When Singapore’s homegrown technology unicorns Razer and Sea Group cantered off to list in Hong Kong and New York a couple of years ago, the city-state’s bourse knew things had to change.
The following year, Singapore Exchange (SGX) introduced new rules to allow groups to list with dual-class shares — a funding structure favoured by tech companies — in an attempt to make it a more attractive destination. It has also entered into agreements with America’s Nasdaq and the Tel Aviv Stock Exchange to pursue simultaneous or secondary listings that can help fast-growing businesses expand globally.
More measures came this year, with SGX offering a S$75m (US$55m) grant to help young businesses cover the costs of listing, while Muthukrishnan Ramaswami, its longtime president, said he would step down by the end of this year after a restructuring to pursue growth. All of these efforts, the exchange said, have “accelerated interest” in Singapore as a fundraising hub.
Yet the steps have so far failed to turn the tide. Singapore’s stock market continues to shrink, and observers question whether the exchange has the capacity to serve the region’s fastest-growing companies.
SGX has seen the total number of companies listed on its exchange decline by 28 in the past five years to June 30, according to the exchange. The trend has continued in the first half of this year, with a net loss of three companies, despite south-east Asia’s tech boom gathering pace. *
Leng Ng, director of capital markets at Fidelity International in Singapore, says the trend “is a function of low valuation and liquidity”, as well as ample capital in the world of private equity. “New issuers would tend to gravitate towards larger and deeper markets where they believe they can fetch the best valuation.”
Singapore’s net loss in listings since the end of last year compares with a net gain of 67 companies in Hong Kong, its main rival in the region over the same period. The equity capitalisation of Singapore’s stock market, at $546bn, pales alongside Hong Kong’s
$2.7tn.
“While SGX might not be a listing of choice for foreign companies, a more concerning trend could be local companies seeking to list in overseas markets,” said Mr Ng, alluding to the 2017 moves by Razer, a gaming company, and ecommerce company Sea Group.
A boom in investment in south-east Asian tech companies, led by China, could help encourage more of them to list locally, said Harsh Modi, co-head of Asia financial equity research for JPMorgan in Singapore. “Many of these companies are seeded by Singapore-based investors,” he noted.
However, some analysts and investors argue that the Singapore exchange remains ill-equipped to meet the needs of the region’s most promising companies. “I don’t think the rapid expansion of [venture capital] is necessarily going to reverse the overall trend of delistings,” said Min-tze Lean, a lawyer with Baker McKenzie Wong & Leow.
“Everyone shoots for the US [for listings],” said Justin Hall, partner at Golden Gate Ventures, a Singapore-based venture capital firm. “There should be other public markets that local companies can list in . . . and that hasn’t happened yet,” he said.
The SGX is also grappling with a new challenge: the next generation of tech unicorns is raising large sums by tapping the region’s big, cash-rich conglomerates — as well as other, larger unicorns.
Acquisitions of south-east Asian tech companies have totalled $4.8bn in the first half of this year, which is already about 80 per cent of last year’s total, according to Refinitiv, a data provider. Large funds such as SoftBank, Chinese internet companies Alibaba and Tencent, along with other south-east Asian tech giants such as Indonesia’s Tokopedia, have provided an exit for investors.
The thinly traded, undersized exchanges in Singapore — and south-east Asia more broadly — “provide an opportunity for conglomerates”, said Elvin Zhang, head of investments at Gear Innovation, an investing arm of Sinar Mas, one of Indonesia’s largest groups.
Lippo, another Indonesia-based conglomerate, has made 24 investments and recently acquired two start-ups in the “$20m-$40m range” through its e-wallet service Ovo, according to its chief executive John Riady.
He credits conglomerates and established start-ups like Go-Jek and Traveloka for helping to build a dependable framework for growth funding. “Now that the smaller start-ups can exit by selling to them, you have others willing to invest at the seed stage, knowing they can exit,” he said.
Mohamed Nasser Ismail, SGX’s head of equity capital markets, is undaunted, noting that the exchange has a “healthy pipeline of IPO mandates”, including technology listings, that he expects will come on to the market in the next few months.
“The introduction of dual-class share listing structures also seeks to provide more choice for both issuers and investors,” he said.
*An earlier version of this article incorrectly referred to Bloomberg data on equity listings and delistings that included dual class shares and subsidiaries as company listings and delistings.
