Singapore gets noticed as IPO activity rises
Increased listings might be due to companies and Reit sponsors taking advantage of elevated investor sentiment
[SINGAPORE] One evening last week, while scrolling through some financial news headlines, I came across an intriguing story about London having slipped from being among the world’s top 20 initial public offering (IPO) markets this year, while Singapore had leaped ahead.
Based on Bloomberg data on the world’s busiest IPO markets, the article said London was ranked 23rd so far this year, with deals totalling just US$248 million. Singapore saw IPO exercises worth US$1.44 billion, driven by real estate investment trusts (Reits), which put it in ninth place.
The reasons cited for the IPO drought in London were remarkably similar to the gripes that have been previously expressed about the Singapore market. In particular, low stock valuations in London were said to be driving companies into the arms of private equity funds, and to New York’s deeper public market.
The solutions reportedly put forward to revive the London market were also similar to what Singapore is doing. Notably, the United Kingdom is trying to make it less costly and cumbersome for companies to list and raise funds. This mirrors the efforts under way in Singapore to streamline its listing rules and processes.
Is Singapore doing a better job of revitalising its market than the UK? It is probably far too soon to tell. For one thing, many of the proposed measures to attract new listings have not actually been implemented yet.
The way I see it, the increased number of new listings this year might just be the result of companies and Reit sponsors taking advantage of elevated investor sentiment as the Straits Times Index breached new all-time highs. It could take some time for the full potential of the motley collection of the newly listed companies and Reits to become apparent.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
More new listings coming
In the meantime, the pick-up in the pace of new listings does not seem to be abating. Last week, co-living property player Coliwoo and industrial property developer Soon Hock Enterprise lodged preliminary prospectuses for listings on the mainboard of the Singapore Exchange (SGX).
While much depends on the pricing of their respective IPOs, my guess is that many investors will view Coliwoo as the more interesting of the two. The company’s prospectus states that it has a portfolio of 25 co-living properties in Singapore, of which 11 are owned, 10 are leased, and four are managed. Coliwoo is aiming to expand its capacity from 2,933 rooms currently to 4,000 rooms by the end of next year.
Two more companies also lodged preliminary prospectuses last week to list on SGX’s Catalist board: a maker of noodle and beancurd products called Leong Guan Holdings, and a producer of adhesives, primers and hardeners used by footwear manufacturers called Infinity Development.
This column noted in June that companies tend to come to market only when they can obtain a strong valuation for their shares. For that reason, I tend to avoid investing in companies when they initially list, for fear that they might be more than fully valued at that point.
Yet, the recent crop of new listings on Catalist have performed quite well. Notably, MetaOptics ended last week at S$0.53. The loss-making manufacturer of meta optics components used in smartphones and Internet-of-Things devices sold shares to investors at just S$0.20 each ahead of its listing last month.
Lum Chang Creations , an interior fit-outs specialist spun out of Lum Chang Holdings, listed in July following an IPO at S$0.25 per share. Its shares closed as high as S$0.59 in September, following a very strong earnings report in late August. The stock ended last week at S$0.455.
Dezign Format Group , which describes itself as a design-and-build specialist in the meetings, incentives, conferences and exhibitions space, sold shares to investors at S$0.20 apiece before listing on Catalist in August. Within a week, the stock hit a closing high of S$0.36. It closed last week at S$0.29.
Mainboard disappointments
The performance of recent SGX mainboard listings has been less impressive, though they accounted for the bulk of IPO proceeds.
Centurion Accommodation Reit – which holds a S$1.84 billion portfolio of purpose-built living accommodation assets – ended its first trading day on Sep 25 at S$0.96, nearly 9.1 per cent above its IPO price of S$0.88. It subsequently climbed even higher, closing on Friday (Oct 3) at S$1.04.
On the other hand, NTT DC Reit – which holds six data centres with an appraised value of nearly US$1.6 billion, and counts GIC among its cornerstone investors – seemed to struggle when trading began on Jul 14.
Amid concerns about unsustainable yields and tenant concentration risks, its units slid below their IPO price of US$1 within three trading days. They hit a closing low of US$0.93 on Aug 14. NTT DC Reit has since rebounded, though. It closed on Friday at US$1.02.
Then, there was Info-Tech Systems, a company that provides human resources management and accounting software to SMEs via the cloud, under a software-as-a-service model.
When it debuted on Jul 4, it was the first new listing on the SGX mainboard in nearly two years. With solid profitability, a cash-laden balance sheet and a technology-oriented business model, Info-Tech had a promising start. It ended its first trading day at S$0.91, or 4.6 per cent above its IPO price of S$0.87.
Since then, however, Info-Tech has closed as low as S$0.80 and as high as S$0.94. The stock ended last week at S$0.88.
Boosting economic activity
While there are clearly risks for investors who choose to participate in IPOs, there could be nothing but upside for the local market ecosystem as the number of new listings increases.
The Business Times reported last week that some investor relations companies have been boosting their headcount, amid the market’s strong performance over the past year, and the heightened capital-raising activity by the corporate sector.
It would not surprise me if research houses, law firms and investment banks begin investing in additional capacity to take advantage of the increased market activity, too.
Markets are not just platforms for companies to raise capital and investors to put money to work. They can also drive economic activity and create high-value jobs.
If Singapore gets its market revitalisation programme right, perhaps being ranked ahead of London in terms of IPOs will not be such an interesting story some day.
Copyright SPH Media. All rights reserved.
