Singapore can emerge as a secondary listings hub for international firms in Asia

With Singapore seeking to revive its lacklustre equities market, it may have the potential to forge a niche as a dual listings node for corporates looking to tap Asian capital markets and internationalise.

If the secondary listing of NYSE-listed AMTD International on the Singapore bourse in April 2020 is any indication, it could build an appeal to technology and finance firms seeking international capital exposure. This is especially relevant as technology major Grab, Singapore’s most visible and valuable venture-backed technology enterprise, prepares for a US$2.7 billion share sale in New York. Though for sustained success, Grab will need to strengthen the viability of its financial services arm to sustain its success on public markets.

“Becoming a global technology hub”, by SGX chief executive Loh Boon Chye in 2017, highlights Singapore’s hosting of technology majors like Google, Facebook, Microsoft, LinkedIn, PayPal, IBM and others. It is also one of the largest producers of startups in Southeast Asia, underwritten by extensive public sector support, connectivity to international talent pools and robust infrastructure.

A 2020 PWC report notes: “The wide investor outreach SGX offers could appeal to regional companies to use SGX as a platform for fundraising. In addition, Singapore’s stable economic and political systems will be attractive for these companies to make Singapore their regional centre for business expansion. Trading and capital intensive companies will also be keen to use Singapore as a destination to widen their distribution network or raise funds for capital investments.”

Other factors PWC highlighted for Singapore as a possible secondary listing hub are its ability to support business growth and expansion into Southeast Asia and Indo-Pacific, and a streamlined secondary listing process. This is coupled with possible inclusion in STI and MSCI Singapore indices; tapping different investors pool; sustaining strong liquidity for further financing.

An argument against dual listings over the years was the ease of cross-border capital flows facilitated by online brokerages. But heightened global tensions, de-globalisation and anti-capitalist sentiment mean such flows will be more difficult. This strengthens the case for secondary listings or issues of global depositary receipts (GDRs), bank certificates that represent shares in a foreign company and can be structured in multiple ways.

Raymond Tong, Capital Markets Partner at Clifford Chance, which advised AMTD International on its Singapore secondary listing, observed: “Singapore is a very good option for a secondary listing venue, especially those looking to tap into Southeast Asia in particular. There are a good time zone and visibility with Southeast Asian investors. So a secondary listing strategy is crucial.”

Secondary listings experience

A secondary listing can enlarge the investor and capital base, boost liquidity, trading turnover and price discovery, as well as enhance a company’s investor visibility and share price performance. Listings in global financial centres like London and New York enjoy a cross-listing premium.

“The Influence of Cross-Border Cooperation on Equity Market Liquidity”, published by SSRN in 2017, notes how markets that worked to streamline regulations and cross-listings saw enhanced liquidity. For instance, Israeli firms that cross-listed in the US enjoyed a reduced risk after cross-listing in their domestic bourse.

The experience of Israeli firms traded across Tel Aviv and Nasdaq in a 2011 study found that absent of regulatory costs, trade volume and share prices grew, without liquidity migrating from the Tel Aviv bourse, highlighting the influence of harmonised supervision in capital markets.

This pattern is also repeated with Indonesian firm listing on the New York Stock Exchange (NYSE), analysed in “Stock price behaviour in dual listing stock on the Indonesia Stock Exchange and New York Stock Exchange”, published by the IOSR Journal of Business and Management in 2016.

While there are arguments against dual listings, issuers pursuing a secondary listing of equity securities in markets removed from their home country enjoy benefits such as increased liquidity for investors; diversification of investor base, providing issuers with access to foreign capital pools where their home market is less liquid; a heightened public profile; and positioning itself for international acquisitions and overcoming local barriers to foreign investing.

But the case of Tokyo and the hollowing out of foreign issuers in its securities market — the declining foreign presence reflects its comparative decline as a financial hub — in a market which once features dual listings from the likes of IBM Disney is explained negligible business advantages and trading turnover.

The collapse of the Japanese asset price bubble — an economic bubble from 1986 to 1991 where real estate and stock market prices were inflated — saw foreign issuers delist after failing to tap Tokyo’s vast capital pools; Japanese household wealth was estimated at US$16.8 trillion by Fincity.Tokyo in 2020. The collapsing economic bubble left Japanese investors, already strongly domestically-biased, cautious about trading foreign equities and risk-averse.

The regulatory costs of being listed, providing Japanese translations for documents and accounts, compounded by an insular market with strong domestic bias inhibited foreign listing. This is a pattern replicated in Seoul, Greater China and most other equity markets of large domestic economies.

Commenting on Singapore’s potential, Tong notes: “The SGX is part of the entire ecosystem and a building block, like what the government has done for the tech space through EDB and numerous organisations. SGX has tie-ups with Nasdaq and Tel Aviv. For tech companies considering Singapore for a secondary listing, they need to ensure the process is seamless without comprising governance standards.”

