S-chip IPOs may be coming again, but don’t count on investors getting too excited

SINGAPORE may soon see an increase in initial public offerings (IPOs) and secondary listings from Chinese companies. But retail investors – many of whom still bear the scars of the S-chip debacle over a decade ago – are unlikely to be waiting with bated breath.

Market participants say that there has been a rise in inquiries from Chinese companies interested in listing locally, amid sharply tightened scrutiny of IPOs by China’s securities watchdog this year.

Vows to step up scrutiny of listing candidates and crack down on any lapses have put a freeze on China’s IPO market, which was the world’s biggest such market in the past two years.

Many Chinese companies have scrapped domestic listing plans, with some turning to offshore markets such as New York and Hong Kong.

These IPO hopefuls, however, are also facing sharper scrutiny in the United States amid simmering Sino-US tensions.

Meanwhile, some have also been put off listing in Hong Kong due to a weaker market there.

For example, e-commerce giant Alibaba recently shelved plans to list its Cainiao logistics unit in Hong Kong, citing “challenging IPO market conditions”.

Opportunity… or threat?

The confluence of factors could bode well for Singapore, which saw just six IPOs last year, and a total of 47 new listings since 2019.

Some market watchers here expect Singapore to benefit from IPOs and secondary listings by Chinese companies seeking to expand operations into South-east Asia.

Already, foreign companies make up around 40 per cent of the companies listed here.

On the face of it, the wave of Chinese interest could help boost the flagging bourse.

According to data compiled by The Business Times, there were 609 entities listed on the Singapore Exchange (SGX) with a combined market value of S$775.1 billion as at Apr 30.

The total market capitalisation of SGX-listed entities has fallen 4.9 per cent year on year, from S$814.8 billion as at end-April 2023. The number of listed groups has also declined by 20 over the past year.

The downward trend looks even more dire over a longer timeframe. Just five years ago, in April 2019, there were 733 entities listed on the SGX with a total market cap of S$951.9 billion.

But investors with longer memories will be unlikely to see Chinese IPOs as a solution to the market’s problems.

From 2005 to 2007, Chinese companies listed in Singapore, also known as S-chips, had led the local IPO market.

But such listings ground to a halt in 2012, as various S-chips ran into corporate governance issues.

Accounting irregularities, loan defaults and missing cash were not an uncommon occurrence, and many investors in S-chips got burned.

Alongside other events such as the 2013 penny stock crash, which wiped out S$8 billion in market capitalisation from SGX virtually overnight, the S-chips saga remains one of the reasons that has made investors wary of investing in the local market.

For a resurgence of S-chip IPOs to be seen as a way to boost the SGX seems almost ironic.

This time it’s different?

To be clear, the majority of S-chips listed here have few problems with corporate governance or legal issues.

According to Bloomberg data, there are currently 32 China-domiciled companies listed on the SGX. These include big names such as Nio, Yangzijiang Shipbuilding (YZJ), Tianjin Pharmaceutical Da Ren Tang Group, China Everbright Water (CEW) and Zheneng Jinjiang Environment (ZJE).

Some of them have performed remarkably. For example, shipbuilder YZJ, water utilities company CEW and waste management company ZJE generated total returns of between 15.4 and 58.5 per cent over the past 12 months – outperforming the 5.9 per cent total return of the benchmark Straits Times Index over the same period.

Meanwhile, automaker Nio, which has a secondary listing on SGX, also ranks among the biggest stocks here with a market cap of US$9 billion.

On the other end of the spectrum, however, are several S-chips that have been suspended. These include 8Telecom, Raffles Infrastructure, Sino Grandness Food Industry, Debao Property Development, Sincap Group and United Food.

Since the S-chips fallout, regulators have put in place new rules, including a direct listing framework where China-incorporated companies could list on SGX only with approval from the China Securities Regulatory Commission.

Through the years, regulators and authorities have also worked towards raising corporate governance standards.

But, “this time it’s different” could be four of the most costly words ever spoken. And investors cannot be faulted for being lukewarm to potential Chinese IPOs.