Economic Affairs

The ins and outs of a public listing on the SGX

Is the Singapore bourse losing its lustre, as more companies are delisted?

There have been 23 delistings from the mainboard so far this year, compared with 18 for the whole of the previous year. The companies that were delisted include traditional Chinese medicine group Eu Yan Sang, property group Sim Lian Group, Tiger Airways and public transport operator SMRT.

With relatively fewer listings, the total number of companies listed on the Singapore Exchange as at the end of November was 759, compared with 771 a year ago.

The total market capitalisation was $923 billion as at November, higher than the $854 billion after the January stock market jitters over China, but still lower than the $1 trillion in June 2015.

Privatisations and delistings have been a constant feature of the stock market.

During the dot.com boom, several of the large regular contract manufacturing companies such as JIT were bought over by US players. It was a source of pride that Singapore firms were going to be part of an international group while the entrepreneurs who ran the businesses became overnight millionaires.

Then when companies such as department store Robinsons were bought out, the debate focused on Singapore companies and Singapore brands falling into foreign hands.

This time round, there is some apprehension over the various homegrown and sizeable well-known names exiting the bourse as it may be a sign that there are deeper structural problems at heart. Could it be that the companies' move to take themselves private suggests they no longer find it attractive to remain listed companies? Could SGX be losing its lustre as a bourse?


ST ILLUSTRATION: MANNY FRANCISCO

OVERSEAS MARKETS

For one thing, overseas markets, in particular in the United States, are an attractive option.

Many investors have turned to the US markets for a variety of factors. The Dow Jones is trading at a fresh all-time high, due to a pro-business, feel-good sentiment, put down to a Trump rally. The Dow has a large selection of industrial stocks which are likely to benefit from a pro-business president like Mr Donald Trump. US bank stocks too have soared as interest rates are likely to rise this week and banks' margins will improve. The rally might also be simply because fund managers who have been on the sidelines so far this year, due to uncertainty over the US elections, are now making sure they get into position before the end of the year.

The strength of the US dollar suggests that investors are putting more money into US assets, be it stocks or property.

Technology these days makes it easy for retail investors to access markets overseas. With a wealth of information on foreign giants like Alibaba or Apple, Singapore investors can trade such stocks, foreign currency risk notwithstanding. If there is less interest in Singapore stocks, volumes will be lower and eventually companies will find it less attractive to list here.

ENTREPRENEURS AND SHORT-TERM RESULTS

As Osim founder and CEO Ron Sim said in an earlier interview with The Business Times: "The listing was certainly a good thing. It helped the company become a lot more structured. You put in time and effort to ensure systems are right and structures are right. You have people in right positions to run a better company."

An owner of a consumer firm agreed, saying the rules and regulations are good in getting a company up to scratch.

But once a company reaches a certain size, being listed does have its drawbacks. It cramps the entrepreneur's style. Instead of being able to act decisively on a project, he has to consider all stakeholders and their concerns before making his move. Any move must take into account if there is a short-term negative impact on the quarterly results and how that is to be handled.

There is no denying that the listing process and subsequent compliance regulations take up time and energy.

For some companies, the lack of trading volume and liquidity is also an issue.

Eu Yan Sang shared similar sentiments. While there were various reasons for the privatisation and delisting, group chief executive officer Richard Eu told The Straits Times: "Delisting also made sense as company shares were thinly traded. It's a struggle because if you want to be listed, you also want your shares to be active. So if the shares are not active, then you question why you listed in the first place."

He added: "Markets have a short-term mentality. People are looking for a story behind the stock, and looking forward to a quick profit. They can either buy or sell short. But in our case, it's just a slow and steady business."

RAISING FINANCING AND THE LURE OF PRIVATE EQUITY

On the flip side, companies do get better financing terms if they are listed. They get access to various debt and equity instruments that private companies do not get and they usually get cheaper financing. But for companies which do not require much capital, the rationale for being listed is less pressing.

Throw in the lure of private equity funds, and a listing no longer looks like the catch it once was.

Private equity players are flush with liquidity - as many large investors are searching for better returns and reckon that private equity players are well able to sniff out the deal that will deliver - and are only too ready to offer good valuations for the companies.

An ongoing exercise is private equity firm Northstar's move to acquire Singapore Exchange-listed Innovalues Precision. Northstar says it represents an opportunity for them to get control of a company in the precision manufacturing sector with a regional footprint.

For the owners, it is an opportunity to cash out. There are also other advantages that a private equity player can bring to the table.

Over at Navis Capital which bought into Chinese fine dining chain Imperial Treasure, senior partner Jean-Christophe Marti said: "Entrepreneurs are more intuitive and we can help to accelerate their growth by complementing them with a stricter strategic and analytical approach. If they want to grow or make acquisitions overseas, we have offices on the ground.

"As a portfolio company, these companies then don't have short-term stock price pressures. We have a time frame of about five years and we can invest for the long term. In the short term, costs may go up as we ensure that a company takes on an experienced CFO (chief financial officer) and that we invest in ERP (enterprise resource management) and customer relationship management systems to improve productivity and increase margins."

A VIBRANT MARKETPLACE

To be fair, many companies that delisted performed well and grew over the years. Osim, for example, raised $30 million when it listed in 2000 but Mr Sim had to pay about $300 million to take it private earlier this year.

But listing a company maintains its appeal for many.

While the likes of stent maker Biosensors and Tiger Airways left the market this year, others such as homegrown seafood chain Jumbo Seafood have listed and prospered.

Property players such as Manulife US Reit as well as Frasers Logistics and Industrial Trust are some of the heavyweights with market capitalisation of over a few hundred million dollars that joined the market this year.

While companies may chafe at the restrictions and demands of being listed, a public listing can still offer varied sources of funding and the ability to raise one's profile.

Already, the Singapore Exchange has said that there are four tech firms including a British-based fintech company that may opt for a listing here next year. So while some companies have exited the market, there is no doubt that new ones will come in.

The marketplace goes through a cycle of new entrants and departures. Fintech firms and disruptive businesses such as GrabTaxi and pan-Asean companies could well be the next blue chips of the SGX.

A version of this article appeared in the print edition of The Straits Times on December 14, 2016, with the headline 'The ins and outs of a public listing on the SGX'. Print Edition | Subscribe