If there’s one exchange in Asia that is in dire need of a makeover, it’s Singapore. There have only been three tiny IPOs so far this year, each under $25m, and all of them listing on the smaller Catalist market.
A glimmer of hope came the main board’s way in May, when electromechanical components maker MMI started testing appetite for an IPO that could raise around $250m. But after a few weeks, even that optimism was quashed when the company, which is backed by private equity firm KKR, decided to hold off its plans.
So when Manulife started gauging investor interest this week for a Reit in Singapore, it made the market sit up and take notice. If that deal comes to fruition, it will clock up many firsts for the city-state this year — the first mainboard IPO, the first Reit listing, as well as the first Reit with US assets.
That there has been a near six-month drought in IPOs is a bad sign. You don't have to look far for the reason. Singapore’s sorry state of affairs is largely because of eye-catching activity in Hong Kong and China, say bankers.
Every issuer, fund manager and ECM banker, even those based in and dedicated to southeast Asia, are actively looking north for returns. And with good reason. The Hang Seng Index gained around 17% between April and May, before slipping in early June, while onshore China stocks also made impressive gains during the same period.
The benchmark Singapore index, meanwhile, rose by a small 2.5% in April before paring its gains. But the biggest fallout of the rise in the north has been in secondary market liquidity in Singapore.
Daily average trading value on the SGX in May was $1.1bn, down 2% year-on-year and 9% month-on-month. In January, this stood at $1.2bn, which was up 22% month-on-month and 12% year-on-year.
In Hong Kong, January figures stood at HK$97.44bn ($12.6bn), jumping to HK$155.2bn in May — and market watchers blame the bigger northbound movement for sucking up liquidity from Singapore.
With such shoddy numbers, it is no wonder issuers are sitting tight on their listing plans. But the pipeline is hefty, say bankers, and it’s time firms start preparing to take the plunge.
Jumping in
For one, while movements this year in Hong Kong and China are undoubtedly exciting, they have also been plagued with volatility. One day might see the indices climb by a few percentage points, only to turn the other way in the following days.
This volatility has led to big concerns about how long-lasting the rally will be. And bankers are confident that with the first signs of a reversal, investors will waste no time in turning back to Singapore as the natural alternative for returns and stability, flooding the market with liquidity. Issuers need to be ready to pounce on that change.
If that reversal is not on the immediate horizon, companies should watch out for how Manulife’s deal plays out. A success would indicate that the market was ready for more issuance.
What should also appeal to potential issuers is the presence of private bank money in Singapore. Private banks are sitting on a pile of funds to put into new stocks in the Lion City, and will be a guaranteed presence in the book if a company does come to the market, say bankers.
With the Singapore bond market also going through a dry spell, private banks are looking at alternatives in which to park their resources — meaning any equity issuance would come at an opportune time.
The SGX is going through a dark period, but the excitement elsewhere will surely burn out when a more rational attitude returns. When it does, Singapore's issuers need to be ready.