Cai Jin

Brightening IPO market - chance for SGX to get new investors

Drawing in more retail investors may help the exchange to put buzz back into stock market

Things are beginning to look up in the Singapore initial public offering (IPO) market.

One month into 2017 and there are already two new listings - one on the mainboard, the other on Catalist - raising about $150.4 million in all. This is a big contrast from the pervasive gloom around this time last year when the IPO market was able to muster only a handful of smallish Catalist listings.

The outlook for the IPO market is likely to continue brightening. Singapore Exchange (SGX) boss Loh Boon Chye recently flagged that he is expecting more new listings in the first half of this year, as market conditions improve.

There is the anticipated flotation of telco Singtel's broadband unit Netlink Trust later this year. This could raise about US$2 billion (S$2.8 billion), making it the biggest IPO here since the listing of Hutchison Port Holdings Trust, which raked in US$5.5 billion from investors six years ago.

For the SGX, the slow but steady turnaround in the IPO market is a cause for celebration. Just two years ago, the situation looked grim. Foreign news agencies like Bloomberg openly questioned if the SGX's days as a premier destination for fresh listings had come to an end, as a haul of 13 fresh listings raised only S$510 million, its worst showing in years.

Last year, however, the situation started to improve, with 16 IPOs launched - five on the mainboard and 11 on Catalist - which together raised S$2.3 billion.

But even with the striking fourfold jump in the sums raised from IPOs last year, the SGX still has a considerable way to go if it wants to catch up with the world's largest listing centres.

The Financial Times last year said New York was top in global IPO rankings, with the New York Stock Exchange (NYSE) and Nasdaq raising a combined US$24.6 billion. Next came Hong Kong, which raised US$24.5 billion, and Shanghai, with US$16 billion.

Still, the growing number of fresh listings here is spurring hopes that the long, dry spell in the IPO market has been broken decisively.

So one question to ask as the green shoots continue to sprout in the IPO market: What efforts are required to sustain their growth?

Of course, the SGX is leaving no stone unturned in its quest to attract international brand-name IPO hopefuls to list here. This is because of the splash of publicity which a big-name IPO will offer a stock exchange and the likelihood that these headlines may, in turn, lure other IPO hopefuls to list here.

But this is a quest made harder by the fact that these high-flying companies are also relentlessly courted by stock exchanges elsewhere - and for the same reasons which apply to the SGX.

For the world's major investment banks, no prize is bigger or more prestigious than the planned sale of up to 5 per cent of Saudi Arabia's state oil producer, Saudi Aramco, which will make it the biggest IPO in modern times, as the oil giant is valued at US$2 trillion.

Considering that Aramco is weighing a dual listing - at home in Saudi Arabia and on a major foreign stock exchange - this is likely to attract fierce competition among the world's biggest listing centres to host it.

How would we rate SGX's chances if it makes a pitch to be a listing destination for Aramco?

In Asia, the SGX does offer an edge over its regional rivals which is worth highlighting. It is a stock market in a well-regulated international financial centre which prides itself on its excellent corporate governance practices.

And given the vast changes which have swept across the political landscapes of many developed countries in the past year, Singapore's political stability - which many of us take for granted - is a much-prized commodity among listed firms and investors.

Add to this the fact that Singapore is a neutral listing venue where the robust Singapore dollar is a source of solace for international investors putting their money here.

In contrast, there is a risk that Aramco may attract frivolous lawsuits if it lists in highly litigious New York while in London, there will be the uncertainties brought on by Britain's moves to exit the European Union. Or for that matter, Hong Kong, whose preponderance of H-share offerings by giant China firms may ironically dull its appeal to international listing aspirants.

Then there is the allure of the capital market here which has more than S$2.6 trillion under management - ensuring there would be no problem raising the kind of sums an Aramco IPO will be aiming for.

Still, a market pundit observes that rather than hanker after huge IPOs such as Aramco, the SGX's best chances in growing the IPO market is to plant more seeds in fast-growing emerging markets such as next-door Indonesia.

"The valuations here are simply not attractive enough to lure big-name IPOs and the market may not be big enough to absorb the float," he said.

He has a point: Trading on the local stock market is minuscule compared with other international bourses. Bloomberg data shows that in the past year, the average daily SGX stock turnover was US$733.3 million. In comparison, Shanghai's average daily stock turnover was US$30 billion, Tokyo's was US$21.2 billion, while Hong Kong's was US$5.8 billion, and NYSE's was US$29 billion.

Hence, in order to attract more companies to list here, trading activity must be ramped up sufficiently to provide the liquidity to allow an investor to get in and out of his shares easily.

One way to do so is to draw more players into the market - and in this respect, they should include retail investors who have been conspicuous by their absence.

That is a tad surprising, considering the tens of thousands of new Central Depository accounts, used for holding SGX-listed shares, which have been opened in recent years, especially by younger Singaporeans.

An older generation of investors will recall that they got their first taste of the stock market with the giant flotation of Singtel in 1993. Now there is a chance of history repeating itself as Singtel spins off Netlink Trust, giving the SGX a window of opportunity to convert a fresh generation of Singaporeans into investors.

For a start, the SGX can revive the plan to get listing aspirants to offer at least a 10 per cent allocation of their public offerings to retail investors.

Now, if this guideline is applied to, say, the Netlink IPO, that would mean offering US$200 million worth of shares to retail investors. That should be a sufficiently big allocation to whet the appetite of retail investors and get them to queue up at ATMs to apply for the shares.

Of course, whether retail investors take the bait will depend to a large extent on the market conditions at the time. The Singtel IPO was a roaring success because it took place amid Singapore's biggest bull run in history. Netlink, however, may make its debut in far more subdued market conditions.

But it opens up a window for the SGX to put the buzz back into the securities business. Who knows, if it plays its cards well, even a biggie such as Aramco may consider beating a path to list here.

A version of this article appeared in the print edition of The Straits Times on February 06, 2017, with the headline 'Brightening IPO market - chance for SGX to get new investors'. Print Edition | Subscribe