Cuts Both Ways

SGX's Doubly Bad Idea

This won't fix the thing SGX needs most -- liquidity.
Photographer: Nicky Loh/Bloomberg
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Singapore is racing Hong Kong to the bottom in weakening shareholder rights.

The city-state's exchange said Friday it will allow companies with dual-class share structures to list, a month after Hong Kong announced a similar proposal.

The idea is to entice new-economy companies, but joining the dual-class-share club won't improve the one thing Singapore needs more of: liquidity. In 1999, Hong Kong's daily average turnover was 2.6 times that of Singapore; last year, it was 13 times higher.

Trading Places

Hong Kong's stock market has a much greater turnover than Singapore

Source: Bloomberg

There are some regional firms that dual-class privileges may attract -- Southeast Asian e-commerce player Lazada, for example, or GrabTaxi Holdings Pte, which competes head-to-head with Uber Technologies Inc.

But when it comes to the really big Chinese tech firms, Hong Kong, or even New York, hold much more appeal. Tencent Holdings Ltd., which trades in both cities, has a much bigger market value than Singapore's largest stock, DBS Holdings Ltd. And Singapore's largest-ever IPO, the $5.4 billion float of Li Ka-shing's ports unit, pales in comparison to Alibaba Group Holding Ltd.'s $25 billion U.S. debut.

Tapped Out

Hutchison Port's 2011 $5.4 billion IPO is Singapore's largest-ever float

Source: Bloomberg

Hong Kong also has the benefit of a buzzing IPO market -- the business of celebrity eye doctor Dennis Lam, C-Mer Eye Care Holdings Ltd., debuted last Monday and now has a market capitalization approaching $2 billion. The city's recent move to permit dual-class stocks could draw the likes of Xiaomi Corp., or perhaps even Ant Financial, an Alibaba affiliate.

Singapore can't really compete. Lazada could equally plump for New York, since that's where Alibaba, which owns a majority stake, is listed. The wealth destruction that's been caused by Chinese companies listed in Singapore, or S-chips, could also be a detraction.

SGX Chief Executive Loh Boon Chye should focus on other areas. The exchange has done an impressive job bulking up in derivatives, for instance, where lower margins than stock trading can be offset by much higher volumes.

Ultimately, any investor that buys into a dual-class company is taking the risk that powerful insiders could make poor decisions for minority shareholders. Hong Kong Exchanges & Clearing Ltd.'s Charles Li obviously felt that was worth the risk as New York ate into its listings pie

But Loh shouldn't give into such temptation, even it if means missing out on a few sexy new-economy candidates. Better to focus on acquiring a regional exchange to increase those volumes. While SGX's plan to buy Australia's ASX Ltd. was blocked in 2011, an increasingly global trading world may prompt some countries to place less importance on nationalism.

There are better ways ahead for Singapore than dual-class shares.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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