“For issuers listed on a recognised exchange, our rules are consistent. There’s been an analysis of US rules. So where governance standards are similar or higher, Singapore will accept it. If not, then a secondary listing would require some amendments to comply with key rules in Singapore.”

A Singapore niche for dual listings?

Singapore is better positioned to cater to the broader Indo-Asia Pacific (Indo-APAC) than rival hubs Hong Kong, Tokyo or Bangkok. Recognised by peers and international organisations as a global financial centre, the World Economic Forum also regards Singapore as a notable startup hub.

This is coupled with a growing private finance ecosystem, political neutrality, unrestricted capital flows, capital account convertibility, political and business continuity and investor-friendly market regulations. But its bourse and equity markets need international partnerships to thrive.

A November 2019 Deloitte assessment observed ”no lack of liquidity in Singapore’s capital market, as evident from the strong secondary fundraising market”, which saw S$5.8 billion (US$4.25 billion) and the sizable funds raised of S$3.1 billion (US$2.26 billion) from IPOs in 2019”.

As an offshore corporate treasury site, Singapore’s foreign currency and interest rate hedging markets, sophisticated financial ecosystem and mature regulatory system benefit it. Finally, the oversubscribed share sale of Nanofilm Technologies in October 2020 indicates a strong appetite for technology and growth stocks.

Global equity expands a company’s investor base, with beneficial effects on the cost of capital, liquidity, and new business opportunities. A diversified investor base is more responsive and flexible to market growth, with improved corporate governance also reducing risk. A joint INSEAD-Golden Gate Ventures report indicates between 2023–2025, a number of tech startups will seek an exit, providing a milestone to work towards.

A US listing offers a cheaper cost of capital, a broad shareholder base, greater liquidity and enhanced prestige. It also permits foreign investors to minimise currency risks, as Asian equities priced in foreign currencies carry a depreciation risk, affecting dollar returns for foreign portfolio investors. A Singapore secondary listing, with shares priced in a currency known for growth consistency and stability, mitigates this risk.

“Access to public capital markets and employment growth”, published by the Social Science Research Network in 2015 by the Social Science Research Network, and research from the Kauffman Foundation, highlights how enterprises accessing public capital markets through share sales sustains long-term employment growth and public wealth.

Successful secondary listings can induce a ‘self-perpetuating flywheel’ effect that rejuvenates Singapore equities and employment, as well as enhancing the city-state’s economic engine. It can also spur further foreign capital flows to the city-state. Appropriate incentives and robust inter-agency collaboration between the city-states’ Economic Development Board (EDB), the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) — the EDB has significant expertise attracting foreign investment and corporates — is what is required to realise this.

An EDB-MAS-SGX collaboration focused on promoting the city-state’s equity markets could pull in foreign issuers. Leveraging its ability to attract foreign financial inflows, Singapore can reinforce its financial sector and real economy concurrently.

Most recently, Singapore-listed Sarine Technologies Ltd, which develops, produces and sells technologies for the diamond industry, decided to explore a dual listing on the Tel Aviv bourse. Forecast for Q2 2021, it comes following the SGX and TASE authorising dual listings of companies whose primary listing is on either one of the venues.

This follows Sarine having “progressively generated growing interest” in its business and equities in the Israeli investment market. According to the company, this will expose it to US and Israeli investors; the time difference between Tel Aviv and the US is 7 hours versus the 12–13 hour time difference to Singapore.

Perceptions of liqudity

A continued criticism of the Singapore bourse through the 2010s, particularly since a 2013 penny stock crash reduced investor confidence in the bourse — compounded by a distinct lack of flows from its domestic pension fund — means despite the vast capital pools present in the city-state, its domestic equities market is limited in tapping it, translating to low daily turnover.

According to its central bank, assets under management (AUM) by Singapore-based managers expanded at a 11% compound annual growth rate, hitting S$4 trillion (US$2.9 trillion) at end-2019.

However, the market volatility of 2020 and depressed share prices brought increased retail investor interest in Singapore equities. This drove 12 months of continued growth in its securities daily average value (i.e. SDAV) or daily turnover consistently for 12 months. Some analysts expect the SGX to retained this heightened trading liquidity, barring unforeseen market developments.

Meanwhile, a CIMB analyst note from September 2020 observes the SGX’s multi-asset strategy, which builds on alliances and an incremental approach, “could be incrementally positive in the longer run” and could accord it a first-mover advantage and position of strength.

On the fundamental issue of market liquidity in Singapore equities, Tong notes: “The amount raised in secondary fundraising is huge. There’s a lot of liquidity in Singapore. Not in terms of the cash equities turnover, but there are huge capital pools present. That liquidity will always be attracted to good companies. The past few years have seen weak companies, but with a good-quality name?”

“If Grab were to list on Nasdaq and do a secondary listing in Singapore, investors will put money there. Singapore hosts many family offices with private capital. Private equity is attractive, but it still needs an exit right? There are huge amounts of liquidity in Singapore. You just have to find the right candidate.”