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A BT CHRISTMAS TALE

All I want for Christmas is an IPO

Global logistics giant seeks mainboard funding for driverless mega-sleigh - and reindeer fleet expansion
Friday, December 25, 2015 - 05:50
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Illustration: Yu Kexin

Singapore

ONE of the world's most well-known logistics and manufacturing conglomerates could be making a list in Singapore.

The secretive and family-controlled Santa Group - now a household name, owing to its year-end publicity blitz over the past few centuries - is planning a listing on the Singapore Exchange (SGX) within the next few months that could raise at least S$1.2-2.5 billion, sources told The Business Times.

If the North Pole-based company does come to town, it would be the deal-starved bourse's first non-Reit initial public offering (IPO) on the mainboard in slightly over a year. That could bring some festive cheer back to the otherwise wintry Singapore listings scene, market observers said.

But they also raised concerns about the group's economic prospects and corporate governance standards, and wondered why it would want a public float in Singapore when valuations have sunk so low.

Santa's plans to tap public equity funds come as it continues to face headwinds from a labour crunch, stiffer competition due to a prolonged slump in oil prices and disruption from technological advances.

The group was reported in 2014 to have been saddled with numerous manpower woes, including chronically low productivity. In 2013, the tight labour market also caused Santa delivery problems due to a lack of local reindeer willing to pull the sleigh.

Santa is likely to use the IPO proceeds for working capital and reindeer fleet expansion, sources said. They added that he was also eyeing a project to develop a driverless mega-sleigh that will let him capitalise on economies of scale, tap new "sharing economy" opportunities and have more free time to clear his mail.

It is difficult to value the group due to the substantial amount of goodwill on its books and a lack of comparable peers. Santa will also probably suffer from a conglomerate discount to its valuation even if it happens to be world No 1 in any particular sector, analysts suggested.

Documents viewed by BT indicate that the sprawling company earns revenue from a broad swathe of industries, including toy manufacturing; chimney design consultancy; snow exporting; elf outsourcing; and reindeer-based cold-chain logistics services.

These diversified revenue streams help to smoothen out some of the seasonality from Santa's business, which tends to do better in the third and fourth quarters of the year as consumer demand ramps up.

However, recurring costs have been hefty. These include reindeer herd maintenance expenses, ever-rising elf wages and medical fees related to Rudolph's perennial cold, which worsened this financial year due to the prolonged haze problem in the region. Rudolph also needs regular psychotherapy to treat post-traumatic stress disorder stemming from childhood bullying.

Other business risks loom. Global climate change has turned up the heat on Santa's snow exporting arm, which has seen its sales shrink along with the icecaps. New inventions such as 3D printing threaten to put Santa's elves out of business, while drones pose a threat to its reindeer in more ways than one.

Santa's traditional audience for its annual "Night Before Christmas" gift delivery stunt is also dwindling, as homebuilders eschew chimneys as part of a worldwide push for cleaner fuel and children increasingly clamour for high-tech gadgets and apps beyond what his production lines can churn out.

Though Santa can still make fat margins off the delivery business, the industry-dubbed "sender of last resort" is likely to find it tough-going to maintain rates next year in the face of depressed global demand and cheap oil, analysts said.

They added that problems may arise when valuing the group's biological assets such as elves and reindeer, due to the lack of specific accounting standards and liquid, transparent markets for these items. These factors would make it tougher for an outsider to determine whether certain assets are overvalued and by how much.

Chilly prospects aside, market observers have also raised red flags about the group's corporate governance standards. "Santa Claus is founder and sole proprietor, and all the board directors are his relatives," a corporate governance specialist said. "Talk about a one-horse, not-so-open sleigh."

Another seasoned market watcher said that Santa might put pressure on the SGX to allow it to list with a dual-class share structure. "Without proper checks and balances, Santa Claus's pockets could be the only thing jingling all the way."

Others pointed to Santa Claus's reclusive life in the Arctic Circle, far from the reach of the Securities and Futures Act. "Given the company's opacity and complex business structure, he could be headed for another Iceberg," one corporate lawyer said. "Will he even bother to turn up at AGMs here?"

Another key question is why Santa would even want to list on the SGX now, given that stock valuations here are near Global Financial Crisis troughs while private equity funds worldwide are still sitting on a mountain of dry powder.

When asked about the group's plans, a spokesdeer declined to confirm a float but said that Santa was considering all possible avenues for fundraising, adding: "There's no good time or bad time for an IPO. We're hoping to attract long-term investors who understand our business."

An SGX spokesman said that the bourse does not comment on market speculation.

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