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Friday 11 December 2009
Dual listing lure poses challenge to SGX
The performance of China XLX on its debut on the Hong Kong bourse has serious implications for Singapore’s ambitions to attract offshore companies to list here.
The performance of China XLX on its debut on the Hong Kong bourse has serious implications for Singapore’s ambitions to attract offshore companies to list here.
The stock of the urea maker roared to a record HK$10 on a dual listing debut on Tuesday in Hong Kong, before closing at HK$5.20, up 18 HK cents for the day. In Singapore, it hit a high at 90.5 cents, before settling to close at 77 cents.
The price has retreated somewhat since then.
Nevertheless, China XLX’s performance stirred intense speculation about other potential dual listings among stocks - especially S-chips - perceived to be undervalued or under-appreciated on the Singapore Exchange.
According to some reports, the strong performance of the counter was due in part to the ‘scarcity’ of shares in Hong Kong, as created by its ‘introduction’ there. It takes up to two weeks for buyers in Hong Kong to get hold of their purchases.
Still, the episode has not gone unnoticed, particularly the arbitrage potential raised by huge valuation differentials between Hong Kong and Singapore.
China XLX, for example, was trading at under 10 times earnings versus its Hong Kong cohort Sinofert’s 19 times.
Other companies which are also trading at significant discount here compared to peers on the Hong Kong bourse could be watching developments closely.
China Hongxing, for example, has a market cap of some $546 million, trades at a price-earnings multiple of 10 times and at 0.63 times its book value.
Its Hong Kong cohort Li-Ning is trading at a price-earnings multiple of 27 times, has a market value of HK$27 billion and is trading at 10 times its book.
Market cap
Another sports apparel maker, Anta, is trading at a PE of 23 times and boasts a market cap of HK$28 billion and 5 times book value.
It doesn’t take a genius to figure what the folks at China Hongxing - whose cash value alone is 21 cents - might be contemplating.
And as JP Morgan noted this week, non-S-chips like Fortune Reit, Noble, Pacific Andes, Wilmar and Genting Singapore are also prime dual-listing candidates.
All this has serious implications for the SGX’s aspirations to be a regional capital market.
Singapore’s ambition to be a regional capital market hub after Japan, and even ahead of Hong Kong, is already hamstrung by its small size and lack of domestic companies of substantial size.
Still, SGX has been phenomenally successful in attracting Chinese companies to list here. The 146 S-chips on the SGX have a combined market cap of $38 billion.
The SGX has also attracted some listings from India, Thailand and even Malaysia, but these have been few and far between. Most are small and illiquid.
Corporate wrongdoing
Foreign companies which head to a Singapore listing do so because of the Republic’s hard-earned reputation for transparency, governance and accountability. But despite the best attempts of the regulators here - including the latest initiatives announced this week - corporate wrongdoing has been popping up on a regular basis.
And a significant portion involve S-chips. Because of this, the S-chips segment of the market has been languishing at bargain basement valuations.
This is where the allure of Hong Kong may prove all too tempting.
The bourse which faces an exodus of shares will lose more than just clearing fees. Companies pay over $20,000 each in listing fees, depending on their size.
Over time, if unchecked, an exodus via either dual listings or delistings will also hit the broking and corporate finance industry in Singapore.
Competition doesn’t just come from Hong Kong. Bursa Malaysia has already successfully courted over a dozen Chinese IPO aspirants over the past year.
Adding to the SGX’s woes is potential competition in the derivatives market. The Singapore Mercantile Exchange has already obtained approval to be an exchange for commodities and will be based in Singapore.
The bottom line: the SGX faces a potential erosion on both its equities and derivative businesses.
Meanwhile, the regular scandals have again ignited debate on its dual role as marketplace and regulator.
Incoming CEO Magnus Bocker has his work cut out. To grow the marketplace, he will have to raise the attractiveness of the SGX for foreign listings. But as a regulator, he will have to address the root causes of low liquidity and low valuation here, namely corporates scandals.
