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Can Spacs and REIT ETFs give the local bourse a boost?

Jovi Ho
Jovi Ho • 4 min read
Can Spacs and REIT ETFs give the local bourse a boost?
"We do not believe that Spacs will replace traditional IPOs. Our goal is to broaden the avenues of fundraising."
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Singapore’s stock market may have seen increased trading interest amid the pandemic, but other exchanges in the region have grown even faster. This is because the more actively-traded counters on the Singapore Exchange (SGX) are REITs and other similar income-generating investments, that are “less volatile”.

In contrast, the other markets that have pulled ahead are more focused on growth stocks, says Ravi Menon, managing director of the Monetary Authority of Singapore (MAS).

“This is a gap we are committed to bridging,” adds Menon in his keynote speech at the inaugural Singapore Capital Markets Symposium on Nov 17.

The market has two key challenges: A perceived lack of institutional investor interest and a dearth of high-growth companies listing in Singapore — which he dubs a “chicken-and-egg” situation.

See: Although REIT IPO fails to lift SGX, price attempts to bottom

See also: Singapore unveils over $1 billion in new measures to boost equity financing for high-growth enterprises

Thus, the Government and the private sector have together introduced means to make the stock market one that can better serve both issuers and investors.

On Sept 17, the government established Anchor Fund @ 65 along with Temasek Holdings, together co-investing $1.5 billion. The fund will support high-growth enterprises eyeing an IPO, including secondary and dual listings on the SGX.

Next, EDBI — the venture arm of the Economic Development Board — has introduced the Growth IPO Fund. With $500 million for a start, it will invest in growth stage companies to give them a leg up to an IPO here.

As for MAS, it has enhanced its Grant for Equity Market Scheme (Gems), which can help defray listing fees by co-funding up to $2 million of the cost, up from $1 million before. The scheme will now cover special purpose acquisition companies (Spacs) and REITs as well.

“Traditionally, IPOs can be a time-consuming process, and it can come with some uncertainty over valuations and pricing. With good quality sponsors, Spacs can meet the expansion needs of Asia’s fast-growing companies by letting them gain greater certainty on price and timing, as well as strategic partners that can help them grow further,” says Menon.

SGX CEO Loh Boon Chye calls the introduction of the Spac framework in September an example of how the exchange has heard the needs of the market, consulted many stakeholders and designed one to balance both business needs and protect investors. “That said, we do not believe that Spacs will replace traditional IPOs. Our goal is to broaden the avenues of fundraising,” he adds.

Two months into Spac season, however, listing hopefuls are hesitant about being the first débutante to arrive at the ball. Several Spacs have reportedly filed their applications, but the first Spac listing has not gotten off the starting block yet, prompting speakers at two subsequent panels to discuss ways to get the Spac flywheel going.

See: Are Spacs good investments?

See also: SPACs expected to help Singapore revive dry IPO spell

See also: Tikehau Capital submits application to SGX for SPAC IPO

One speaker compared the current anxiety over Spacs to two decades ago, when CapitaLand’s first attempt at listing a REIT — namely SingMall Property Trust — failed. It tried again and launched CapitaLand Mall Trust, whose success inspired dozens more to follow over the years. SGX is now the third-largest market for REITs and business trusts in the Asia Pacific, with a total market value of some $125 billion.

For Loh, the REITs play an additional role: They have led to the development of REIT-related products like indices, ETFs and futures. SGX started the month with three ETFs tracking the performance of REITs in the Asia Pacific region. They are the NikkoAM StraitsTrading Asia ex-Japan REIT ETF, the Lion-Phillip S-REIT ETF and the Phillip SGX APAC Dividend Leaders REIT ETF.

“We will very soon welcome two more REIT ETFs on SGX. REIT ETFs are one of the fastest growing asset classes in our ETF market,” adds Loh.

See: SGX and UOBAM jointly launch yield-focused iEdge-UOB APAC Green REIT index

By the end of next week, two new names will have joined the list. First, there is the CSOP iEdge S-REIT Leaders Index ETF, which listed on Nov 18. It tracks the iEdge S-REIT Leaders Index, and it is the second SGX-listed ETF to have complete exposure to S-REITs, following the Lion-Phillip S-REIT ETF.

The newest kid on the block will be the UOB APAC Green REIT ETF, which tracks the iEdge-UOB APAC Yield Focus Green REIT Index. It is expected to list on Nov 23.

Photos: SGX, MAS

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