Fewer SGX delistings expected in 2024 as market conditions improve, new rule kicks in

THE flow of delistings from the Singapore Exchange (SGX) appears to have been staunched somewhat: 25 companies have delisted in the year to Dec 13, which is 11 fewer than last year.

Industry watchers expect SGX delistings to slow further in 2024, as market conditions improve and tougher acquisition guidelines kick in.

FSMOne.com’s senior research analyst Chloe Halim reckoned that the smaller crop of delistings this year was likely due to improving economic conditions.

In 2022, markets had been hit by the Russia-Ukraine war and the resultant supply-side disruptions. The inflation rate in the United States rose to a peak of 9.1 per cent in June 2022, she noted, causing a lot of uncertainty and fear as well.

Halim said that the US economy has shown resilience, and is likely to improve in 2024. “Over in Singapore, our local economy fared better than initially thought,” she added. “The government projects its growth for 2024 to come in between 1 per cent and 3 per cent, as the trade-oriented economy expects a recovery in global electronics demand.”

Most of the delistings in 2022 were the result of privatisation or merger deals, with quite a few companies being acquired by their controlling shareholders.

Some of these controlling shareholders could have been pushed to make a privatisation offer before the authorities plugged a loophole in regulation governing compulsory share acquisition offers.

The Companies Act allows the entity behind a takeover bid to compulsorily acquire any remaining shares of a target once it secures acceptances for 90 per cent of the shares that the offeror did not already control before the bid.

If a controlling shareholder owned, for instance, 80 per cent of the target entity, then it would need to get acceptances representing 90 per cent of the remaining 20 per cent of independently owned shares – meaning it would need to control 98 per cent of the company to forcefully acquire the remaining 2 per cent of shares.

To make it easier to reach this 90 per cent threshold, most controlling shareholders would incorporate a new company and use the new company to make the bid. The controlling shareholder would pledge to accept the bid, and minority shareholders could be squeezed out.

In May, Parliament passed a Bill to amend the Companies Act and remove this loophole. Shares held by entities connected to the offeror will no longer count towards the 90 per cent threshold.

The Singapore Exchange Regulation (SGX RegCo) put in new guidelines in July on independent financial advisers (IFAs) and their opinions in relation to a privatisation exercise. SGX RegCo also put in guidelines on the roles that directors play in selecting and appointing such IFAs.

This is meant to address offers from investors that are not of fair value but are still recommended as reasonable by the IFA. With these new guidelines, companies with “undervalued stock” should be privatised only at “fair value”, which can be higher than its traded market value, noted Deloitte Singapore’s financial advisory partner Tan Wei Cheong.

“This may put off potential offerors, and hence we may not see an upward trend in privatisation despite lower market valuation,” he said.

Tan does not expect to see a sharp increase in delistings or privatisations next year.

The number of delistings from SGX is expected to continue to outnumber new listings, though.

Seven counters made their debut on SGX this year, if Vertex Technology Acquisition Corporation’s business combination with 17Live is to be included in the list.

“We are mindful that low liquidity, valuations and the lack of investor interest continue to plague Singapore’s stock market,” said FSMOne’s Halim.

Singapore has a relatively small base of investors, in a city of 5.9 million, and this could result in insufficient demand and low liquidity and valuations, she added.

She expects the manufacturing sector to see the most exits for being unable to meet listing requirements, noting that 13 companies in this sector have had their trading suspended.

IG market strategist Yeap Jun Rong noted that the number of delistings will depend on whether valuations can improve amid the more risk-on environment, with global markets basking in hopes of a policy pivot from the US Federal Reserve and a soft landing for the US economy.