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Some thoughts on the IPO situation

Monday, April 4, 2016 - 11:38

The state of the local IPO market has been in focus over the past couple of weeks with two articles on the subject.

The most recent was one last week by Bloomberg, which said SGX has been toppled as SEA's premier IPO destination, with an exaggerated headline that I think was unfair to the exchange.

The substance of the story was the Thai, Indonesian and Malaysian companies (TIM) are preferring a listing on their domestic exchanges rather than elsewhere; the writers and the headline drawing the somewhat tenuous conclusion that the "elsewhere'' would have been SGX. I say "tenuous'' because I don't think TIM companies were falling over themselves to list in Singapore in the first place, and neither do I think that SGX specifically targeted large numbers of TIM firms in its marketing efforts for new listings.

 It is also not possible to assume that these firms were initially planning to list here then changed their minds in favour of a home listing without asking each and every one of them whether this was the case. Finally, is it really news that more Thai companies are listing in Thailand, Indonesian firms in Indonesia, etc? Or is this only to be expected, being par for the course? 

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I think Straits Times perhaps played the story a little bit better than the other press which blindly lifted Bloomberg's  version, ST's headline  "SGX's share of IPOs shrinks as regional rivals step up'' was a bit closer to reality, even if it implies regional rivals are garnering more of ALL IPOs than SGX, which is not the case. I also note that ST omitted the first paragraph of Bloomberg's version, the paper's editors displaying a more discerning eye and better appreciation of what is news than others.

No matter, the second article which caught my eye was by ST's Goh Eng Yeow, which said that SGX is not alone in experiencing an IPO shortage - it is fact, a problem all over the world ("Straits Times 28 March, "The worldwide drought in IPOs'').

Eng Yeow highlighted recent HK listings as being at the lower end of their indicative price ranges and reported that even New York is seeing virtually no new entrants. I felt that this was a more balanced depiction of current affairs - yes SGX is suffering from a dearth of IPOs but this is not unique to only Singapore as it is a global phenomenon.

I believe that the reason fewer firms are listing is because the cult of equities is losing its shine. Companies now believe that stock markets are not as efficient allocators of capital as is claimed, with too many short-term distortions like high frequency trading, short sellers and hedge funds messing up the picture.

Many may also feel that the onerous continuous listing obligations and compliance costs are not outweighed by the benefits, especially with interest rates as low as they have been for the past 8 years. Why bother raising capital from an inefficient - and probably nonperforming - market when borrowing costs are so low?

To be fair though, the numbers do not lie - the underlying message of Bloomberg's story was that the number of IPOs in TIM and funds raised by new listings elsewhere in the region are higher than on SGX, so the latter has lost ground and has to step up its efforts.

There is no denying this is a valid message and the exchange will have its work cut out for it - it has targeted China in this regard, and its aim in doing so was a topic which I discussed in an earlier blog posting when Lawrence Wong was sent there to set up an office. I hope in time, local investors will have many new, quality firms to choose from - those from TIM included.

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