For SGX, a dearth of IPOs amid volatility

Singapore

VOLATILE market conditions have led to a dearth in initial public offerings (IPOs) in Singapore so far this year - and the famine could persist if conditions do not improve. (INFOGRAPHICS: SGX listings in Jan-Feb period; Singapore IPO scene falling behind)

Singapore firms face economic uncertainty while overseas companies are eyeing other regional exchanges, analysts said, adding that the pipeline of IPOs for the rest of the year also depends on the new chief of the Singapore Exchange (SGX). Some, however, are hopeful deal momentum will pick up as the year progresses.

IPO activity here has ground to a halt in the first two months of 2015. There have been no new listings on SGX since Keppel DC Reit (real estate investment trust) listed last December - a sharp contrast to the same period a year ago, which saw five IPOs in January 2014 raising about S$253.3 million in total.

That figure excludes property developer Frasers Centrepoint, which did not raise proceeds because it listed by introduction in January last year (its shares were distributed to investors in parent company Fraser and Neave). February 2014 had no IPOs.

Analysts said that unsteady global market conditions, including the slump in prices of commodities such as crude oil, are factors for the recent slowdown in IPO activity.

"The faded performance is probably due to the uncertainty in the Middle East and Europe, and also because of the unstable oil prices that a lot of businesses are keeping a close watch on. The overall impact of these factors has in all probability resulted in weakened valuations," said Ernest Kan, chief of operations for clients and markets at consultancy Deloitte Singapore.

He said that for the past two years, the number of Singapore IPOs has generally started to pick up near the end of the second quarter and in the third quarter. "That said, if uncertainties continue to dominate the market, companies are likely to put their listing plans on hold."

Phillip Futures investment analyst Howie Lee said that Singapore companies have been hit by a double whammy of rising borrowing costs and a manpower crunch, which may have led them to temporarily shelve any plans of going public.

Given the uncertain outlook, local firms may choose to delay their IPOs or do a backdoor listing via a reverse takeover, Mr Lee said, while overseas companies are "shying away" from listing here due to lacklustre stock performance and low trading volumes. A reverse takeover involves an unlisted business being injected into a listed company.

The IPO market in Singapore had already begun to show signs of weakness last year, with deal sizes shrinking. Nearly two-thirds of the 28 IPOs last year were small companies headed for the Catalist board, and total equity funds raised last year came in at around S$3.5 billion - much less than the S$6.3 billion of equity funds that the 25 IPOs in 2013 raised.

Also, nine out of the 28 IPOs over the whole of last year ended up below their listing price after just one week of trading.

Trading volumes have also softened. About S$266 billion worth of shares changed hands on SGX last year, down from S$352 billion in 2013, according to data from the World Federation of Exchanges (WFE).

In comparison, the Hong Kong bourse, which is much bigger, saw about US$1.45 trillion worth of shares traded last year - up from US$1.27 trillion the year before, WFE figures show.

"Singapore once stood out as the de facto market for regional firms to conduct IPOs due to our transparent and advanced financial markets, but our neighbours have since come a long way and are pushing us in this area of competitiveness," Mr Lee said.

He added: "The level of IPO activity for the rest of the year will highly depend on whether SGX is able to pull interest back into equity investing . . . Much will depend on the new directions the incoming SGX CEO will undertake if the IPO scene is to improve in 2015."

The bourse's current chief executive, Magnus Bocker, will leave when his contract ends on June 30. SGX has not announced his successor yet.

To be fair, Singapore is not the only deal-starved market in the Asia Pacific region. The IPO markets in Malaysia and Indonesia have also been quiet lately due to the tumble in global commodity prices, which has weighed down their economies.

The Malaysian bourse in Kuala Lumpur had zero IPOs in the first two months this year, down from three in the same period last year, Deloitte's Dr Kan noted. Indonesia had just one IPO in the first two months of 2015 compared with four last year. "The weakening of the rupiah . . . together with the dwindling oil-and-gas industry led to a lacklustre start for its capital market," he said.

Still, some of SGX's rivals in the region have managed to sustain relatively strong IPO activity over the past few months. Hong Kong, for instance, had 11 new listings via IPOs in January this year, roughly the same as the 12 it saw in January 2014, according to WFE data.

The Australian stock exchange expanded its number of IPOs from one in January last year to five this January. The Shanghai and Shenzhen stock exchanges in China also pulled in a combined 23 IPOs in January this year, though that number was down from 43 in the same period last year.

Sam Kendall, global head of equity capital markets at UBS, said that the timing of the Chinese New Year this year probably left insufficient time for some Chinese firms to launch an IPO in January or February.

The slow start notwithstanding, some dealmakers here said that they expect more IPOs to launch in Singapore over the coming months, and the total number of listings this year could end up close to last year's.

"The IPO pipeline is still healthy with quite a number of IPOs preparing to launch this year, including Reit IPOs," said Tan Jeh Wuan, head of capital markets for Singapore at DBS Bank, which handled most of the major listings in Singapore last year.

He added that the dearth of new listings in January and February was partly because companies that end their financial year in December need some time to update their IPO documents with their 2014 full-year results before they can launch a public float.

Mark Liew, managing director at PrimePartners Corporate Finance, said that interest in listing among small and medium-sized enterprises (SMEs) remains strong. PrimePartners sponsors companies for listing on the secondary Catalist board.

Besides Singapore firms, companies and business owners based in China, Hong Kong, Japan, Malaysia and Myanmar continue to be interested in listing on SGX, Mr Liew said.

Khong Choun Mun, head of corporate finance at United Overseas Bank, said that more foreign firms may list here this year, following last year's successful listings of foreign Reits and business trusts that have all their properties outside Singapore.

Foreign Reits that floated in Singapore last year include Japanese golf course owner Accordia Golf Trust and IReit Global Group, which owns offices in Germany. Both made their debut on the SGX main board last August.

Both counters are also underwater. Accordia closed at 76 Singapore cents last Friday, about 22 per cent below its IPO price; and IReit Global ended the week at 83 Singapore cents, around 6 per cent lower than its IPO price.