SGX to play to its strengths in Reit, consumer, healthcare

Singapore

SINGAPORE-BASED aircraft leasing firm BOC Aviation may have chosen to list in Hong Kong but if it decides it wants to securitise any part of its business into a trust, the Singapore bourse may benefit from this move.

Real estate investment trusts (Reits) and business trusts are, after all, one of the strengths of the Singapore Exchange (SGX) and it intends to continue building on this - along with consumer and healthcare stocks and hopefully also tech and digital companies as that ecosystem grows, SGX's head of equities and fixed income Chew Sutat said on Monday.

Saying that the local stock market has been relatively resilient in the first half of 2016, he added that the exchange is reaching out to major Asian families controlling conglomerates in South-east Asia for potential asset securitisation while bringing in more Catalist sponsors and working with government agencies such as Spring Singapore to develop its listings pipeline.

Mr Chew, who was SGX's sales and clients head before being tapped last December to head the bourse's then-freshly created equities and fixed income division, told a briefing at the exchange's office that Singapore stocks paid out an estimated S$10 billion in dividends in the first six months of this year and almost a quarter of that came from Reits and business trusts.

"When we talk about sector strengths for Singapore? Reits. We are known for that ... We have created a brand, we have created recognition," he said. "Securitised assets, a different way of raising capital, playing on Singapore's advantage. Not just lower cost of capital generally than some other parts of the region but also innovation, in this way, has actually helped us."

The only two mainboard initial public offerings (IPOs) on SGX thus far this year were both Reits and the successful listing of those two has generated interest in similar spin-offs, he added. Even though Manulife US Reit closed below its IPO price and remains underwater, Mr Chew downplayed that, saying: "Frankly if a Reit trades and it goes up 10 per cent on day one then you've really got to question whether the underwriter did a good job, but that's a different story."

And though the benchmark Straits Times Index returned - 1.7 per cent in Singapore dollar terms in 1H 2016, that was still better than some regional counterparts, he noted. Hong Kong's Hang Seng, for instance, returned - 8.3 per cent and the Nikkei 225 returned - 5.7 per cent. The local market's associated 180-day historical volatility in the six-month period was also 16 per cent, lower than the Hang Seng's 21 per cent and the Nikkei's 28 per cent.

He added that though commentators have pointed out that the 30 STI stocks dominate local equities trading, making up roughly 70 per cent of daily value traded in a typical session nowadays, that was "not unusual" because "the world is shifting towards index investing". SGX is hoping fund managers will come in to create sector-based exchange-traded funds (ETFs) for all sectors in the Singapore market, he added.

Mr Chew said putting equities and fixed income together under the same division allows SGX to help companies that may not yet be ready for an equity listing of their business raise funds through debt.

"The regional story on potential access to the retail bond market is actually creating a lot of interest in how corporates can look at their whole structure - not just equities and IPOs, equities and IPOs may follow - but a wholesale bond followed by a seasoned and exempt retail bond could be the next steps."

He said this approach has "been quite successful" with "a number of Asian families - the large Indonesian families, the Thai families who have used our platform over time" such as that of Thai beer tycoon Charoen Sirivadhanabhakdi.

Many of these Asian family groups have "substantial businesses in the growing demographics in Indonesia, in Thailand, in the Philippines, on consumer businesses and on infrastructure", he noted. "As we work on these sectors, infrastructure falls very nicely into potential Reits and business trusts - power plants, gas terminals, data centres."

But even with talk of drawing more regional families in, SGX has not "shifted our interest from China", he said, though he acknowledged that SGX would most likely not be able to get major Chinese state-owned enterprises to list here and would have to approach Chinese companies in a more "targeted" way. "Every market has its own relative attractiveness ... we'll play to our strengths."

Mr Chew also said the exchange would be "getting closer with" government agencies here such as the Economic Development Board and Spring Singapore to grow its listings pipeline, for instance, bringing in companies that have won Spring grants.