Steady pipeline of IPOs for Singapore this year

SINGAPORE — The Singapore Exchange (SGX) is expected to witness another healthy year of initial public offering (IPO) activity in 2017 despite the rise of alternative fundraising options for companies, with analysts identifying real estate investment trusts (Reits) as well as healthcare and technology companies as potential candidates.

While the analysts were unable to provide a projection for the number of potential IPOs this year, they said the SGX should see a “continued pipeline” of both foreign and local entities looking to list here.

Their comments come after a good run for IPOs last year saw 16 listings — five on the mainboard and 11 on Catalist — raising S$2.3 billion, despite investors’ concerns over global market events such as the United Kingdom’s vote to leave the European Union, the United States’ presidential elections and the uncertainties surrounding the Federal Reserve’s decision to normalise interest rates.

Last year’s 16 listings also came after a lacklustre IPO market in 2015, where 13 listings — one on the mainboard and 12 on Catalist — raised only S$512 million.

The significant increase in funds raised can be attributed to three Reit listings, which accounted for 87 per cent of the total IPO capital raised here, said Mr Ashish McLaren, director at Duff & Phelps Singapore.

Manulife US Reit raised S$650 million in May, Frasers Logistics & Industrial Trust raised S$903 million in June, and EC World Reit raised S$368 million in July.

“This again indicates Singapore investors’ interest and preference for stable dividend play options since trusts typically pay out regular dividends given their investment structure,” said Mr McLaren.

For the whole of last year, said the SGX, a total of S$13.2 billion market capitalisation was added to the Singapore market through IPOs, reverse takeovers, secondary listings, rights issues and placements.

The experts TODAY spoke to said that Reits will continue to be a strength of the Singapore bourse. Healthcare and technology companies, both foreign and local, are also expected to seek listings here.

“There is a continued pipeline of companies wanting to list on the SGX, even though other forms of fundraising such as crowdfunding and private equity are becoming viable alternatives for capital-raising and expansion,” said Mr Max Loh, EY Asean and Singapore managing partner, Ernst & Young LLP.

“Ultimately, local entrepreneurial companies have a penchant (for listing) on SGX as a platform for growth. The sectors with potential include industrials, healthcare and Reits, including possible spin-offs as companies seek to monetise their assets.”

Despite the optimism surrounding Singapore’s IPO market this year, observers also noted an increasingly common practice of local companies seeking to list on overseas exchanges.

Investment firm 8I Holdings listed on the Australian Securities Exchange (ASX) in December 2014, as did property crowdfunding platform CoAssets in September last year.

Beyond Australia, mainboard-listed Q&M Dental Group announced in December that it had received approval for the quotation of shares of its Chinese manufacturing unit Aidite on the new third board from China’s National Equities Exchange and Quotations Co (NEEQ).

The first Singaporean-founded company to list on the NEEQ was outdoor advertising firm OOB Media in October 2015. And financial technology firm Sunway Technologies (Beijing) — founded by homegrown IT entrepreneurs Chew Tiong Sim and Florence Tay — told TODAY last year that it aimed to raise up to S$20 million in a listing on the NEEQ.

Such decisions could stem from the intention to expand into new markets or add an “international flavour” to a company’s branding, which can improve its standing in the eyes of investors, said observers. Companies may also seek to list in overseas markets that have comparative advantages in the sectors they are in, said Ernst & Young’s Mr Loh. For instance, SGX has a strength in Reits, while Nasdaq is popular among technology firms.

Mr Tham Tuck Seng, capital markets leader at PwC Singapore, said a company’s decision to list overseas also depends on the valuation it can get and whether the listing will create competitive advantages for the business.

However, listing outside the comfort of one’s home country comes with considerable risks, such as a lack of familiarity with the regulatory environment, currency fluctuations and exposure to the listing country’s economy and political developments.

“Stock markets tend to react to local activities, and this could have a knock-on effect on foreign companies listed on the stock exchange without any fundamental changes in the company’s performance and operations,” said Mr McLaren.

Mr Tham added: “There is no clear-cut advantage as the advantages differ on a case-by-case basis … Ultimately, the benefits must outweigh the costs when deciding where to list. Some cost considerations include compliance costs and IPO listing costs. For example, the need to engage lawyers from both jurisdictions. Singapore companies must consider additional costs that would be incurred if they decide to list overseas.”