What is stopping firms from listing on SGX and what more can be done?

SINGAPORE: Online used car marketplace Carro is looking to raise about S$130 million (US$98 million) before its stock market debut.

Two months ago, the firm raised S$75 million from international bank HSBC, said its CEO and co-founder Aaron Tan.

But despite being headquartered here, the Singapore Exchange (SGX) is not the company’s first choice.

Instead, it is looking at either the New York Stock Exchange (NYSE) or Nasdaq. 

“The (American) market has a lot of what we call ‘depth’, in the sense that there is no lack of potential investors,” Mr Tan explained. 

Among the company’s considerations for listing are liquidity and valuation.

“(The United States has) a very deep market which has been around for decades. More importantly, historically, a lot of companies that have listed in the US have been able to achieve good valuations, especially tech companies."

He added that the concern in listing in other bourses, which may be less familiar with tech companies, is receiving a lower valuation.

“If we were to list on say SGX or the Tokyo Stock Exchange, or the Stock Exchange of Thailand, the main issue and the main concern we have … would be: Will we get the valuation that we want or we deserve?” he said. 

FEWER COMPANIES CHOOSE SGX

Firms like Carro looking to stock markets elsewhere is a worrying sign for the Singapore bourse, with fewer companies choosing to list here.

Private companies go public to potentially broaden opportunities for future access to capital and increase their liquidity, among other reasons. 

There was only one initial public offering (IPO) on the SGX in the first six months of this year, compared with six in the whole of 2023. 

However, it is not for a lack of companies looking to list – five Singapore-based firms, including hotpot chain Haidilao and ride-hailing app Ryde, listed overseas in the first half of this year.

Still, Carro said that it has not ruled out listing on SGX.

While listing in the US has its advantages, it would also mean higher costs for processes like audits and compliance, Mr Tan noted. 

He added that the firm is not well-known in the US and does not have a presence there, meaning the retail investor base may not buy into the company.

At the same time, more work needs to be done to make SGX more attractive, he said. 

Improvements he would like to see at SGX include a better support structure and attracting growth in the retail investor base.

“The retail investors in SGX have basically gone to buy real estate investment trusts (REITs) … they've gone to buy into any high dividend companies,” he said.

“In my opinion, that is the biggest issue,” he added.

BOOSTING DEVELOPMENT OF SGX

The Monetary Authority of Singapore is setting up a review group to boost the development of SGX.

On its part to increase interest, SGX implemented the Special Purpose Acquisition Companies (SPAC) listing framework in September 2021. Under the framework, shell companies can publicly list to raise funds for the purpose of merging with an existing firm.

Although that saw some success, with three SPACs listing, only one completed a merger. 

One expert from Deloitte Southeast Asia believes one way to improve the situation is to encourage international firms that set up shop here to also consider listing on SGX.

Accounting and reporting assurance leader Tay Hwee Ling suggested that as authorities provide funding incentives to allow these firms to set up in Singapore, they can request that the companies consider Singapore’s capital market as one of their options.

“Be it a primary listing, or … another exchange that's more suitable for (the international firms), can we be the dance partner, be the secondary listing destination as well?” she asked. 

She added that there is a need to strengthen the overall IPO market, which requires a “concerted effort from the whole business ecosystem”.

This means both the number of IPO investors in the region and quality of companies listing in Singapore have to go up, she said.