Could cash-rich private investors be killing IPOs?

THE Singapore Exchange is often bashed for its paltry collection of listings each year, but a broader perspective should be taken on this matter to highlight the fact that the stock exchange is not alone in this trend. The malaise is global.

Even on foreign bourses, listings are drying up. According to EY Global's Q3 Initial Public Offering (IPO) market report, for the first nine months of 2018, there were 1,000 IPOs globally, down 18 per cent year-on-year, although they collectively raised 9 per cent more at just over US$145 billion, which shows that the size of deals has grown.

For the period, the United Kingdom and Ireland saw a 28 per cent year-on-year drop in the number of IPOs to 38, and a 48 per cent decline in proceeds raised to US$5.2 billion. China, too, saw IPOs plunge 75 per cent to just 86 deals worth US$17.8 billion, 31 per cent lower than a year ago.

Evidently, uncertainty in the investment climate is not a factor that affects Singapore alone. But besides geopolitical risks and a general fear of the unknown, there has also been another factor that has affected listing aspirations and fuelled delisting transactions, says Choe Tse-Wei, managing director, strategic advisory, at DBS Bank.

The culprit: deep-pocketed private institutional investors seeking investments.This has accounted for a good number of Singapore take-privates last year.

For instance, warehouse provider Global Logistic Properties (GLP) was bought out by Nesta Investment Holdings, a Chinese private equity consortium backed by senior executives from GLP.

Shares of crane supplier Tat Hong were acquired by a tie-up between the family of CEO Roland Ng, and Standard Chartered's private equity arm.

Engineering services company Rotary Engineering was taken private by its controlling family which teamed up with the investment arm of the Oman government to make a joint bid.

LTC Corp delisted after a buyout bid by the Cheng family controlling shareholders and majority-owned family vehicles Lion Investment (Singapore) Pte Ltd and Lion Realty Private Limited.

The appeal of private capital is enhanced by the fact that unlisted companies are less vulnerable to stock market volatility.

A recent example occurred last week when Apple's shares lost nearly a tenth of their value after chief executive Tim Cook blamed a slowdown in China sales for the company's falling revenues.

Listing pains

Wild swings in stock markets are just one of several "listing pains". Others include attacks from short-sellers and quarterly pressures from investors.

This is happening even as traditional "listing benefits" such as better brand and product recognition, ease of raising capital, a diversified shareholder base, and the ability to better attract talent become just as accessible with private capital.

Examples of the investment appetite of private institutional investors abound.

For example, news of China's Ant Financial bagging US$14 billion in Series C equity funding from investors including Singapore's sovereign wealth fund GIC and state investor Temasek, as well as Malaysia's Khazanah Nasional in July last year rocked markets, in what Reuters called the biggest-ever single fundraising globally by a private company.

Ant Financial operates Alipay, China's biggest third-party payment provider. Other significant investors in the deal included US private equity firm Warburg Pincus, and the Canada Pension Plan Investment Board.

Mr Choe from DBS says: "Companies can find more reliable, stable and huge pools of capital privately. They don't need a listing. So to your point on what factors would portend a potential delisting, well, when private capital finds that such companies are worth betting on and can offer itself as an alternative to public money."

To him, this explains why tech unicorns such as Grab and Go-Jek choose to remain unlisted - because private money today still exists in large pools, including in venture capital. There is no lack of interested investors. They come in queues, he says.

If true, IPOs need a new raison d'etre if they are to be revived.

READ MORE: Singapore market activity may pick up with both listings and delistings