Companies that came from China and were among mainland firms that contributed to the flurry of initial public offerings in the city state about a decade ago were among the n umber companies stood out for those common characteristics among departures from the Singapore Exchange (SGX) over the past year.
Before such listings came to a halt in mid-2012, Chinese companies listed in Singapore, known as S-chips, led the local IPO market from 2005 to 2007. According to exchange filings compiled by CNBC, either voluntarily or after failing to meet listing requirements, those firms have left the SGX in greater numbers in recent months.
Compared to eight who did so the whole of last year, six of the 10 firms that delisted from the exchange this year are Chinese firms, CNBC found.
Exiting Singapore will lead to savings in compliance costs and management resources, said real estate developer China New Town Development, which delisted from SGX in February but remain listed in Hong Kong.
“A single listing may help to consolidate the trading of the shares and lead to further liquidity, which would broaden the shareholder base and enhance the attraction of the company as an investment target. Such liquidity is typically an important consideration for market indices in determining their constituent stocks,” the firm said in a statement.
It makes sense for companies such as China New Town Development to build product and brand recognition closer to their home market, Max Loh, EY managing partner for Asean and Singapore, said. the interest they were seeking from investors in Singapore may not have been seen by S-chips, he also noted.
“There is the perception that they are not garnering sufficient value and interest from investors on the SGX. In addition, the historical unfavorable experiences with certain S-chip companies continue to cast a pall over the entire slate of companies in this space,” he said.
Tarnishing the reputation of Chinese companies, which saw their share prices collapsing in the aftermath of the episode, Loh was referring to the accounting fraud and other corporate scandals among a few S-chips that rocked the Singapore stock market in the early 2010s.
SGX have placed many S-chips on its watch list for close monitoring after questionable corporate governance and accounting practices. After failing to meet listing requirements, several firms were subsequently asked to delist.
“The exchange will take action if the company does not satisfy the minimum financial performance over a certain period of time… In addition, since bearish market generally happens with poor economic performance, financial performance of these companies also will be poor. Thus, these companies may decide to delist and go private,” said Sundaram Janakiramanan, a finance professor at Singapore University of Social Sciences.
Chinese firms, which favored Hong Kong over Singapore, also slowed down the number of IPOs being offered since that episode. SGX CEO Loh Boon Chye said that the appeal of the city state’s market has not been affected by the growing list of Chinese firms leaving the SGX. With around 40 percent of listed firms coming from outside Singapore, the exchange remains one of the most international exchanges globally, he said.
The exchange’s equities and fixed income head, Chew Sutat, noted that companies from China have also returned to list on the SGX.
Out of some 800 stocks listed in Singapore, there are over 100 S-Chips.
“There have been some smaller-name companies that have been delisted, but just in the last half year, we’ve had EC World REIT, China Jinjiang Environment Holding, Dasini Retail Trust and each of them is between half and a million (Singapore dollars) in market cap, which is far larger than those delisted in the last half year,” Chew said.
(Adapted from CNBC)