Shanghai way ahead of SGX in IPO market

Models presenting creations from Ellassay, a women's apparel company, at the Shanghai Stock Exchange following its IPO last month. The Chinese city's booming exchange boasted 35 IPOs that raised about US$5.4 billion (S$7 billion) in the first quarter
Models presenting creations from Ellassay, a women's apparel company, at the Shanghai Stock Exchange following its IPO last month. The Chinese city's booming exchange boasted 35 IPOs that raised about US$5.4 billion (S$7 billion) in the first quarter this year.PHOTO: REUTERS

Market watchers cite lack of liquidity and linkages for SGX's dismal numbers

CAPITAL markets in Greater China are leaving in the dust the Singapore Exchange (SGX), which had just two listings this year.

In the four months to April last year, seven initial public offerings (IPOs) were mounted here but it's the contrast with Shanghai that is more telling.

The Chinese city's booming exchange boasted 35 IPOs that raised about US$5.4 billion (S$7 billion) in the first quarter this year.

Market watchers told The Straits Times that challenging economic conditions may have played a part in Singapore's weak efforts but they believe a lack of liquidity and linkages is also holding back the SGX.

The two firms that did hold IPOs here this year hardly serve as a ringing endorsement of the local market either.

LHN and GCCP Resources both debuted at 23 cents last month but neither has fared well since.

Property management services group LHN has dropped 32.6 per cent, closing at 15.5 cents on Friday, while limestone quarry operator GCCP has lost 36.5 per cent to 14.6 cents.

"Their performance shows why companies are shying away from SGX - the local market lacks liquidity that can support good valuation," remisier Alvin Yong said.

"The regulatory environment is not conducive for trading. New and upcoming requirements like the 20-cent minimum trading price and a minimum 5 per cent collateral for trading are already turning my clients away. If there's no liquidity, companies are not going to want to get listed here."

Daily turnover at the SGX is just over $1 billion while volume at the Shanghai Stock Exchange often exceeds US$100 billion as the Chinese bull run continues. IG Singapore analyst Bernard Aw noted that companies are also deferring fund-raising activity to avoid economic uncertainties but he agreed that the SGX is simply not attractive enough.

"SGX's low trading volume is certainly less appealing, compared to the red-hot Chinese markets, which may be drawing away capital and listings from the rest of Asia," he said.

"That is why SGX is under a lot of pressure to come up with plans to bridge that gap, the most direct way being the establishment of direct trading links like the Shanghai-Hong Kong Stock Connect."

A direct trading link with Shanghai would greatly boost the incentive for more Chinese companies and capital to come to Singapore's shores to tap South-east Asia's opportunities.

Rumours emerged earlier this year that the SGX was developing a link with Shanghai. While chief executive Magnus Bocker said there is no such plan, attracting more Chinese companies clearly tops the priority list, with the bourse appointing listings chief Lawrence Wong as the head of China businesses in February.

Mr Aw believes SGX has its work cut out, adding: "I'm not optimistic about the listing pipeline for the rest of the year. We may not see any improvement until the economic situation clears up next year."

Mr Simon Lim, the exchange's vice-president and head of listing for South-east Asia, denied that the bourse has lost its lustre as a regional hub for IPOs.

"SGX is a well-established market with 770 listed companies valued at close to US$800 billion in total. Nearly 40 per cent of these came from overseas. We are well-regarded for our strengths in sectors such as maritime and real estate infrastructure, with healthcare being another emerging sector here," he added.

"The slowdown that you saw in the first quarter is not limited to Singapore. We still have a healthy pipeline and, once market conditions become more supportive, the issuers will want to complete their issuance. That's more important than cyclical slowdown."

In the second half of last year, 20 IPOs were launched on the SGX, bucking the slower trend in the first six months. There were 30 stock IPOs in all last year.

Mr Lim added that, while a stock connect with Shanghai may not be in the works, the SGX already has a direct listing arrangement with the Chinese regulators since November 2013. It is an "important milestone" that will yield greater results in the next six to nine months.

But CMC Markets analyst Nicholas Teo is not convinced. "SGX's strategies around attracting and developing new listings have been a piecemeal approach," he said.

"Look, for instance, at Accordia Golf Trust that listed in August last year. SGX just brought in some company in a new sector that had some initial traction but, without an ecosystem to support coverage and trading, its following soon disappeared.

"In recent years, SGX has been mainly growing its derivatives business. I hope securities and listings will be a key focus of the chief executive succeeding (departing CEO) Mr Magnus Bocker.''

whwong@sph.com.sg