Singapore Exchange Sees End to Hiatus for China IPOs

Singapore Exchange Ltd. is forecasting an end to a two-year hiatus for Chinese listings after regulators made it easier for companies from Asia’s biggest economy to sell shares in the city-state.

SGX expects some initial public offerings from Chinese companies in 2015, Lawrence Wong, head of listings at the exchange operator, said in an interview on Sept. 17. The last was Sincap Group Ltd. in June 2012. SGX and the China Securities Regulatory Commission signed a deal in November that allows mainland companies to list on the Southeast Asian bourse without having to incorporate an overseas holding company.

“China has been on our radar for a long time,” Wong said. “The arrangement with CSRC allows Chinese companies incorporated in China to list in Singapore directly. This is very significant. In the past, it was very difficult for mainland companies to do so.”

After a flurry of Chinese companies known as the S-chips listed in Singapore in 2007, IPOs dried up as debt defaults and accounting scandals saw stocks from FerroChina Ltd. to Sino Techfibre Ltd. delisted or suspended. Mainland companies have favored IPOs in Hong Kong this year, while those seeking a Singapore listing, including developer Chiwayland International Ltd., pursued reverse takeovers of companies on the Southeast Asian bourse.

The bourse operator has been holding seminars across China to explain the new rules to state-owned enterprises and private companies, and has received enquiries from manufacturers, property developers and mining companies interested in a Singapore IPO, Wong said. SGX shares fell 0.1 percent to S$7.20 at the close.

Trading Volume

An influx of companies would help SGX recover from a slump in new share sales and trading volume this year. Companies raised $2.2 billion from Singapore IPOs in 2014, a 53 percent decline from the same period last year, as South Korea’s Lotte Shopping Co. and Indonesia’s Samudra Energy Ltd. postponed offers. An average S$1.05 billion ($829 million) of shares were traded on the bourse each day this year, down 32 percent from a year earlier.

Of the 770 companies listed on Southeast Asia’s largest exchange, 130 are from China, according to the bourse. Yangzijiang Shipbuilding Holdings Ltd., China’s second-largest private shipbuilder, raised S$943.5 million in April 2007, the Singapore exchange’s largest IPO by a mainland company.

SGX is working on some big Chinese IPOs, Wong said, declining to comment on whether they would be larger than Yangzijiang Shipbuilding.

“If it works out well, it’s possible that Singapore may pose a challenge to Hong Kong again,” Rachel Eng, joint managing partner at Singapore law firm WongPartnership LLP, said about the efforts to attract Chinese companies. “Eventually the deals will flow.”

Hong Kong IPOs

IPOs in the mainland have been the main drivers of listings in Hong Kong, accounting for more than half of the $15.5 billion raised by companies this year, according to data compiled by Bloomberg. Dalian Wanda Commercial Properties Co., the commercial real-estate unit of billionaire Wang Jianlin’s conglomerate, is planning to raise as much as $6 billion, a person with knowledge of the matter said this month.

“Singapore doesn’t have any natural influx of IPOs,” said Seth Merrin, chief executive officer of Liquidnet Holdings Inc., operator of a so-called darkpool trading venue. “Singapore and Hong Kong have been competitive. I don’t think Singapore has the ability to keep up with Hong Kong at this point because there’s an IPO factory inside of China and they’re going to Hong Kong.”

A trading link between the Hong Kong and Shanghai bourses is expected to begin next month, bolstering the former British colony’s status as a gateway to mainland markets. Hong Kong Exchanges & Clearing Ltd. has rallied 37 percent this year, the biggest gain on the Hang Seng Index, compared with SGX’s 0.6 percent drop.

More Liquidity

“In the short term, the Hong Kong-Shanghai connectivity might draw a bit of liquidity into Hong Kong, making the Hong Kong bourse more attractive as a listing destination for mainland companies,” said Benjamin Ong, an analyst at Phillip Securities Pte in Singapore. “In the long run, Singapore will remain as an attractive listing destination as regulators here are a bit more accommodative.”

Hong Kong lost the listing of Alibaba Group Holding Ltd., the biggest U.S. IPO on record, after refusing to allow its corporate governance structure.

In contrast, Singapore has introduced rules in the past three years to allow the listing of resource companies without an earnings track record, as well as dual-currency trading for stocks and exchange-traded funds. There are 292 overseas companies listed in Singapore currently, according to SGX.

Tax incentives have helped the city state attract 39 real-estate investment trusts, including ones with assets in Japan, Hong Kong and Germany.

No Repeat

Still, SGX is taking steps to avoid a repeat of the problems that plagued some S-chips, Wong said.

In the case of FerroChina, which had a market value of more than S$2 billion in 2007, shareholders lost their entire investment when the steelmaker was forced to delist in March 2010. Other stocks that have been suspended include Sino Techfibre, which said a fire destroyed its financial records after reporting accounting flaws, and China Sun Bio-Chem Technology Group Co., which said a truck transporting its accounting records was stolen.

“We’ve learned from that episode,” Wong said. “When things happened, SGX required Chinese companies to conduct checks and audits. Having the direct listing framework with CSRC will help. There’s at least another pair of eyes.”

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