Push for more public access to IPOs

In February last year, the Singapore Exchange proposed to mandate that all Mainboard IPO aspirants allocate at least 10 per cent of their offer shares to retail investors, up to a cap of $100 million.
In February last year, the Singapore Exchange proposed to mandate that all Mainboard IPO aspirants allocate at least 10 per cent of their offer shares to retail investors, up to a cap of $100 million. PHOTO: ST FILE

Results of consultation on 10% public tranche for mainboard IPOs expected this quarter

Changes are under way to make initial public offerings (IPOs) more of a public affair by including more retail investors.

The bourse operator is pushing ahead with plans to impose a minimum retail allocation for mainboard IPOs, a source close to the Singapore Exchange (SGX) has said.

The process began in February last year when the SGX proposed to mandate that all Mainboard IPO aspirants allocate at least 10 per cent of their offer shares to retail investors, up to a cap of $100 million.

This led to a public consultation exercise with the results to be announced by the end of next month, an SGX spokesman told The Straits Times. Any change will require approval from the Monetary Authority of Singapore.

Mr David Gerald, president of the Securities Investors Association of Singapore, is in favour although banks have expressed reservations.

Mr Gerald said: "Ten per cent is not too high, not too low. Anything more than that, one has to consider the implications."

Between 2010 and 2015, over 90 per cent of IPOs had retail investor application rates greater than 10 per cent of the total offer size.

Yet half of all listings in that period allocated just 5 per cent of offer shares to a public tranche, a sign that retail demand for IPO shares is outstripping supply.

But a paper submitted to the SGX by 14 banks and seen by The Straits Times showed they were less enthused about a change.

The banks "generally agreed" that if a minimum retail allocation is to be imposed, there should be a dollar cap on the value of shares allocated to the public tranche.

Others reckoned a $100 million cap could still be too high, as retail demand tends to be closer to $30 million to $50 million.

Mr Jeffrey Wong, head of investment banking at Religare Capital Markets, told The Straits Times last week that although some Reit (real estate investment trust) IPOs tend to have larger public tranches, many non-Reit listings have a much smaller allocation to the public.

In fact, eight of 11 Catalist IPOs last year involved 100 per cent placement shares, meaning there was no public tranche.

"Given the lesser public awareness of the relevant companies, having a sizeable public offer tranche could subject the success of the offering to some risk," said Mr Wong.

Yet others felt that limiting the 10 per cent rule to primary listings could work. The mainboard tends to attract bigger names like NetLink Trust, which is expected to list this year.

With 79 per cent of homes here accessing fibre services through cable connections owned by NetLink, there is pressure to reserve a portion of the offer for retail investors.

SAC Capital chief executive Ong Hwee Li was optimistic that lifting retail participation would boost trading liquidity. He said: "Having a public tranche raises the profile of the company going for a listing.

"To better represent the meaning of 'IPO', there should be sufficient public participation and not just meeting the minimum number of shareholders rule."

Mr Mah Kah Loon, CIMB Bank Singapore head of corporate and investment banking, said: "One idea which the SGX and MAS may wish to consider in promoting retail participation is to relax the current legal restrictions on promoting IPO shares to retail investors prior to the registration of a full IPO prospectus."

Present rules allow underwriters to engage only with institutions and high-net-worth individuals in their book-building, so they have less of a feel for retail investors' appetite and are less comfortable with large public tranches.

"In the age of crowdfunding and globalisation of capital markets where retail investors have access to many investment options, it may be the right time for regulators to allow underwriters to engage retail investors early," Mr Mah said.

"This will also raise the parity of treatment between large institutional investors and small investors."

A version of this article appeared in the print edition of The Straits Times on February 13, 2017, with the headline 'Push for more public access to IPOs'. Print Edition | Subscribe