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SGX lures tech sector, but getting firms to byte will be tough: observers

They say taking this route has challenges, but it is a right step, given the rise in number and size of tech startups
Thursday, June 1, 2017 - 05:50

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The aggressive wooing of the technology sector by Singapore Exchange (SGX) holds promise, but consummating these partnerships will be challenging, say observers and industry stakeholders.

Singapore

THE aggressive wooing of the technology sector by Singapore Exchange (SGX) holds promise, but consummating these partnerships will be challenging, say observers and industry stakeholders.

They point, for example, to New York's dominance in tech initial public offerings (IPOs) in the public arena, and the fact that the strategy will take time to develop, though it is a step in the right direction.

On Wednesday, SGX unveiled a collaboration with the Singapore Info-communications Media Development Authority (IMDA) to woo potential fund raisers that are at a less-mature stage of development.

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Under this scheme, SGX will connect credentialled companies under the Accreditation@IMDA programme with industry professionals who can offer advice on tapping public markets.

Industry partners which have signed up so far - Catalist sponsors RHT Capital and Zico Capital; auditors EY and KPMG in Singapore; and lawyers Bird & Bird ATMD and Clifford Chance - will offer discounts on their fees if the companies choose to work with them to raise funds.

Created as a vendor facilitation scheme in 2015, Accreditation@IMDA performs due diligence on Singapore-based tech companies and their technologies, in the hope that the stamp of recognition for those that pass can help them to win contracts.

But Accreditation@IMDA director Edwin Loh said the due diligence has turned out to be useful for the fund raising as well.

So far, accredited companies have won more than S$70 million worth of jobs from the Singapore government, and have raised S$28.9 million during or after the accreditation process. Mr Loh said a poll of the accredited companies found that four or five are considering exit options, which could include IPOs.

Giving the exchange and industry players a channel to tech companies will keep Singapore on the radar when these companies think about listing, said OCBC head of corporate finance David Cheng. "The partnership gives Singapore home-grown companies or appropriate regional companies more impetus to list in Singapore, where investors are more familiar with their name, product and business model, rather than having to venture overseas for an IPO," he said.

The initiative is part of SGX's broader technology-sector strategy, which chief executive Loh Boon Chye highlighted as an area of priority shortly after taking over the reins in 2015. SGX head of equities and fixed income Chew Sutat noted that SGX has run a series of investor-education workshops on the tech sector, and has invested in early-stage equity raising platform CapBridge and supported crowdfinancing platform FundedHere. It is considering allowing the listing of dual-class share structures.

In the recommendations of Singapore's Committee on the Future Economy, SGX is also part of an industry group looking into the possibility of creating a private market platform; industry sources say more tie-ups with other government agencies could be in the works.

The strategy is bearing some early fruit. Already, US-based biotech Liquidia Technologies is believed to be seeking a Singapore listing this year, and more tech companies are in the pipeline. Mr Chew said: "We have a healthy pipeline of IPOs that will come onstream in the coming months, including listings from the tech sector - in the data analytics and fintech space."

Observers believe SGX is moving in the right general direction, although they say actually sealing the deal will be difficult.

Peng T Ong, managing director of venture fund Monk's Hill Ventures, said New York has such a stranglehold on tech IPOs that every other exchange may as well just throw in the towel when it comes to the public arena. "Almost all Chinese companies look at Nasdaq and the NYSE. The reason is very simple. The expertise on tech is there, the analysts, the coverage, the valuations . . . Is there room for more than one public market for the large-scale companies? Right now the answer looks like 'No'."

Start-up stock exchanges outside of the US are thus experiencing high volatility as investors struggle to understand new-economy businesses, he said. Even Hong Kong is struggling to break into the tech space - and its market capitalisation is many times larger than that of Singapore's.

Mr Ong suggested that Singapore may have more success in the private market, but the challenge there is in identifying the right problem and creating the right solution. He said he would benefit from having more liquidity in the private markets, but was struggling to see out how that liquidity could be achieved without having a detrimental rise in volatility.

CIMB analyst Jessalynn Chen described the strategy as one that may take time to fully develop. She said that SGX's competition is vying for a slice of the same pie, and while capturing tech IPOs will boost liquidity, SGX has a host of other challenges it must also address. "They need to employ more strategies than just IPO, but at least this is a step in the right direction," she said.

DBS Bank head of capital markets Tan Jeh Wuan said SGX will also have to fight off well-endowed private equity and wealthy individuals, who increasingly offer funding without the need to list. All of those challenges notwithstanding, the tech space is one that SGX cannot afford to neglect, Mr Tan said. "It is a sector that SGX cannot ignore, given that the number and size of tech start-ups are growing rapidly," he said.

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