Private exchanges see surge in number and quality of listings

Singapore

YEARS of investor education and courting new issuers appears to have paid off for private exchanges, as the number and quality of listings appear to be rising. But questions still linger over their liquidity and opportunities for investors.

Private exchanges are coming into their own: from ADDX tokenising a Temasek-backed private credit fund to 1exchange seeing more listings in the pipeline for 2022, to SDAX Financial listing a real estate asset from mainboard-listed Straits Trading.

Competition is heating up, especially in the real estate segment with 3 digital exchanges now operating in the space from invite-only Kasa to SDAX, to recent entrant RealVantage, which recently secured a capital markets licence from the Monetary Authority of Singapore.

Issuers are showing more interest. ADDX has listed over 20 new investment opportunities from funds to bonds to equity-linked products in the period from Dec 2020 to Nov 2021, compared to just 4 in the prior period. 1exchange is expecting several more in 2021, from 3 listings in years prior.

"We also succeeded in launching our first structured product last year," Oi-Yee Choo, chief commercial officer of ADDX, told The Business Times. ADDX had put out an equity-linked note tied to a US-listed stock.

On the real estate front, SDAX has listed a property from Straits Trading, while RealVantage offers investment opportunities in development projects or a loan to developers from the US, UK and Australia markets, ranging from residential to commercial properties.

These exchanges have also gotten some heavyweight backers.

ADDX counts The Singapore Exchange and Temasek backed-Heliconia Capital as investors, while SDAX's backers include Straits Trading and PSA International.

A key selling point has been the fractionalisation of the deals and assets coming on board these platforms, allowing investors to take part with smaller amounts.

For now, only accredited investors - investors with assets of over S$2 million or income of S$300,000 in the past 12 months - can access these platforms to buy into these deals.

Singapore alone has about 270,000 millionaires in 2021, according to a Credit Suisse report, and a vast majority would qualify due to their real estate assets rather than their cash balances. This means that not all accredited investors get access to the same deals or opportunities, by not being able to afford the minimum amount.

These minimum amounts are nothing to sniff at. Ticket sizes range between US$250,000 and US$5 million, with these platforms bringing down the ticket size with tokenisation to between US$10,000 and US$20,000, according to Choo.

"They may not be very cash-rich at this point of time, but they may be accredited investors based on the criteria. The bankers may not reach out to these folks, and that excludes them from these assets even though it was always available to them," said Raymond Poh, chief executive of SDAX Financial.

But listings across the platforms are not well spread out. 1exchange has just 4 listings, while ADDX has listed at least 18 different funds and bonds on its website, with more available for its users.

Even user numbers are not well spread out, with ADDX claiming about 1,200 accredited investors on its platform, while 1exchange claims it has about 10,000 total users. These users comprise a mix ranging from individuals to family offices to financial institutions and asset managers, and are not just limited to individuals or offices in Singapore.

"The number of individual accredited investors on our platform grew briskly over the past year, at an average rate of 10 per cent to 15 per cent month on month. Investors on ADDX today come from 27 countries, spanning Asia-Pacific, Europe and the Americas (excluding the US)," said ADDX's Choo.

But liquidity and activity appear to be muted according to an observer with accounts on all 3 platforms. None of the platforms would answer questions about their daily or monthly market transactions.

"Is there going to be very active trading? I doubt so, at least not in the beginning," said SDAX's Poh.

Issuers are also taking a risk in listing their deals and assets on private exchanges. The amount raised on any of these platforms would pale in comparison to flogging the deal to the usual private banks and financial institutions.

"If I want the blue-chip guys to come aboard, they'll ask how much can you raise for me? They'll be raising very little for the benefit of my organisation," said SDAX's Poh.

On the financial front, the exchanges also display mixed performances according to regulatory filings, with the oldest private exchange, 1exchange, seeing its revenue slowly decline from S$973,911 in 2017 to S$229,486 in 2020. Meanwhile ADDX's revenue has grown from S$11,095 in 2019 to S$201,418 in 2020. SDAX's revenue, on the other hand, has remained consistent, from S$772,490 in 2018 to S$1.2 million in 2019 and S$1.1 million in 2020. (see amendment note)

None of the exchanges posted a profit or broke even in their years of operation so far.

Still listings are expected to grow, with 1exchange having just listed Malaysian property investment company Homevest on Jan 12, and looking to list several more private companies in 2022. ADDX too is expecting significant growth in its listings both in the number of deals and value of deals, spread out over 2022.

"ADDX plans to offer more open-end funds next year, including private equity, private credit, and digital asset funds. Investors can also expect more global PE (private equity) managers as well as more specialist funds," said Choo.

Still the quality of the issuers and the funding opportunities they list are still important to garner investor interest. After all, no one wants to throw good money after bad. With each platform dealing with different niches of the financial markets, criteria for vetting and filtering vary.

For 1exchange, which focuses on listing private companies, there is a minimum criteria, such as a minimum revenue of S$2 million or having raised at least S$4 million, prior to listing on the platform.

"The companies must have at least 12 months of working capital, (and be) operationally stable and free from any legal or financial dispute. 1exchange focuses on late-stage, venture-backed startups or family-owned private businesses," said Johnson Chen, chief executive of Capbridge, operator of 1exchange.

The deals and assets have to be interesting as well, and for real estate, having collateral in the form of a property makes things slightly easier in winning investors' trust according to SDAX's Poh. Furthermore, investing in real estate is a well-practiced art that many investors already have a hand in, an advantage SDAX has with its real estate listings.

ADDX, on the other hand, has brought in brand-name issuers, from Temasek-linked Mapletree, Azalea and SeaTown, to global asset managers like Hanwha Asset Management and Investcorp, to local companies like XM Studios and ValueMax. There was also a strategic partnership with Singapore bank UOB, which saw S$50 million of blue-chip Sembcorp Industries' S$675 million sustainability-linked bond digitised on the platform.

According to ADDX, potential listings are identified through proactive discussions, as well as enquiries from potential issuers. ADDX accounts for factors such as the track record of the asset managers; who the general partners and lead investors are; the regulatory jurisdiction; and whether full disclosure can be provided under its own listing rules among others. Any potential listing will have to get the final nod from an independent listing committee before its inclusion on ADDX.

"Historically, just 1 in 10 prospective issuances is ultimately listed on ADDX. The strict listing process is a key pillar in our efforts to advance the interests of investors on ADDX," said Choo.

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Amendment note: An earlier version of this article overstated ADDX's revenue for 2019 and 2020, this has been corrected.