Four months have passed since the Monetary Authority of Singapore (MAS) announced on Aug 2 that a review group would be set up to propose measures to revive the moribund local equities market. Chaired by Second Minister for Finance and MAS Deputy Chairman Chee Hong Tat, the team has up to a year to devise ways to improve trading liquidity and make the market palatable for private companies seeking a public listing.
Depending on who you speak to, some regard this top-down initiative as the last shot at getting the Singapore equities market back on its feet; others deem it too little, too late. In any case, the review group has an unenviable job, considering the local bourse has not really budged despite a barrage of measures over the years aimed at rousing it from its slumber.
To be sure, Singapore blue chips have largely been the centre of investors’ attention. From the start of this year until Nov 15, the benchmark 30-stock Straits Times Index (STI) has risen 15.6%, driven mostly by banks on strong earnings growth.
In the broader market, however, there hasn’t been much to shout about. Over the same period, the FTSE ST Mid Cap Index slipped 0.6% while the FTSE ST Small Cap Index declined 5.2%.
Even real estate investment trusts (REITs), long popular among investors in Singapore, have fallen off the radar. The iEdge S-REIT Index, the benchmark for tracking Singapore REITs, was down 10.9% from January to mid-November on concerns that incoming US President Donald Trump’s planned economic policies would reignite inflation and dash plans by the Federal Reserve to lower interest rates.
In the meantime, the number of companies delisting from Singapore has continued to rise. As at end-October, the Singapore Exchange S68 (SGX) had 617 stocks, 20 fewer than a year earlier. That translates into nearly 1.7 delistings a month over the past year.
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Since the start of this year, 16 companies have been taken private while only four IPOs (all on Catalist) have been launched. Another four companies are slated for a similar fate: Yongnam Holdings AXB will be dropped from SGX on Dec 2, while Broadway Industrial Group and Avarga have each received a mandatory general offer for all their shares. Most recently, on Nov 28, AVJennings A05 , controlled by real estate figure Simon Cheong, received a takeover offer from real estate investment firm Proprium Capital Partners.
Meanwhile, several other stock markets in Asia, including Hong Kong, India, Japan, and Malaysia, have sprung back to life with several sizeable IPOs this year.
Against this backdrop, is the Singapore stock market slowly being hollowed out?
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Since the central bank’s Aug 2 announcement, there has been no shortage of commentary on what can and should be done to attract more new listings, improve trading liquidity, and increase investor participation. Some have also called for enhanced investor protection, less red tape, and even a lighter regulatory touch.
Removing market friction
In this regard, the Singapore Exchange Regulation (SGX RegCo) has made some headway. In a joint letter to stakeholders in September, SGX RegCo chairman Tan Cheng Han and CEO Tan Boon Gin said the frontline regulator is reviewing how and when it queries companies to remove market friction so that they can “take value-focused actions” with no disruption to the trading of their shares.
So far this year, only one company — Malaysia-based karaoke chain operator 9R — has received a “trade with caution” (TWC) alert. SGX RegCo introduced TWC in 2014 to flag unusual trading activities. Initially, these warnings were automatically triggered whenever a company that was queried said it wasn’t aware of any reason for its stock’s usual behaviour. The alerts have since become more targeted and are issued on a case-by-case basis.
There were four TWC warnings in 2023 and as many as 47 in 2015. In the case of 9R, SGX RegCo noted that the stock jumped nearly 50% over 2½ months between June and August for no apparent reason. Also, some 85% of the buy orders from June 4 to Nov 8 came from a few trading accounts used by multiple clients who appeared to be connected.
9R did not publicly respond to the TWC warning, which came two days before shares of Goodwill Entertainment, which is also in the karaoke business, made their trading debut on Nov 15.
One of the most dramatic TWC incidents happened in 2022. On their trading debut on Feb 24 that year, shares of Catalist-quoted homegrown cleaning company LS 2 Holdings soared from their placement price of $0.20 to an intraday high of $1.60 before closing at $0.88. LS 2 was slapped with a TWC warning that same day.
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The stock’s huge run-up was in contrast to the STI’s 3.4% decline that day, SGX RegCo pointed out. Moreover, about 80% of the 207 investors who bought the placement shares had sold all their stakes, causing LS 2 to fall short of a regulatory requirement for listed firms to have at least 200 public shareholders. Most of those who sold were connected through one particular trader.
