SGX, the Asian Gateway: Where does it go from here?
By KATHY ZHANG 11 September 2009
Looking back at the last 10 years Singapore Exchange (SGX) has been in existence, one cannot but conclude that it has done an incredible job.
It has transformed from a small bourse in 1999 with mostly domestic listings to the second-largest listed stock exchange in Asia, with foreign companies accounting for 40 per cent of the 766 listed companies in 2009.
Along the way, SGX has also become a ‘money-making machine’, as some industrial insiders put it. Since listing in 2000, SGX’s earnings have grown exponentially, and its stock price appreciated from S$1.1 at the initial public offering (IPO) to over S$16 at one point - not to mention the generous quarterly dividends it has paid along the way.
The phenomenal success of SGX can be attributed to its right strategy - to become an Asian Gateway.
However, over recent months it has suffered some setbacks, particularly since the start of the global financial and economic crisis.
Among the 40 per cent of the SGX-listed foreign companies, about half or 151 are the so-called S-chips - or companies from mainland China. Since the middle of 2008, a string of corporate and business catastrophes have befallen S-chips.
Starting from China Print and Dye, where the founding couple embezzled the company’s money and ran away, to FerroChina, which dropped a bombshell when it announced sudden bankruptcy, the bad news continued into 2009. FibreChem, a high-profile S-chip with a ‘who’s who’ list of institutional shareholders, including Newsmith and JF Asset Management, reported accounting irregularities.
Investor confidence was further shaken when the chairman of Oriental Century, a 29.9 per cent associate company of Raffles Education, confessed to the board that he had been falsifying financial performance as well as the company’s bank cash balances since its listing.
The ‘S-chip stigma’ has become so severe that institutional investors have begun to demand huge discounts before buying into these companies. To make matters worse, several S-chips or foreign companies affected by the S-chip stigma have started to delist or dual-list in Hong Kong or the United States, citing low liquidity and lack of appreciation for their businesses.
The delisting and dual-listing wind is getting stronger. During the last two months, companies with business in China such as China XLX, Z-Obee and Abterra have all announced dual listings, while Man Wah, Tsit Wing, Sihuan and China Precision have either delisted or are in the process of doing so.
There are several other S-chips that are in the midst of announcing plans for partial, if not total, departure. Among these companies, China XLX and Sihuan are recognised by analysts and fund managers as being among the ‘good’ apples in the S-chip basket.
As for the IPO pipeline, it was reported on Sept 1, 2009 by Lianhe Zaobao Caijing that the Hong Kong Exchange has lined up more than 10 China IPO aspirants in September alone, with total targeted size of proceeds exceeding HK$46 billion (S$8.46 billion).
But a check with MAS Opera shows only three IPO prospectuses lodged since the month of June, excluding PEC and Passion Holdings, both of which successfully launched their IPOs recently.
The gap between Hong Kong and Singapore listings gets wider when we look at IPO valuations. The average IPO price-earnings this year in Hong Kong for China companies is at least eight times, versus 3.2 times in the case of Passion Holdings which listed in Singapore.
With more China firms set to list on Shanghai and Shenzhen stock exchange mainboard IPOs, the approval of the first-batch IPOs on Shenzhen GEM board in October this year, plus competition from Nasdaq, the Korean Stock Exchange, and even Taiwanese TDRs, it would appear that SGX would have to re-evaluate its Asian gateway strategy.
How can SGX attract and retain good-quality foreign companies to list in this highly competitive landscape? Valuation and liquidity are the two most important considerations for an IPO aspirant. One possible way forward for SGX could be to attract foreign companies which operate in areas where the Singapore economy is strong. Take for instance the marine sector (including ship building, repair, chartering and offshore oil-rig building)
Singapore’s strengths in this sector are well known. It also has prominent listed companies such as Sembcorp Marine and Keppel Corporation, and even foreign listings such as STX Pan Ocean and Yangzijiang.
Take a closer look at Yangzijiang. Starting out as a state-owned company in 1956, Yangzijiang today is ranked sixth in China in terms of capacity among all shipbuilders, and 21st in the world in terms of order on hand. It is also the most profitable S-chip and has rewarded its shareholders handsomely.
The market seems to have responded positively to Yangzijiang’s outstanding performance and shareholder-friendliness; its share price has more than tripled since the end of 2008. Sitting on 5.8 billion yuan (S$1.21 billion) in cash with virtually zero debt, Yangzijiang is looking to expand its technological capabilities and product offerings.
SGX could consider playing a more active role in opening doors for Yangzijiang in Singapore’s prominent marine and offshore sector by setting up strategic high-level dialogues between Yangzijiang and the likes of Sembcorp Marine and Keppel Corp.
This kind of proactive gesture could be the X-factor that would attract high-quality S-chips to list on SGX. This would not be very different from what the Economic Development Board has done over the decades to make Singapore competitive, and to build synergies between its companies.
Besides marine and offshore, Singapore is also strong in its property and technology sectors; there are several prominent foreign listings in these sectors, such as Yanlord, another prominent S-chip.
If SGX were to help build synergies between prominent S-chips, and their Singapore counterparts, these S-chips would become ambassadors for SGX listings. This would be far more powerful than SGX trying to blow its own trumpet.
Over time, SGX could establish itself as the top bourse in Asia for at least some strategic industry sectors and enjoy decades of good growth going forward.
The writer is managing director of Financial PR, a public relations firm specialising in finance-related issues. Some of the companies mentioned in the article are clients of Financial PR
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SGX, the Asian Gateway: Where does it go from here?
