The Malaysian Insider

SINGAPORE, June 29 — The sense of calm that has settled on global stock markets has ignited an initial public offering (IPO) fever that has spread like wildfire in Hong Kong after a nine-month drought.

In the past four weeks, several mainland firms have successfully floated in Hong Kong after reviving listing plans put on hold when investment bank Lehman Brothers collapsed in September last year.

The recent listings included aluminium extrusion firm China Zhongwang, scrap metal recycler China Metal Recycling and herbal shampoo maker BaWang International.

And with China lifting a moratorium on domestic listings two weeks ago, investors are betting on Shanghai's IPO market catching fire as well.

The activity has raised hopes that some of the IPO fervour up north will filter down to Singapore, given the large number of mainland firms listed here.

However, only three smallish firms have listed here this year, and the lack of draft prospectuses lodged by IPO hopefuls with the Monetary Authority of Singapore's Opera website shows that the market is not turning around soon.

The Singapore Exchange (SGX) faces a twin challenge in trying revive the lifeless IPO market: That of attracting top-notch firms to list, and then luring investors into buying their shares.

Whetting investors' appetites is a tricky one these days. A big worry for the SGX is that retail investors may bypass the local bourse altogether and make a beeline for the livelier Hong Kong and Shanghai markets, where IPOs tend to be far bigger and sexier, and where companies have the potential to become another Google or Microsoft.

Dealers in some brokerages in Singapore already make it a point to ask clients if they want to subscribe to the latest Hong Kong IPOs.

And going by the growing popularity of trading foreign shares online, it is obvious that investors are taking the bait, as they overcome their inhibition about venturing outside the local stock market.

Brokerages have soothed the transition by having tie-ups with banks to offer competitive interest rates on the money entrusted to them in different currencies.

This minimises any exchange losses arising from clients needing to make frequent currency conversions into and out of the Singapore dollar each time they trade in foreign stocks.

The pull of overseas IPOs makes it an uphill battle for the SGX to attract top-notch firms to list here.

To compound the SGX's problem, the competition has just grown stiffer.

As an exchange that prides itself on being the Asian gateway, it has attracted over 150 mainland firms — mostly small- and medium-sized companies from a wide range of businesses — to list here.

China, however, wants a slice of this pie and intends to launch an equity market on its Shenzhen exchange along the lines of London's successful Alternative Investment Market before the end of the year.

Its target audience is likely to be the sort of cash-hungry small- and medium-sized mainland firms that have turned to Singapore to raise their funds in the past.

And the lacklustre performance of IPOs here over the past three years has hit investors' appetites hard.

Sure, the global stock market turmoil has been largely to blame for the poor showing, but for an investor burnt by the experience, it could be a case of “once bitten, twice shy”.

A check with Shareinvestor.com shows that 86 per cent of the 150 firms listed on the SGX since January 2006 have sunk below their IPO issue price.

Stocks like Changtian Plastic and Chemical and Sino Techfibre — which received rave reviews from analysts on their IPO debuts — are trading at one-quarter of their original issue prices.

Some will argue that there is no need for a trader to turn to IPOs for bargains when there may already be rich pickings available in the stock market.

Many of these firms are still trading way below 20 cents — the minimum price level for an IPO — despite the market rebound since March. This has made them far more affordable to retail traders compared with IPOs, in a manner of speaking.

And any discussion on the problems plaguing the IPO market will not be complete without highlighting the accounting irregularities and corporate governance issues that have dogged the S-chip sector this year.

True, the SGX has fought back with its announcement last week about the steps it is taking to combat the risks faced by listed firms as the financial crisis snowballs.

These include more detailed confirmations by auditors on the cash balances kept by listed firms operating in China, as well as the collectability of their trade debts.

But as a reader pointed out in The Business Times recently, the SGX had to get rid of the impression that it was getting companies to list here by attracting them with its “light touch” regime and then trying to solve the problems after the companies had listed.

What is needed is a strong regulatory framework with effective enforcement to make investors secure about buying equities again.

The SGX said last week that it was looking into new measures to strengthen corporate governance practices.

What it decides to do may well have a big impact on the future of new listings here, as it fends off stiff competition, and woos companies and investors alike back into its fold. — The Straits Times