The next day, LS 2 responded by saying it had no idea why the stock performed that way. It had, in fact, said the same on the previous day in response to queries from its sponsor over the stock’s trading activity.
The first day of trading in Singapore for any firm usually starts with a listing ceremony at the SGX Centre, where the business founder and SGX officials would exchange pleasantries before the company’s guests and extol the possibilities ahead now that it is a listed entity. Later that day, company officials would typically hold a grand dinner party to celebrate their newfound milestone.
The folks at LS 2 must have had a whirlwind experience on the day of its listing, from elation over the stock’s performance to being gutted by the TWC warning. In any case, nothing much came out of that awkward episode in the end.
LS 2 went on to receive a few queries from SGX RegCo later that year about its stock’s behaviour. The shares eventually gave up all their heady gains by the end of 2022, closing at $0.18.
Removing market friction and having a less cumbersome regulatory environment is certainly what all listed firms wish for. Even as SGX RegCo works on improving when and how it queries companies, the net can perhaps be cast wider to address friction in other areas.
Picture this: You work hard in your job, rise through the ranks over the years and are now in the top 5% income bracket in Singapore. Private bankers adore you and go all out to woo you, promising a suite of bespoke services and top-notch investment solutions to help you grow your wealth. After much coddling by these bankers, you finally sign up as a client.
You soon realise, however, that some of the things dangled before you by your private banker come with a bunch of onerous terms and conditions. In some cases, failure to comply could land you in legal hot soup. Meanwhile, the high cost of servicing you as a private banking client is eating into whatever returns you’re supposed to be making through the bank.
In much the same way, business owners of many SGX companies, especially the lower liners, find themselves hemmed in. While slogging to try to increase profits year after year, many lament that their efforts are not appreciated by the market, as seen from their share prices. Stuck with depressed valuations, they often struggle to raise equity to grow the business.
At the same time, having to navigate SGX’s thick rulebook - which now even covers matters on ESG (environmental, social and governance) and climate change — makes running a listed company that much harder. To top it all off, they still have to keep shareholders happy. Unlike private banking clients, however, they can’t simply pack up and head out without first making an offer to buy out all the shares they don’t already own.
More uniformity
On the point of appeasing shareholders, perhaps greater uniformity could also be achieved when it comes to corporate disclosures, especially regarding information deemed material.
On Sept 20, Raffles Education NR7 said four existing board directors and one former director were charged with offences under the Securities and Futures Act 2001 for the company’s “alleged reckless failure” to inform SGX that it had received letters from Affin Bank three years ago demanding the immediate repayment of loan facilities given to two of its subsidiaries.
The Malaysian lender had also filed two writs and statements of claim in 2021 seeking at least RM416 million in total from Raffles K12 and Raffles Iskandar. The five individuals, including Raffles Education founder and chairman cum CEO Chew Hua Seng, have surrendered their passports and are out on bail.
Affin Bank’s actions against Raffles Education in 2021 constituted material information and should have been disclosed when they unfolded. Interestingly, another listed company, also in the midst of a legal spat, seemed fine with not having to disclose the matter earlier.
On Oct 12, mere weeks after Raffles Education’s Sep 20 announcement, Yangzijiang Shipbuilding said for the first time that certain parties had initiated arbitration proceedings in London against three of its subsidiaries in 2022 for allegedly breaching contracts inked in 2021 for the construction of 10 vessels valued at a total of US$900 million.
The contracts were terminated by the clients a year after they were signed, following which the arbitration proceedings were launched. The total amount sought by the claimants is US$835 million.
The first tranche of the arbitration hearings has been scheduled for November this year, according to Yangzijiang, which believes the claims are without merit and won’t impact its 2024 financial results.
Even so, should the claimants’ move to initiate arbitration back in 2022 have been kept from investors? Was SGX RegCo fine with this since there was no public query on this matter?
At the Securities Investors Association (Singapore)’s 25th anniversary corporate governance conference on Sept 16 this year, Second Finance Minister Chee said the MAS review group is prepared to try new ideas to reignite the stock market. Regulations no longer necessary or that pose a disproportionate burden would also be pruned, he added. Let’s hope something transpires soon before the market really hollows out.
The writer is a former financial journalist and runs an investor relations consulting practice. He is also a part-time business journalism lecturer at a Singapore university. All views expressed are solely his