By KATHY ZHANG
11 September 2009
Looking back at the last 10 years Singapore Exchange (SGX) has been in existence, one cannot but conclude that it has done an incredible job.
It has transformed from a small bourse in 1999 with mostly domestic listings to the second-largest listed stock exchange in Asia, with foreign companies accounting for 40 per cent of the 766 listed companies in 2009.
Along the way, SGX has also become a ‘money-making machine’, as some industrial insiders put it. Since listing in 2000, SGX’s earnings have grown exponentially, and its stock price appreciated from S$1.1 at the initial public offering (IPO) to over S$16 at one point - not to mention the generous quarterly dividends it has paid along the way.
The phenomenal success of SGX can be attributed to its right strategy - to become an Asian Gateway.
However, over recent months it has suffered some setbacks, particularly since the start of the global financial and economic crisis.
Among the 40 per cent of the SGX-listed foreign companies, about half or 151 are the so-called S-chips - or companies from mainland China. Since the middle of 2008, a string of corporate and business catastrophes have befallen S-chips.
Starting from China Print and Dye, where the founding couple embezzled the company’s money and ran away, to FerroChina, which dropped a bombshell when it announced sudden bankruptcy, the bad news continued into 2009. FibreChem, a high-profile S-chip with a ‘who’s who’ list of institutional shareholders, including Newsmith and JF Asset Management, reported accounting irregularities.
Investor confidence was further shaken when the chairman of Oriental Century, a 29.9 per cent associate company of Raffles Education, confessed to the board that he had been falsifying financial performance as well as the company’s bank cash balances since its listing.
The ‘S-chip stigma’ has become so severe that institutional investors have begun to demand huge discounts before buying into these companies. To make matters worse, several S-chips or foreign companies affected by the S-chip stigma have started to delist or dual-list in Hong Kong or the United States, citing low liquidity and lack of appreciation for their businesses.
The delisting and dual-listing wind is getting stronger. During the last two months, companies with business in China such as China XLX, Z-Obee and Abterra have all announced dual listings, while Man Wah, Tsit Wing, Sihuan and China Precision have either delisted or are in the process of doing so.
There are several other S-chips that are in the midst of announcing plans for partial, if not total, departure. Among these companies, China XLX and Sihuan are recognised by analysts and fund managers as being among the ‘good’ apples in the S-chip basket.
As for the IPO pipeline, it was reported on Sept 1, 2009 by Lianhe Zaobao Caijing that the Hong Kong Exchange has lined up more than 10 China IPO aspirants in September alone, with total targeted size of proceeds exceeding HK$46 billion (S$8.46 billion).
But a check with MAS Opera shows only three IPO prospectuses lodged since the month of June, excluding PEC and Passion Holdings, both of which successfully launched their IPOs recently.
The gap between Hong Kong and Singapore listings gets wider when we look at IPO valuations. The average IPO price-earnings this year in Hong Kong for China companies is at least eight times, versus 3.2 times in the case of Passion Holdings which listed in Singapore.
With more China firms set to list on Shanghai and Shenzhen stock exchange mainboard IPOs, the approval of the first-batch IPOs on Shenzhen GEM board in October this year, plus competition from Nasdaq, the Korean Stock Exchange, and even Taiwanese TDRs, it would appear that SGX would have to re-evaluate its Asian gateway strategy.
How can SGX attract and retain good-quality foreign companies to list in this highly competitive landscape? Valuation and liquidity are the two most important considerations for an IPO aspirant. One possible way forward for SGX could be to attract foreign companies which operate in areas where the Singapore economy is strong. Take for instance the marine sector (including ship building, repair, chartering and offshore oil-rig building)
Singapore’s strengths in this sector are well known. It also has prominent listed companies such as Sembcorp Marine and Keppel Corporation, and even foreign listings such as STX Pan Ocean and Yangzijiang.
Take a closer look at Yangzijiang. Starting out as a state-owned company in 1956, Yangzijiang today is ranked sixth in China in terms of capacity among all shipbuilders, and 21st in the world in terms of order on hand. It is also the most profitable S-chip and has rewarded its shareholders handsomely.
The market seems to have responded positively to Yangzijiang’s outstanding performance and shareholder-friendliness; its share price has more than tripled since the end of 2008. Sitting on 5.8 billion yuan (S$1.21 billion) in cash with virtually zero debt, Yangzijiang is looking to expand its technological capabilities and product offerings.
SGX could consider playing a more active role in opening doors for Yangzijiang in Singapore’s prominent marine and offshore sector by setting up strategic high-level dialogues between Yangzijiang and the likes of Sembcorp Marine and Keppel Corp.
This kind of proactive gesture could be the X-factor that would attract high-quality S-chips to list on SGX. This would not be very different from what the Economic Development Board has done over the decades to make Singapore competitive, and to build synergies between its companies.
Besides marine and offshore, Singapore is also strong in its property and technology sectors; there are several prominent foreign listings in these sectors, such as Yanlord, another prominent S-chip.
If SGX were to help build synergies between prominent S-chips, and their Singapore counterparts, these S-chips would become ambassadors for SGX listings. This would be far more powerful than SGX trying to blow its own trumpet.
Over time, SGX could establish itself as the top bourse in Asia for at least some strategic industry sectors and enjoy decades of good growth going forward.
The writer is managing director of Financial PR, a public relations firm specialising in finance-related issues. Some of the companies mentioned in the article are clients of Financial PR
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