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Kick-starting the IPO market

Jeffrey Tan
Jeffrey Tan • 7 min read
Kick-starting the IPO market
Singapore’s IPO market is set to pick up with a slew of listings by year-end. But can the momentum be sustained?
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Two new listings have hogged headlines for different reasons in recent weeks. Shares of Big Hit Entertainment, which manages popular Korean boy band BTS, made its debut at more than double its IPO price of KRW135,000 ($161.53) as frenzied fans piled in, allowing nimble investors to make some money. From the post-IPO peak of KRW351,000, Big Hit shares are down by half to close at KRW179,000 on Oct 21.

Meanwhile, AntGroup, the newly-rebranded FinTech unit linked to Jack Ma’s Alibaba Group, is said to be getting ready for its listing on the Hong Kong and Shanghai exchanges. With an anticipated US$35 billion ($47.5 billion) to be raised, this issue will eclipse Saudi Aramco’s US$29.4 billion to be the world’s largest ever.

Before these two listings, other IPO aspirants have bulldozed past the market volatility caused by the Covid-19 pandemic. According to EY, there were 872 IPOs across the world in the first nine months of the year, up 14% y-o-y. Total amount raised was up by a bigger magnitude of 43% y-o-y to US$165.3 billion. “Although the market sentiments can be fragile, the scene is set for a busy last quarter to end a turbulent 2020 that has seen some stellar IPO performance,” says Paul Go, EY’s global IPO leader.

Closer to home, Singapore Exchange, which has had more success in secondary fund-raising than attracting big-name listings, looks set to join in the fun. Nanofilm Technologies International, which has filed its draft prospectus on Oct 16, is raising up to $510 million, according to Reuters.

“Singapore’s first tech unicorn listing has found SGX to be an excellent capital-raising platform,” says Mohamed Nasser Ismail, SGX’s head of equity capital markets, suggesting that the market value of the nano-coating provider will cross more than $1 billion. Besides Nanofilm, early education provider KinderWorld has openly said it wants to list soon too.

During the Covid-19 outbreak, listing ceremonies were forced to go online. Nanofilm’s top management may get to be the first to bang the traditional gong when trading starts. And if market whispers are accurate, SGX’s gong will be used several times more before the year ends. FinTech firm AMTD Digital, part of Hong Kong-based AMTD Group, is set to be the first SGX-Nasdaq dual-listing. Other potential listings include a business data provider, an entertainment company and another REIT — setting the stage for a lively year-end.

The contrast will be stark compared to the seven listings so far this year that were hardly remarkable. The largest amount raised of US$323.6 million was by United Hampshire US REIT, launched just when markets plunged from Covid-19 fears in March. At the other end of the scale, Resources Global Development, the first to list this year, raised just $3 million. (See table)

According to market professionals, plentiful liquidity, healthy investor appetite and delayed listing schedules caused by the pandemic drove the surge in new listings. However, there are other factors going for the Singapore bourse too.

“While Hong Kong has seen some blockbuster IPOs, Singapore is a natural choice for companies wanting exposure to Asia but are keeping a wary eye on the US-China situation and the continued upheaval in Hong Kong,” says Stefanie Yuen-Thio, joint managing partner of TSMP Law Corp.

“I think SGX has worked very hard to expand the pool of companies looking to list here and to broaden the sectors that see us as a desirable listing venue. Hats off to them pulling this off in an unprecedented pandemic,” she adds.

Hopefully, this will kick-start a virtuous cycle of IPOs. “Successful offerings and listings by issuers will usually be seen as a positive indicator,” says Karen Yeoh, equity capital markets practice partner at WongPartnership LLP. “Given the somewhat turbulent capital markets scene of 2020, potential issuers, which are in the right sector with strong fundamentals, will probably be able to find a suitable listing opportunity in 2021,” she adds.

However, the timing of a listing is not the most important thing. Tham Tuck Seng, capital markets leader at PwC Singapore, says no one can predict the best time to list in order to optimise valuation. Any listing involves meticulous planning and the markets are unpredictable. “The key is to have a sustainable business, a well-prepared IPO plan and to engage the investors early,” he says.

Max Loh, EY’s managing partner for Singapore and Brunei, believes that with US elections and ongoing trade tensions, market volatility is here to stay. “If your business is set to soar, why not shore up your capital base with an IPO? Why not push the envelope and drive more growth? Is this the right timing? Will there be a better timing next year? That’s anybody’s guess.”

Loh also points out that businesses involved in the upcoming IPOs have proven their resilience amid the pandemic. “Let’s be honest, if your profit has taken a big hit, you won’t be looking at listing right now,” he says.

REITs to remain popular

With SGX becoming a favourite listing destination for REITs, there are grumblings this could deprive deserving potential non-REIT issuers much-needed capital to grow.

Market professionals like PwC’s Tham believe that REITs and business trusts will remain very much in favour as they are currently SGX’s strongest products.

“Notwithstanding the upcoming mainboard company listings and the current low interest rate environment, we expect REITs and business trusts to continue to attract investors who are seeking yield-based returns,” says Tay Hwee Ling, disruptive events assurance Leader at Deloitte Southeast Asia & Singapore.

Cheah Le Sa, head of capital markets at DBS Bank, sees interest from foreign issuers from Asia and Western markets looking to list their assets in Singapore. “Notably, Singapore remains the preferred listing venue for REITs with 98% of the $3.1 billion raised in 2019 arising from the sector,” adds Cheah, whose bank is known for its strong grip on managing large-cap REITs and business trust listings.

Good story

Despite the improved near-term outlook, medium- to longer-term challenges remain for the Singapore market. US tech stocks will continue to dazzle and steal the attention of global investors. Hong Kong, meanwhile, is also seen as a livelier and more liquid capital market.

From the perspective of Dharmo Soejanto, CIO for UOBAM Invest, UOB Asset Management’s robo-advisory service, one way to make the Singapore market more attractive is to tweak the components of the Straits Times Index, which is still dominated by the three banks, major property developers, Singtel and the Jardine family businesses.

Unfortunately, these very stocks, for one reason or another, have not done well in recent months. In contrast, Singapore-based digital gaming and ecommerce company, SEA, which went off to list in New York, has seen its share price more than quadruple year to date, overtaking DBS Group Holdings as the most valuable Singapore-based publicly-traded company.

“Do we want to be just a market of property companies, REITs and banks? Or should we have more things like healthcare companies and biotech? But the question is: can SGX attract those companies?” says Soejanto.

To be sure, SGX had scored such winners before. Venture Corp, says Soejanto, is one of the best performers on the exchange over the years as it is a high-tech manufacturer for healthcare and life sciences clients. “Investors appreciate that. Again the question is, can we have more of such companies?”

Another bugbear is that listings here fetch lower valuations. “If you have a decent story, people are prepared to pay high teens or 20 times PE. If you have growth and you have a story, people do reward you for it,” says Soejanto. That’s perhaps the best way to keep SGX’s IPO gong ringing for years to come.

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