Maybank’s Thilan Wickramasinghe welcomes the streamlined IPO process and the disclosure-based regulatory perspective. An increasing focus on stronger corporate governance and encouraging listed companies to improve shareholder returns through efficient balance sheet management, better guidance on growth plans and higher strategic transparency are areas he would like to see additional policy focus. “These can potentially drive more shareholder engagement, and ultimately lead to better liquidity and valuations.”
The Singapore Exchange Regulation (SGX RegCo) is also proposing to remove its watch list and “trade with caution” label, which is a “good start”, says Asia Fund Space’s Mark Lee, as this is not necessary.
Instead, the market needs more business-oriented officers in SGX and MAS. “Many SGX officers are young and have no experience in running a business. If SGX demands experienced, qualified professionals to manage the IPO process, shouldn’t we expect the same standards from the regulators?”
W Capital’s Wayne Lee believes that the removal of the Watch-list for Mainboard listcos, the shift to a disclosure-based regime and the significant lowering of the pre-tax profit criteria from $30 million to $10 million to $12 million is a “positive step” to attract companies to list here.
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To attract high-tech and new economy companies to list in Singapore, there is a need for an active analyst research community to educate investors on these companies’ business models. “Investors here need to accept the fact that such companies require a lot of funding for research and development (R&D) and most of the time, they will be loss-making,” he notes. “So we need a few successful IPO cases and investors here will start to take notice that not all great companies, especially the new economy sectors, need to be profitable in their early growth cycle.”
Even though SAC Capital’s Ong Hwee Li believes the Singapore market is not strict enough, with companies not being held accountable for bad behaviour, he feels that having loss-making companies delist in order to have a quality bourse is not the solution. Ong was referring to Lee Ooi Keong’s commentary in The Edge Singapore (June 2, Issue 1191) Can MAS reforms halt the decline of the Singapore equities market?, where Lee suggested that the loss-making issuers, which make up 40% of the bourse, should be asked to delist.
In Ong’s view, loss-making companies are not the problem. Instead, companies with bad corporate governance, such as a misbehaving major shareholder or board, should be held accountable.
While he feels that most of the chatter has been about misbehaviour among Catalist-listed entities, Ong points out that 70% of the public reprimands issued by the SGX are for Mainboard-listed companies. He adds that companies which receive repeated notices of compliance (NOCs) were Mainboard listcos.
OCBC’s Carmen Lee is also bullish on the proposed changes to the statutory requirements and SGX’s listing rules. “Adopting a more pro-enterprise approach and streamlining listing processes and reviews will help to shorten the complex process of applying for a listing and shorten the time-to-market,” she notes. “This will help to ease the process for companies seeking listing, especially for start-ups and early-stage growth companies where management has been focusing their efforts on growing their businesses and are unfamiliar with complex listing requirements.”
On the $5 billion fund, market watchers are mixed. Azure Capital’s Terence Wong says this pool of money is a start to seed new ideas. “Once people see that these funds snap up certain stocks, it may take a life of its own … Whatever it is, it’s going to lend life to the market.”
Asia Fund Space’s Lee does not think this $5 billion can solve the “root problem” as there are not enough professionals to manage the small- mid-caps. “The fund managers who receive these funds will just plough the money into index-linked stocks, [which is] a typical standard operating procedure for fund managers,” he claims.
PhillipCapital’s Paul Chew figures that the $5 billion will not be enough for the entire market, but it will still have a material impact on the small- and mid-cap sector. Assuming that just $1 billion of the sum gets divided among 100 small- and mid-cap companies, that will be about $10 million each.
W Capital’s Wayne Lee believes there should be more initiatives on top of the equity market development programme (EQDP), as in all likelihood, the money will improve liquidity, valuation and investor interest for the top 10% to 15% of the small- and mid-caps. “But what happens to the majority of the remaining small and mid-caps that don’t meet the mark? They will still continue to suffer and trade with low liquidity and low valuation,” he opines.
Lee says the key is to have more active market-making by licensed market makers to inject liquidity into small- and mid-cap counters. “With market makers providing narrow bid-ask spreads that reflect the true intrinsic value of the small mid-caps, then confidence of investors, including retail investors, will return. The fear of losing money on small-cap IPOs will then fade away as there will be certainty of exit since market makers will provide the ‘bid’ price in order for investors to sell nearer to the intrinsic value,” he adds.
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RHB’s Sheikar Jaiswal believes the successful implementation of the EQDP is likely to see increased trading activity in non-Straits Times Index stocks. The analyst notes that about 80% of the SGX’s daily traded value comes from the benchmark index’s component stocks.
In addition, the EQDP will prompt greater participation by domestic equity funds with mandates investing primarily in Singapore. “Presently, dedicated Singapore-only equity funds are limited, with most allocations coming from broader regional or global mandates. Additionally, major sovereign wealth funds acting as strategic shareholders generally do not actively trade their strategic stakes,” says Jaiswal.
Numerous potential small and mid-cap winners have been identified by various research houses, but Azure’s Wong, who made no bones about wanting a piece of the $5 billion to manage, believes that given how this sector has been undervalued for so long, there are still undiscovered gems.
“There are companies out there that are trading at a song with single-digit P/Es, some with net cash, and many of them consistently giving out very good dividends. This means they’ve got a very sound profit track record and these are the guys I’ll eyeball,” he says.
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