Sunday 17 January 2010

Time for an overhaul of listings rule?

The recent move by the Singapore Exchange (SGX) to broaden its admission criteria for the mainboard is perhaps long overdue, but will it be enough to transform the bourse into a capital market of choice?

2 comments:

Guanyu said...

Time for an overhaul of listings rule?

Conrad Raj, TODAY
11 January 2010

The recent move by the Singapore Exchange (SGX) to broaden its admission criteria for the mainboard is perhaps long overdue, but will it be enough to transform the bourse into a capital market of choice?

After speaking to several market observers, there is a unmistakable sense of doubt. The series of proposals it unveiled through a consultation paper last week are also meant to make the distinction between the mainboard and Catalist clearer, with the latter catering to fast growing companies under a sponsor supervised regime.

Rightly, following its examination of admission criteria used in other developed markets, it decided it was better to change the admission criteria in a more transparent manner than adhere to outdated minimum admission rules.

Under the proposed new admission criteria, companies must meet one of two requirements:

They must have traded profitably in their most recent financial year, have an operating track record of three years, and a market capitalisation of at least $150 million, based on the issue price and post-invitation issued share capital; or

Have generated operating revenue in the latest financial year and a market capitalisation of at least $300 million based on issue price and post-invitation issued share capital.

In a clear attempt to shed its image as a penny stock market, the exchange is proposing to raise the minimum issue share price in an initial public offering (IPO) or reverse takeover from the current 20 cents a share to a more respectable 50 cents a share.

The proposals pave the way for the listing of Special Purpose Acquisition Companies (Spacs), which are described as “cash pools seeking to acquire viable businesses through public funding”.

This is the exchange’s second attempt to introduce these cash pools, having put up a consultation paper in July 2008 for the listing of blind pool funds with little or no track record or assets, and drawing on the reputation of their investment management team.

This time the exchange says it “has seen increasing interest to introduce Spacs in our capital market”.

But the question on the mind of many market watchers is: Why aren’t the big players, including companies and underwriters, looking first at Singapore, which has some of the best governance rules of any exchange?

The exchange last revised its admission criteria to the mainboard in 1999. But rather than take a piecemeal approach, perhaps it is time for the Exchange to look into overhaul its entire rulebook on listing to prevent the Republic from losing ground to other exchanges, especially Hong Kong.

Russian aluminium producer UC Rusal has decided to raise US$2.6 billion ($3.6 billion) on the Hong Kong Exchange through a public listing. Although Rusal said it did not meet the Hong Kong exchange’s profit requirement for listing, it was accepted on the basis of its large prospective market capitalisation, annual revenue of more than HK$500 million ($90 million) and positive operating cash flows.

But at the same time Hong Kong’s market regulator, the Securities and Futures Commission, in an attempt to ensure that only sophisticated investors participate in Rusal, also took the unprecedented step of insisting on minimum investment thresholds for the IPO. Rusal can only sell the IPO to investors who subscribe for at least HK$1 million worth of shares. Following the listing, shares will be traded in board lots of at least HK$200,000 each.

Even some companies listed here are looking for alternative listing sites.

Take for example Chinese water treatment company Epure and steel dealer Novo, both listed on the mainboard here, are seeking dual listings on the Hong Kong Exchange. Others are going elsewhere, including the Kuala Lumpur Stock Exchange, to try and obtain better valuations for their shares.

Guanyu said...

Instead of being defensive over a report that said that privatisation had drained $8.3 billion in market capitalisation, the exchange should look into why it is becoming less attractive as a capital market of choice. A single listing on the Hong Kong Exchange adds more to market capitalisation than the $10.38 billion contributed to the SGX’s market capitalisation by the 23 IPOs last year. For instance Rusal’s listing will add more than US$24 billion to Hong Kong’s market value - more than the $31.6 billion which SGX claims was added to Singapore market value, including secondary capital raising activities.

So, perhaps it’s time for the exchange to undertake a major overhaul of its rules to continue to remain relevant.