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Tap the keg overseas but bring the party back too

Chew Sutat
Chew Sutat12/6/2021 04:12 PM GMT+08  • 10 min read
Tap the keg overseas but bring the party back too
Perhaps it is time to enable us to cheer our local champions at home without having to lose sleep overnight.
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Q: Is Grab’s debut on Nasdaq listing a loss for SGX?

A: The listing is a success! If it is anyone’s loss, it is the market’s. And it can be fixed.

Winston Churchill once said: “You will never reach your destination if you stop and throw stones at every dog that barks”. It is against all odds that entrepreneurs succeed, and when they do, we should celebrate their success — especially if it is shared.

On Dec 2, Grab Holdings eventually made its Nasdaq trading debut following its de-Spac deal with Altimeter Growth Corp, which last traded at US$11.01 ($15.22). On the opening bell, its share price jumped to US$13.06 but closed at US$8.75, bringing the market valuation from the initial US$40 billion to US$34 billion.

The headlines screamed. The Financial Times: “Grab shares fall sharply after the world’s biggest Spac deal”; Wall Street Journal: “Grab shares tumble in trading debut after blockbuster Spac deal”; Reuters: “Super-app Grab gets rear-ended”, alluding to the not so optimal market conditions. Or, The Edge Singapore’s descriptive but factual “Grab makes debut on the Nasdaq with a pop and drop”.

Comparisons were made unfairly between Didi Global’s US IPO in July (and now planned delisting after just a few months) where its US$14.14 rocky debut has petered away to US$6.07 under the barrage of data security reviews by the Chinese government. Or with Deliveroo’s “Worst IPO in London’s history” (FT: March 31) where it closed 26% down on day one at GBP2.87 and closed Dec 3 at GBP2.41 — a torrid start.

See also: Salaries in Singapore expected to increase around 4.7% in 2023: Aon

Critics took the chance to moan at just about anything, with quite a few focusing on how Grab’s co-founder and CEO Anthony Tan’s US$1 billion net worth slipped to a paltry US$800 million. (He controls 60.4% of the company with dual-class shares even if economic interest is just 2.2%). Or, they took umbrage at how Grab could lose nearly US$1 billion in its 3QFY2021 ended September but can still raise US$4.5 billion in its IPO.

Others who bothered to look closer at Grab’s numbers before shooting off their mouths note how the margin of the first-day reversal was equivalent to what is taken from its drivers — and still lower than extracted from food merchants. Yet, have they forgotten about the thousands of jobs created in the emerging “sustainable gig economy”? Seriously. Can’t please everyone.

As CEO Tan declared upfront: “The stock will go up and it will go down” — and so it did and will continue to do so as it is now in the public market domain. In a way, the listing is a success, given how it was at a purported higher valuation priced in the wild west through this de-Spac route instead of a straight IPO. Its US$4.5 billion war chest will come in handy as it steps up the fight to be southeast Asia’s super app, where the ultimate winner has yet to be crowned.

See also: Thailand: Will the Land of Smiles smile again?

Sea change

Indeed, the first day, week or month performance after an IPO does not tell the whole story. Back in Oct 2017, Sea made its debut on the New York Stock Exchange at US$15. It was also a somewhat unexciting moment. It ended 2017 below that level and stayed range-bound for another two years before starting its climb to a peak of US$372.70 in October, giving it a market value of US$256 billion.

As part of the broader tech sell-off, Sea’s share price has corrected since. Yet, at current levels, this company, just 12 years’ old, still commands a market cap of around US$140 billion ($205 billion) — larger than the aggregate of DBS Group Holdings ($81 billion), Oversea-Chinese Banking Corp ($51 billion) and United Overseas Bank ($44 billion).

Taking advantage of its lofty valuations, Sea has been regularly raising US$1 billion or so per round by selling new shares with the help of its bankers at Goldman Sachs. Via such regular top-ups to its war chest, Sea is able to sustain its ability to take in 3Q widened losses to US$450 million, enabling its conquests into digital banking, beyond just gaming and shopping. It has also laid down ambitions to grow beyond Southeast Asia into far-flung markets such as eastern Europe.

The rise of Sea triggered the foreign materiality limit of MSCI’s index methodology. In May, there was the partial inclusion of 5% into SIMSCI (Morgan Stanley Singapore Index, whose 19 large and mid-cap constituent stocks cover 85% of the free-float adjusted market cap of Singapore listed counters). It was followed by 25% in August, and 50% on Nov 30.

That caused an aberration on the Straits Times Index in Singapore, as passive institutional investors were forced to buy Sea, while reducing allocations to key component stocks, triggering drops of more than 3% in the banks and telco bellwethers.

Of course, for those shopping post-Black Friday, that was an opportune day to buy for the rebound seen in the following days as valuations normalised after the anomaly of rebalancing in the lead-up and on Nov 30.

