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SGX gets NetLink boost but road ahead remains rough

Biggest bugbear for listing aspirants remains weak valuations

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Netlink NBN Trust's S$2 billion initial public offering (IPO), Singapore's biggest listing this year, is a much needed fillip for the Singapore Exchange (SGX), but the bourse still faces considerable challenges convincing more companies to list here.

Singapore

NETLINK NBN Trust's S$2 billion initial public offering (IPO), Singapore's biggest listing this year, is a much needed fillip for the Singapore Exchange (SGX), but the bourse still faces considerable challenges convincing more companies to list here.

The fibre network firm's IPO is the largest since 2011, which saw Hutchison Port Holdings Trust raising US$5.8 billion in gross proceeds. NetLink is listing on Wednesday, after pricing its offer at S$0.81 per unit to raise gross proceeds of about S$2.35 billion.

Chew Sutat, head of equities & fixed income at SGX, is striking an upbeat note. "The new listings reflect our broad-based strategy to support domestic and international companies at different growth stages. This includes working with capital market intermediaries and government agencies to foster a conducive ecosystem that can generate and support more primary and secondary listings.

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"We are also leveraging the success achieved in our Reits sector to develop new key sectors such as technology, consumer and healthcare."

Another firm in the technological space that made its debut on SGX on July 11 is Y Ventures Group. The data analytics firm offered 35 million placement shares at S$0.22 each, raising about S$7.7 million in gross proceeds.

SGX has seen many "first" listings this year, including Kimly, the first coffee shop operator, and HRnetGroup, the first recruitment agency to list on the mainboard. As at June 2017, SGX has 752 listed companies with a total market capitalisation of US$738 billion. Nearly 40 per cent of all companies listed are overseas companies.

In total, 12 firms were listed on SGX in the first half of this year, raising S$526 million. By definition, listings comprise IPOs and reverse takeovers (RTO) such as Pacific Star Development, which sought a listing via a S$140 million RTO with LH Group last year. In contrast, nine firms, including Frasers Logistics & Industrial Trust and Manulife US Reit, listed on SGX in the first half of 2016, raising S$2.39 billion.

Data compiled by BT shows that 14 companies delisted from the mainboard of SGX in H1 this year. In the same period last year, 13 firms delisted from the mainboard and one delisted from Catalist.

Tan Jeh Wuan, head of capital markets Singapore at DBS Bank, said that the outlook for the IPO market was a bit more "subdued" at the beginning of the year, given a multitude of macro geopolitical and economic factors.

"The IPO market turned out better than expected in the first half of the year, although in terms of equity funds raised, it is lesser than what was raised in the corresponding period last year. With the impending completion of the NetLink NBN Trust IPO, the total funds raised would have already exceeded that of last year."

Looking ahead, he said: "We are expecting a number of other sizeable IPOs to be launched in the second half, including a number of Reits with assets outside of Singapore. We continue to see strong interest from investors for yield transactions, underpinned by plenty of liquidity in the market, which will help drive the demand for these IPOs."

Still, some firms in Singapore have shown their preference to list on exchanges overseas as weak valuations is the main reason leading companies to skip SGX.

On June 29, gaming tech company Razer, which is backed by Temasek's Heliconia Capital Management, submitted a preliminary prospectus to the Hong Kong stock exchange. Similarly, OSIM International said in April this year that it is relisting in Hong Kong under the name of V3 Group, less than eight months after it delisted from SGX.

An analyst from Maybank Kim Eng Securities said that based on anecdotal evidence, the Hong Kong bourse provides higher IPO valuations in terms of price-to-earnings for lifestyle, consumer goods, and China market-centric businesses, This is due to greater depth, liquidity, higher trading velocity, proximity to China and a significantly larger pool of investors and speculators, combined with a "perceived lighter touch on regulatory price movements post listing".

"SGX has a strong niche position in small caps, Catalist-board IPOs and fund raising. It should focus on this strength and niche, and should not shy away from this role. Trying to compete with Hong Kong for the larger IPOs would always be a challenge. Hence, SGX should not lose focus on the mid to small cap stocks which also require IPO listings."

SGX still lags its regional peers in terms of IPO fund raising. Malaysia and Hong Kong have seen eight and 69 new listings, and raised RM3.53 billion (S$822 million) and HK53 billion (S$9.29 billion) respectively in H1. In H1 2016, Malaysia had 12 new listings while Hong Kong had 38.

On July 11, Lotte Chemical Titan Holding Bhd, the Malaysian petrochemical unit of South Korean conglomerate Lotte Group, started trading on Bursa Malaysia. At its IPO offer price of RM6.50 per share, it raised RM3.77 billion and is Malaysia's largest IPO since 2012.

In KPMG's 2017 mid-year review of IPOs in China and Hong Kong, it said that financial services, healthcare/life sciences, and public services are the top three sectors, accounting for around 61 per cent, 11 per cent and 10 per cent, respectively, of total mainboard proceeds on the Hong Kong exchange in H1.

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