2 comments:
Dual listing lure poses challenge to SGX
By VEN SREENIVASAN
11 December 2009
The performance of China XLX on its debut on the Hong Kong bourse has serious implications for Singapore’s ambitions to attract offshore companies to list here.
The stock of the urea maker roared to a record HK$10 on a dual listing debut on Tuesday in Hong Kong, before closing at HK$5.20, up 18 HK cents for the day. In Singapore, it hit a high at 90.5 cents, before settling to close at 77 cents.
The price has retreated somewhat since then.
Nevertheless, China XLX’s performance stirred intense speculation about other potential dual listings among stocks - especially S-chips - perceived to be undervalued or under-appreciated on the Singapore Exchange.
According to some reports, the strong performance of the counter was due in part to the ‘scarcity’ of shares in Hong Kong, as created by its ‘introduction’ there. It takes up to two weeks for buyers in Hong Kong to get hold of their purchases.
Still, the episode has not gone unnoticed, particularly the arbitrage potential raised by huge valuation differentials between Hong Kong and Singapore.
China XLX, for example, was trading at under 10 times earnings versus its Hong Kong cohort Sinofert’s 19 times.
Other companies which are also trading at significant discount here compared to peers on the Hong Kong bourse could be watching developments closely.
China Hongxing, for example, has a market cap of some $546 million, trades at a price-earnings multiple of 10 times and at 0.63 times its book value.
Its Hong Kong cohort Li-Ning is trading at a price-earnings multiple of 27 times, has a market value of HK$27 billion and is trading at 10 times its book.
Market cap
Another sports apparel maker, Anta, is trading at a PE of 23 times and boasts a market cap of HK$28 billion and 5 times book value.
It doesn’t take a genius to figure what the folks at China Hongxing - whose cash value alone is 21 cents - might be contemplating.
And as JP Morgan noted this week, non-S-chips like Fortune Reit, Noble, Pacific Andes, Wilmar and Genting Singapore are also prime dual-listing candidates.
All this has serious implications for the SGX’s aspirations to be a regional capital market.
Singapore’s ambition to be a regional capital market hub after Japan, and even ahead of Hong Kong, is already hamstrung by its small size and lack of domestic companies of substantial size.
Still, SGX has been phenomenally successful in attracting Chinese companies to list here. The 146 S-chips on the SGX have a combined market cap of $38 billion.
The SGX has also attracted some listings from India, Thailand and even Malaysia, but these have been few and far between. Most are small and illiquid.
Corporate wrongdoing
Foreign companies which head to a Singapore listing do so because of the Republic’s hard-earned reputation for transparency, governance and accountability. But despite the best attempts of the regulators here - including the latest initiatives announced this week - corporate wrongdoing has been popping up on a regular basis.
And a significant portion involve S-chips. Because of this, the S-chips segment of the market has been languishing at bargain basement valuations.
This is where the allure of Hong Kong may prove all too tempting.
The bourse which faces an exodus of shares will lose more than just clearing fees. Companies pay over $20,000 each in listing fees, depending on their size.
Over time, if unchecked, an exodus via either dual listings or delistings will also hit the broking and corporate finance industry in Singapore.
Competition doesn’t just come from Hong Kong. Bursa Malaysia has already successfully courted over a dozen Chinese IPO aspirants over the past year.
Adding to the SGX’s woes is potential competition in the derivatives market. The Singapore Mercantile Exchange has already obtained approval to be an exchange for commodities and will be based in Singapore.
The bottom line: the SGX faces a potential erosion on both its equities and derivative businesses.
Meanwhile, the regular scandals have again ignited debate on its dual role as marketplace and regulator.
Incoming CEO Magnus Bocker has his work cut out. To grow the marketplace, he will have to raise the attractiveness of the SGX for foreign listings. But as a regulator, he will have to address the root causes of low liquidity and low valuation here, namely corporates scandals.
Surely not an enviable position to be in.
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