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Next February, Sea will be 100% included in the SIMSCI. And if Grab sustains or grows its valuation, it too may be admitted to the index. Local STI benchmarked investors and retail ETF owners will miss out on these. The STI will be less volatile than SIMSCI but as has been for this year with Sea’s inclusion, lags the MSCI institutional benchmark, with fewer funds ceteris paribus for our local index stalwarts.

It is an opportunity cost for SGX at best, but not its fault, insofar as decisions on where to list are driven by many factors. For one, the US markets generally give loss-making platform tech listings with aggressive growth business models higher valuations than all others, including Hong Kong and London. Furthermore, the US market has more than sufficient capital depth for these companies to tap regularly.

On the other hand, politics do get in the way as well, as Singapore is a competing capital market in Southeast Asia for businesses that count on success in Indonesia — the largest country — as key to winning the game, whereas Uncle Sam is neutral for most except China more recently.

However, there is an unintended, ironic consequence of successful regional companies leaving for foreign exchanges. Consumers from Malaysia, Thailand, Indonesia or Singapore have contributed to the growth of these platforms. Yet, because of the inevitable quirk in market structures, these very same consumers, as investors, suffer a disadvantage: if they want to trade the US market and buy their home-grown champions, they got to do so in a different time zone, and be subjected to forex eating into their margins. As these counters are included in SIMSCI but not the STI, their returns in the 30-stock basket that constitutes the latter will lag as well.

As recounted earlier, the headlines on Grab’s Nasdaq debut varies, but it is clear there are many who are fond of their champion now in the big league. Bernama went with “From Segambut to New York: Grab celebrates listing milestone” — a nod to where MyTeksi’s first office in Kuala Lumpur was located.

Can chickens come home to roost?

Hours before Grab’s late-night fanfare, a little footnote was almost missed: with the help of private equity firm CVC, Razer announced a founder-led buyout from its much-vaunted Hong Kong listing. The offer of HK$2.82 ($0.50) is around three times Razer’s all-time-low of 89 HK cents in March 2020. Yet, this offer is “a tad” lower than Razer’s IPO price of HK$3.88 — a level not seen since its first month of listing after Nov 2017.

Ironically, after listing for four years, Razer was just finally making a profit. For its most recent 1HFY2021 ended June 30, it reported earnings of US$31.3 million, a sharp swing from losses of US$17.7 million in the year-earlier period. Revenue, meanwhile, surged 68% y-o-y to US$752 million.

The reason for “delisting” was to bring the listing to the US with expectations of fetching a better valuation. This may well transpire, but there is no certainty. Osim International’s high-profile delisting from the SGX back in 2016 at a not unreasonable 21 times earnings, continues to be the regular example cited by the mainstream media when yet another delisting is announced. Yet, less often mentioned was Osim’s then-proclaimed intention to list the following year in Hong Kong. Thus far, that listing has yet to materialise.

The fact of the matter is that for global companies, having access to investors in the zone that they operate, where their Asean consumers, vendors and business partners are, could be an advantage. At the minimum, they bring in legions of loyal customers who can more easily invest in companies where they spend their money. The string of Chinese companies on NYSE and Nasdaq who have found returning home to Hong Kong beneficial do tell a convincing story.

In addition, these companies, be it the one with a market cap of US$256 billion, or the one worth US$34 billion, will be as large, or even larger than the top stocks on the STI including DBS and Singapore Telecommunications. This means that there will be index inclusion into the STI, which brings passive investors who track the STI, including the retail aggregated ETFs. Regional investors and specific funds with Asean only, or Singapore only mandates, can add additional liquidity and capital directly.

This can be achieved after marking the price and raising good money from global investors more active in deep markets such as the US, and then followed by a simple secondary listing on SGX, which does not carry a significant regulatory burden at all. And the depositories, CDP and DTCC (Depository Trust & Clearing Corporation) are already connected, making settlement through one’s broker and bank relatively seamless. What this means is investors can easily transact both markets through an almost 24- hour trading day.

Consider Jardine Matheson and its separately listed subsidiaries. They’ve benefited for decades with their primary listing in London and secondary listings in Singapore. Or Creative Technology, which was dual-listed on the Nasdaq before eventually returning home completely for support after losing its lustre in the US. Or who knows what geopolitics will look like in an increasingly “America First” world. If your businesses are in parts of the world perceived negatively by the West, that’s an additional risk of collateral damage nobody wants. Singapore’s neutrality, efficiency and effectiveness in doing business is already the reason why these companies based here are seen as losses when they list elsewhere.

Perhaps it is time to take the additional step to enable us to cheer our local champions at home without having to lose sleep overnight. With a local listing, even when the fundraising and pricing is led by a primary market overseas, the party and celebrations could have followed in Singapore the morning after and the bubbly pop could have just carried on

Chew Sutat retired from Singapore Exchange (SGX) in July this year. He was senior managing director of SGX, and member of SGX’s executive management team for 14 years. He serves on the board of ADDX and chairs its Listing Committee. Chew was awarded FOW Asia Capital Markets Lifetime Achievement Award this year.

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