foreign firms beating a path to list here. Iskandar developer Astaka Holdings reversed its business into a Catalist firm, E2-Capital, even though its market value, well in excess of $300 million, could have qualified it for the mainboard.

Mr Nasser disclosed that emerging high-technology firms in the United States, sporting market values in the range of US$200 million (S$285.5 million) to US$300 million, may be heading to Catalist as well, as they feel that Nasdaq does not offer them enough of an opportunity to show off their best.

Another attraction is that the listing timeframe on Catalist can be considerably shorter than a mainboard one. This is because the task of vetting the offer documents is not done by the SGX but by a group of professionals known as "sponsors" chosen from merchant banks, law firms and accountancy practices.

As long as a company stays on Catalist, it needs to hire a sponsor to hold its hand. If the sponsor walks out and a firm is unable to find a replacement, it faces the threat of being delisted.

In the past five years, the number of full sponsors - those which can help a company to list on Catalist - has grown from nine to 13.

This has brought another benefit to Catalist-listed firms. The fees which they have to fork out to pay their sponsors have fallen sharply - in a few instances, to as little as $25,000 a year.

Despite the considerable strides which it has made, Catalist still faces some big challenges.

True, it is touted as being among the most liquid trading platforms globally, with a turnover velocity - which tracks how frequently a stock changes hands - of 140 per cent. This is way ahead of the numbers achieved by other comparable "growth companies" trading platforms such as London's AIM and Hong Kong's GEM, which have turnover velocities of 60 per cent or more.

But take a look at the yearly turnover of Catalist-listed firms and you will find a considerable drop in trading activity in recent years. In 2013, total stock turnover on Catalist was $19.47 billion. That fell to $13.26 billion in 2014, $8.53 billion in 2015 and $7.14 billion last year.

Some traders attribute the drop to a waning appetite for small-capitalised stocks following the penny stock debacle involving Asiasons Capital, Blumont Group and LionGold in late 2013 which led to retail investors losing considerable sums.

Separately, the trading records of some Catalist-listed firms after their initial public offerings have not exactly endeared them to investors. Some, like HC Surgical and Wong Fong, have earned their investors a tidy pile of money as their prices surged after their IPOs. But others, such as Anchor Resources and Eindec, have fallen to a fraction of their respective IPO issue prices.

Then there is the issue of a Catalist-listed firm making the vault to the mainboard.

So far, only 19 transfers have been made from Catalist to the mainboard. Out of these, only nine are companies which made their debut on Catalist, while the rest came from firms which were listed originally on Sesdaq.

One other firm - Singhaiyi Group - just announced that it has in-principle approval to move to the mainboard.

Even with this latest addition, the transfers make up only a small proportion of the 114 new listings which Catalist attracted in the past nine years.

Although some firms may like to stay on Catalist, the ambition of most of the others is to make a successful transition to the mainboard, where they can attract a bigger pool of investors - both retail and institutional - and in the process get an even better valuation of their shares.

One challenge faced by Catalist is the Central Provident Fund Board's refusal to allow its members to invest in Catalist-listed firms, even though it lets them put their money in mainboard firms and previously Sesdaq-listed firms which had migrated to Catalist and are already qualified as CPF Investment Scheme trustee stocks.

When Catalist was established, the reason given by CPFB for its refusal was that it needed more time to assess if these firms made suitable investments for those using their investment savings. But nine years have passed and the impasse remains.

As the new year kicks off and Catalist looks forward to its next decade, perhaps the SGX should work out a way to resolve this CPF gridlock and how it can better facilitate the transition of Catalist-listed firms to the mainboard.

This will go a long way in further polishing Catalist's image as an incubator for promising firms.

A version of this article appeared in the print edition of The Straits Times on January 23, 2017, with the headline 'Catalist: What's next after a fruitful decade?'. Print Edition | Subscribe