Singapore IPO climate to look up in 2024, but observers mixed on return of Reits, Spacs

SINGAPORE’S initial public offering (IPO) activity is expected to pick up in 2024, as interest rates fall and stock market valuations improve.

Market watchers are split, however, on whether the local bourse will see new listings of real estate investment trusts (Reits) – a key yield product of the Singapore Exchange (SGX) – and if special purpose acquisition companies (Spacs) will have a place in the market going forward.

PwC Singapore capital markets leader Tham Tuck Seng said IPOs on the local bourse have come back to life in recent months, likely due to a backlog of companies waiting to list.

For the year to Dec 19, SGX welcomed six new listings – all on the Catalist board. The companies raised a total of S$46.9 million, according to bourse data.

This was sharply lower than the S$580.3 million raised by 11 IPOs in 2022. It is also far behind the S$1.7 billion and S$1.4 billion raised in 2021 and 2020, respectively.

The pace of new listings still lags pre-Covid times and some peers in the region, including Indonesia and Thailand. Tham said companies could be deterred from listing here due to a number of reasons, including uncertainties surrounding the global macroeconomic and geopolitical environment.

Robson Lee, partner at Kennedys Legal Solutions, said the lack of liquidity and research capabilities, as well as depressed valuations, could also have led to the “rather languid” IPO market in Singapore.

“The costs of legal and regulatory compliance are perceived to outweigh the benefits of listing and maintaining a listing status in the Singapore market,” he said, adding that issuers are also not getting their expected range of valuations when they consider a Singapore listing.

Vineet Mishra, head of investment banking for South-east Asia at JPMorgan, said SGX has been generally successful when it comes to stable, income-driven products in certain sectors, such as Reits and business trusts.

Beyond these, however, IPO volume has not been consistently high, and is mostly made up of smaller companies on the junior Catalist board.

“That partly reflects the strong nature of Singapore corporations to an extent; because, by and large, they are well-managed with a strong balance sheet and strong cash flows, but are sometimes mature and not high growth,” he said.

2023 has not been a good year for Reits. Darren Ng, Deloitte Singapore’s disruptive events advisory deputy leader, said trusts have historically been the stronghold of the Singapore IPO market, but high interest rates have meant aspirants would have deferred their listing plans.

The lack of Reit IPOs is not a localised problem. Tan Mui Hui, deputy head of the capital markets practice at law firm Rajah & Tann, said: “The US, which is the world’s largest Reit market, similarly saw a decline in Reit IPOs during 2022 and 2023 as well.”

KPMG Singapore partner and head of deal advisory Stephen Bates thinks Reits could stage a comeback next year with improved macroeconomic conditions and business confidence.

David Cameron Smail, UBS head of equity capital markets in South-east Asia, expects interest in the data centre space to continue, along with select industrial or logistics businesses.

“In these market conditions, investors are focusing on larger, high-quality portfolios in performing sub-sectors,” he said.

A space for Spacs?

The lack of large listings was also due to the absence of Spacs, which made up the only three mainboard listings in 2022.

One of the three has since combined with a target. Taiwan-based livestreaming service 17Live listed on SGX’s mainboard through a combination with Vertex Technology Acquisition Corporation in December.

The business combination was voted through, but close to two-thirds of the company’s share capital was redeemed by independent shareholders. The S$3 million raised from private investment in public equity investors was a much smaller tranche than the S$10 million expected.

Another Spac that listed around the same time, Pegasus Asia, confirmed that it will not conclude a business combination “after considering macroeconomic and market conditions” and plans to dissolve.

The third Spac, Novo Tellus Alpha Acquisition, denied reports that it plans to wind up in the coming weeks.

JPMorgan’s Mishra said the local bourse is unlikely to see further Spac listings, as companies that have combined with Spacs have generally not performed well.

“Many of these founders who consider Spacs are trying to preserve a high valuation that was set in 2020 or 2021. But the valuation benchmarks have changed,” he added, noting that valuations have to adjust to the higher cost of money that comes with the rising interest rate environment.

UBS’ Cameron Smail said: “We think that Spacs do have a place within the overall ecosystem, but there will be fewer of them than what we saw previously.

“Ultimately, Spacs should be seen as alternative routes to public markets, as compared with traditional listings, and hence, the quality of the company and business remains the key to successfully attracting investors’ interest.”

Positive on growth

Companies that could take the opportunity to list next year include those in the financial technology and artificial intelligence fields, said Rajah & Tann’s Tan.

EY Asean and Singapore IPO leader Chan Yew Kiang also believes “more realistic pricing” of IPOs could drive new activities.

“Realistic valuations, supportive regulations and improving economic conditions would encourage companies to list,” he said, noting raising equity remains the preferred alternative to debt as interest rates rise.

Beyond IPOs, Singapore is a prime location for secondary listings. The Republic had two such listings this year: Malaysia-based palm oil cultivator TSH Resources and Hong Kong-listed Comba Telecom.

Art Anuruk Karoonyavanich, Singapore head of capital markets at DBS, said businesses seeking to expand operations in South-east Asia could consider Singapore for a secondary listing.

“This is underpinned by Singapore’s position as a global financial hub, its stable pro-business environment, and recent initiatives to expand SGX’s linkages with the other exchanges in the region.”