SGX should revive its IPO 'upsizing' strategy
ALMOST 10 years ago in July 2005, the Singapore Exchange (SGX) announced a bold, rebranding strategy aimed at attracting larger companies to list in the Republic.
Its head of listings back then borrowed a term from fast-food chain McDonald's, saying the goal was to "upsize" its companies because "larger companies tend to attract institutional investment and these are the sort of investors that tend to have more long-term holding power plus they are more strategic in their investment planning" ("SGX gears up to fight the competition", BT July 18, 2005).
No firm target was set for desired company size, but a ballpark market capitalisation of at least S$300 million was mentioned. "Bigger is better" was seen as the way forward because the majority of listings in the early part of the decade had been small, obscure firms whose offerings had suffered the ignominy of undersubscription and whose amounts raised from listing, net of fees and expenses, were so paltry that many questioned the wisdom of listing in the first place.
By the time upsizing was publicised, it was actually already working - between January and July that year, there had already been 37 new listings which raised S$2 billion and added S$7.2 billion to the market's capitalisation - and continued to work for a while longer.
Unfortunately, 10 years later, not only has that momentum been lost, some might even argue that the IPO market has regressed because an increasing number of mainly small companies - possibly because of a fear of public undersubscription - now list via full placement (mostly on Catalist) and with no public tranche.
Meanwhile, "upsizing" appears to have been long forgotten, buried quietly under the rubble of the painful S-chip collapse of 2007-2010, the disgraceful US-subprime crisis that erupted in 2008 whose effects are still being felt today and, more recently, the as-yet-unresolved penny stock crash of 2013.
All three disasters have combined to drain liquidity out of the local market and lower its standing and valuation in the eyes of the investment community, with the result that big listings are now a rarity.
More than four months into 2015 and there have been only two new entrants this year - real estate manager LHN Ltd and Malaysian calcium carbonate producer GCCP Resources. Both listed on Catalist via private placements but although going this route helped reduce the risk of public undersubscription, neither avoided the ignominy of ending their debuts below their offer prices.
Moreover, LHN's present price of S$0.188 is 17 per cent below its S$0.23 offer price and puts its market cap at around S$68 million. GCCP has fared a lot worse, its current price of S$0.154 is one-third below its S$0.23 offer.
Although GCCP's market cap is more than double LHN's at around S$184 million, like LHN it doesn't meet the exchange's admittedly loose upsized target of S$300 million set a decade ago.
The upshot is that there is an urgent need for SGX to revive its "upsizing" strategy and step up its efforts at attracting bigger, better-known names to list in Singapore.
Size, of course, does not equate with quality, but investors would find larger companies more appealing because they do hold certain advantages over smaller ones. In the area of corporate governance, for example, bigger companies tend to have larger and more diverse boards which means greater expertise, while the presence of institutional shareholders means managements are policed by relatively sophisticated players. Big firms are also more likely to be tracked by research units and stand a better chance of one day being included in market benchmark indices.
Small firms should continue to be welcomed as they have every right to tap the capital market - but more big offerings wouldn't go amiss.
