SGX needs to rein in delistings

LAST week's privatisation bid for Wheelock Properties (Singapore) would bring the year's tally of delistings to more than S$27 billion if it is successful. The tally includes Global Logistic Properties, a S$16 billion juggernaut which officially delisted in January this year.

There is also a handful of smaller firms still in the process of being privatised and delisted - such as Vard Holdings, Weiye Holdings and Lee Metal - which would result in approximately S$800 million in market value that would be erased from the local bourse in due time.

These numbers overwhelm when considered against the mere S$682 million raised on the Singapore Exchange (SGX) this year, and S$2.6 billion in new market value added to the bourse through initial public offerings (IPOs). The most sizeable listings this year include Sasseur Reit (S$1.3 billion), Koufu Group (S$350 million) and PropNex Limited (S$240.5 million).

But they pale in comparison to the exits of much larger firms such as AusNet Services (S$5.7 billion) and Genting Hong Kong (S$1.6 billion).

Notwithstanding the strong growth in its derivatives segment, the stubborn problem encountered by the exchange on the equities side has been that while it is constantly on the prowl for new overseas listings, given Singapore's limited local economy, it appears vastly unable to make up for the market value lost via delistings.

Stemming the outflow

It is hard to generalise steps that the exchange can adopt to stem the outflow when companies often delist for very specific and strategic reasons.

In Wheelock's case, as early as June 2017, Phillip Securities had noted that the property developer appeared to be "in self-liquidation mode with all debt settled and development properties at tail end". Its valuation was deeply discounted, but its net cash pile kept growing.

Max Loh, EY Asean and Singapore managing partner, likened Wheelock to a member of a country club that has stopped using its facilities yet continues to pay membership fees. It probably came to a point where the controlling shareholder, Hong Kong-listed developer Wheelock and Co, had to decide whether it was still worth staying on as a member of the "club".

Other market watchers said that the privatisation is likely a continuation of the parent firm's corporate restructuring - to simplify the group's organisational by cutting the number of investable layers.

In Hong Kong, the parent firm had also been restructuring in other ways. Last August, its listed subsidiary Wharf Holdings spun off a portfolio of investment commercial properties into an entity called Wharf Real Estate Investment Co. In 2010, Wheelock & Co also took Wheelock Properties HK private for HK$13 a share, following a sharp decline in the latter's share price post global financial crisis.

Such streamlining moves are not uncommon. For example, Wing Tai Holdings took in its Malaysian-listed counterpart Wing Tai Malaysia Berhad for RM290 million (S$94 million) in May last year, and CapitaLand also took CapitaMalls Asia private for about S$3 billion four years ago.

Meanwhile, Wheelock Properties (Singapore) has mostly been a dormant company this year; the last time that it really created any ripple in the market was when it teamed up with Hotel Properties (HPL) founder and tycoon Ong Beng Seng in 2014 to obtain control of HPL.

For years after that, the developer never deployed its dry powder in Singapore's property market, which suggests that it sees little or no opportunity here - be it in government land sales or collective sales. Wheelock stood by watching without dipping its toes as other developers worked themselves into a buying frenzy in the latest market recovery. That coolness was probably further chilled by the property tightening measures announced earlier this month.

By now, many brokerages have decried that at 0.78 times book value, the S$2.10-a-share cash offer is a low-ball offer, with OCBC even recommending shareholders to reject it.

An analysis that UOB Kay Hian did shows that offers for property developers in recent years have averaged 1.1 times book value. Keppel's offer for Keppel Land was about 0.9 times net asset value back in 2015.

SGX Regulation has said that the exchange is considering changes to its listing rules to curtail an "oppression of the minority" by controlling shareholders in cases of voluntary offers and delistings when the odds are stacked heavily against minority shareholders - including cases where companies are perceived to be privatised at too-low prices.

The exchange is collaborating with the Singapore Institute of Surveyors and Valuers to study how elements from the latter's Practice Guide on Valuations for Reits and IPOs can be included into the SGX listing rules.

Can perhaps more be done? Some industry watchers suggested that the exchange tweaks the parameters - for instance, the requisite percentage of shareholders required to pass a delisting resolution, or the percentage required to veto against it.

Opposing viewpoint

But there is also the opposing viewpoint that this could tip the balance over into an "oppression of the majority" such that minority shareholders are given too much power to block an offer that is in fact fair and reasonable, and controlling shareholders find it near-impossible to exit their investment.

Meanwhile, a worrying trend of Singapore companies - such as Razer, LHN Corp, ISDN Holdings and Centurion Corp - choosing to list on the Hong Kong bourse for reasons such as better valuation, trading liquidity and proximity to a larger pool of mainland investors has caught the market's attention.

Their motivations involve very macro issues that are more challenging to tackle. It may not even be solely the exchange's problem alone, as the exchange is merely the hosting platform and final landing spot of a company. The onus is on the whole ecosystem - comprising other professional, legal and banking actors - to work together to bring about change.

But SGX must recognise that it is not just on the listing side that it can do something about; it should also be taking measures to monitor dormant listed firms and help those that are struggling to gain traction, as well as conduct in-depth dialogues with those leaving the bourse to better understand their reasons for doing so.

Because success is not marked by the clanging gong at a company's trading debut, but the continued growth of a company on the bourse through the years as a stock recognised, favoured and fairly valued by its investors, both retail and institutional.