Singapore's market is on the mend, but deeper issues remain
Info-Tech Systems made its mainboard debut on Jul 4.
NTT DC Reit – the largest real estate investment trust (Reit) initial public offering (IPO) in a decade – followed 10 days later, while China Medical System came in as a secondary listing on Jul 15.
Lum Chang Creations made its debut on the Catalist board on Jul 21, while several more names, including Centurion Accommodation Reit, Dezign Format and Coliwoo Group, have signalled their intent to list before year-end.
By raw numbers, the IPO pipeline is looking up. It is a stark contrast to the first half of the year, when Singapore saw just one listing – car dealer Vin's Holdings – compared to 32 in Malaysia. That lacklustre start saw SGX bringing in just US$30 million in IPO market cap, versus Malaysia's US$4 billion, according to a recent report by consultancy Deloitte.
The equities market review group, whose task is to help revive the local bourse, also unveiled on Jul 21 the first three asset fund managers who will receive funds from a S$5 billion investment fund initiative to improve market liquidity.
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Meanwhile, the benchmark Straits Times Index is continuing its upwards trajectory, after comfortably passing the 4,000-point mark.
Given the recent momentum and pipeline of potential listings, it is easy to get carried away with excitement at the promise of new listings in the later half of the year.
Too many spin-offs?
Yet, a closer look suggests that the reality of the listings may not live up to the buzz.
Many of the upcoming IPOs are spin-offs from already-listed companies.
Coliwoo is part of LHN Group, Lum Chang Creations is tied to Lum Chang Holdings, and Centurion Accommodation Reit is a spin-off from Centurion Corporation. Spin-offs may reflect confidence in a company's business segment, but they are not without risks for investors, and for the exchange.
SGX rules are clear. Chain listings, where a potential listing has assets or operations substantially similar to its listed parent company, are not allowed.
Spin-offs must be independently managed, profitable, and have clearly distinct assets and operations. The exchange also requires proof that shareholders will see more 'tangible economic benefits' from a spin-off than from maintaining the current structure.
But regulation can only go so far. Even after clearing SGX's hurdles, such companies often come with baggage, particularly when directors from the parent remain on the spin-off's board. This raises questions about independence, strategic direction, and whether minority shareholders will get a fair deal.
And while spin-offs may unlock short-term value, they do not always add long-term depth to the market. For instance, the parent's stock price may even fall post-spin, as its valuation adjusts to exclude the carved-out unit.
If SGX is trying to deepen market quality and liquidity, spin-off IPOs may not always help.
More SDRs, but not more liquidity
The same question hangs over Singapore Depository Receipts (SDRs), another area that SGX has been actively promoting. SDRs are financial instruments that allow investors to hold shares of foreign companies listed on exchanges outside of Singapore, giving local investors access to overseas stocks without the need for foreign brokerage accounts or currency exposure.
The current SDR shelf holds 21 securities, with turnover hitting a record S$5.4 million in May. There are likely to be more SDRs on the way, with the review group announcing this week that it would extend funding to defray the listing cost of SDRs and other foreign depository receipts.
Yet, SDR's impact on the exchange's growth and liquidity should not be overstated.
Unlike IPOs, SDRs do not raise fresh capital. Their liquidity tends to be thin, split between SGX and the primary market overseas. Chinese EV maker BYD, the most traded SDR on SGX, has averaged a daily turnover of S$1.1 million this year – a far cry from the S$2 million-plus daily turnover of mid-cap names like SIA Engineering or Digital Core Reit.
Building a better market
For all the buzz around SDRs and spin-offs, the fundamental issue remains: are these listings building a better market?
That is not to say that spin-off listings or SDRs are bad for the market. They serve a specific purpose in attracting investors and helping companies grow.
But while a higher listing count may pad headline numbers, it does not guarantee deeper liquidity, stronger investor interest, or meaningful capital formation. What SGX needs is listings that strengthen the exchange in governance, scale, and long-term trading interest.
As the market review committee gears up to release its second set of recommendations later this year, it would do well to remember: a flurry of listings may look good on paper, but only quality will stand the test of time.
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