For those less familiar, the Pinkerton Syndrome is derived from the 1904 opera Madama Butterfly by Giacomo Puccini, which is in turn, based on the 1898 tragic short story Madame Butterfly by John Luther Long.
The perceived tendency to regard or preference Caucasians as superior or more desirable, exhibits itself beyond relationship choices (in the story) to employment, and more than a century on, potentially to the capital markets too.
There is no doubt that the breadth and depth of Western capital markets, and the ecosystem that supports them, is not a fair comparison to the Little Red Dot here. After all, capitalism did originate from the West, and as an art form, finds its most sophisticated practitioners at the Big Apple, and also at the Bay Area and Silicon Valley.
The huge depth is perhaps encapsulated by Blackrock. It took a US$17 billion ($23.19 billion) markdown on the value of its Russian securities held to just US$1 billion. This quantum, by most measures, is no small change. Yet, it is smaller than a rounding error to Blackrock. After all, the world’s largest asset manager has some US$10 trillion under management.
No thanks to Russia’s Vladimir Putin, this period of market distress might be the best long call trade for 2022 for anyone with the money to risk and less of a conscience. Markets, after all, have no morality.
Whether or not Putin’s invasion of Ukraine is justified, the markets have been bruised. The largest Russian ETF, iShares MSCI Russia ETF, has sunk from US$600 million to less than US$1 million. As of March 11, Nasdaq’s year to date performance is an inauspicious –18.88%. From its 52-week high in the middle of November 2021, the tech-heavy index is more than 20% down, technically triggering bear market territory. Likewise, the S&P500 is off a more modest 12.55% from its end 2021 high of 4,818 points, technically in correction (more than 10% decline) territory.
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Similarly, as of March 15, the Hang Seng Index has plunged some 20% from the start of the year, amid the widening selloff afflicting China. In contrast, our own Straits Times Index managed to stay positive, up 3.6%.
Out to Sea
On the “stairway to heaven”, the ride up was tremendous. Sea went IPO back in 2017 at US$15, giving it a modest, fairly valued US$5 billion market cap. When the pandemic hit, the homegrown gaming and e-commerce player enjoyed a massive acceleration and its share price hit a record US$372.70 last November.
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Along the way, it found a friend in the form of Cathie Wood, whose ARK Innovation Fund ETF stayed put throughout as it took the elevator down (of more than 75%) from its November peak to US$91 as of March 11. Although it still commands a market cap of some US$50 billion, it has returned the crown of Singapore’s most valuable public company back to DBS Group Holdings, which is valued at some $87 billion. At one point, Sea was worth more than the three local banks put together and is equivalent to one third of Singapore’s total stock market capitalisation, which led to its progressive inclusion into MSCI Singapore.
Around the same time in Oct 2017, Reebonz, which offers an online “marketplace” for luxury goods, raised a much more modest US$57 million in a Nasdaq IPO that gave it a modest market cap of just over US$1 billion through a de-spac with Draper Oakwood Technology Acquisition.
This was way before what was described by the Financial Times as the “US spac bubble” which was merrily taking in lots of hot air (and cash) before bursting towards the middle of 2021. Despite being in the largest market in the world for tech, Reebonz failed to raise sufficient funds in subsequent rounds even to maintain its listing in 2019, and by the end of 2021 had to commence liquidation.
Being a small fish in a massive ocean can run one the risk of getting ignored and left by the wayside. Creative Technology, the original local tech poster boy, was listed on both Singapore and Nasdaq. After the popularity of its Soundblaster soundcards waned, it eventually delisted from the US and stayed at home, where it is now tentatively undergoing a corporate revival.
Class acts and class actions
Still, that hasn’t stopped the flood of bankers pitching the deep pools of capital and theoretically higher liquidity to entice business owners to raise capital in the US. Granted, bankers can charge higher fees, but this thesis is not entirely wrong and in fact, is the main motivation.
There is a broader marketplace for supporting new business models including loss-making ones, and historically, a more liberal anything goes spac marketplace. If you can sell a good story, a few large investors allocating a small bit of their portfolio capital will clear it. The challenge is size. If a company is not valued at at least US$5 billion (Sea just about made it), it may languish by the wayside and peter out. There are too many examples.
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Entrepreneurs always want to maximise value for selling part of their company — even though there is a difference between an IPO at a sustainable valuation to gain the market’s trust (to growing through additional fundraising which Sea had employed successfully), versus max out at the start, and hope for the best after. This strategy has not yet worked out for Grab Holdings in its short history thus far.
The world’s largest spac merger at US$40 billion managed to complete in November but was caught in a perfect storm of market participants choosing to be risk-off and it suffered from challenging business conditions as its first post-listing report card indicated. Since its listing on Dec 2, 2021, it is down around three quarters, giving it a market value of just over US$11 billion. Hopefully, the large war chest raised thus far, will be able to tide Grab through till when it needs to raise equity again, without too much dilution at that point.
In the interim, it is facing the nature of the beast in the US which is potential class-action lawsuits instigated by opportunistic lawyers rallying disgruntled investors. Such is the risk of listing in the US as pointed out by entrepreneurs who had considered it, insurance is a must-have — even if you may have to cover — premium plus excess 80 cents per $1 of protection!
El Dorado
Last October, TDCX, a former Enterprise 50 winner, joined the list of homegrown companies ditching a Singapore listing. Led by Goldman Sachs and Credit Suisse, TDCX raised US$400 million with its New York listing, selling its shares at US$18 — the top of the book-building range. When trading started, TDCX enjoyed a modest pop of around 10% which was then followed by a 60% rally within a month to US$30 where it achieved a market cap of around US$4 billion.
However, on March 11, TDCX had corrected more than two thirds to trade at less than US$10, bringing its market cap closer to US$1.4 billion. At this level, TDCX, far from its operating markets in Asia and its HQ in Singapore, runs the risk of getting lost in a very long tail of choices for US-based investors.
There’s a long list of spac vehicles in the US giving increasingly nervous glances at the clock. If by the two-year mark they have yet to complete their de-spac, they got to be wound up. Presumably, they will be casting their nets wider in this part of the world, helped also by spac promoters from Asia.
For example, Property Guru, having pulled its 2019 Australia listing, is on March 18 merging with the Bridgetown 2 Holdings spac, backed by Peter Thiel and Richard Li, fetching a valuation of US$1.7 billion. Alongside, Carousell is merging with L Catterton Asia Acquisition Corp, and is looking at US$1.5 billion.
Both Property Guru and Carousell have headquarters in Singapore and operations around the region. Arguably, their brands are more recognised in this part of the world, and they must have some local consumer following to be successful. At their likely market value, they would be comfortably amongst the mid-caps in Singapore. They could saunter forth and mark their spots as relatively bigger fishes albeit in a smaller pond where the market (as reflected by the STI’s outperformance above its peers) is on the run.
Cio-Cio, aka Madam Butterfly, initially described herself as the “happiest woman” in the country. When Lieutenant Pinkerton returned after a long absence and made it clear where his heart truly lies, she committed suicide. The same plot does not necessarily apply. As we cheer on our local red dots who venture into Pinkerton shores, the jury remains out for their success in the vast US markets which are in the throes of a corrective bear.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multiasset exchange and he was awarded FOW’s lifetime achievement award in 2021
Photo by Rod Millington, of The Florida Grand Opera production of Madama Butterfly / Wikimedia Commons
