Singapore’s IPO scene under threat from US, Australia

In 2023, homegrown firms such as Simpple and Ohmyhome chose to list in the US.

On many levels, Singapore and Hong Kong have been fierce competitors more so this year in the IPO scene. Experts, however, suggest that Singapore shifts its focus to emerging challengers: the United States and Australia.

In 2023, the United States saw the listing of Singapore-based companies such as Simpple and Ohmyhome. Other homegrown firms like Grab and PropertyGuru are also listed in the US.

“If an entity wants to list totally outside of China, then there’s no need to compete with Hong Kong, because obviously, Hong Kong is very much tied to China,” CLA Global TS Holdings Group CEO and Chief Innovation Officer, Henry Tan, told the Singapore Business Review.

Tan said there are two main reasons why some potential IPO entrants in Singapore are going to the US and Australia: valuation and volatility.

One way to increase Singapore’s market valuation is by targeting companies in Southeast Asia, rather than Korea and China.

“If it’s an ASEAN firm, for example a Thai, Philippine, or Malaysian company, coming to Singapore Exchange it will be seen as an upgrade, but if you will target Chinese companies, it most likely be seen as a downgrade to come [in Singapore] in terms of valuation,” Tan explained.

“I would prefer that [Singapore] target more of regional play, and then make the Singapore Exchange truly an ASEAN platform, a platform for capital in Southeast Asia,” Tan added.

In 1H23, proceeds raised through initial public offerings (IPOs) in Singapore nosedived, falling 95% YoY to $28m (US$20.39m).

Data from Deloitte showed that Singapore only had three IPOs in 1H23, namely, YKGI Limited ($19.80m=US$14.42m), Ever Glory United Holdings Limited ($3.08m=US$2.24m), Pasture Holdings ($5m=US$3.64m), and LYC Medicare Singapore Limited. In 1H22, the Lion City saw nine IPOs and raised $572m (US$416.57m).

Market capitalisation likewise fell year-on-year, dropping by 83% to $137m (US$99.78m) in 1H23 from $790m (US$575.40m) in 1H22. The number of new IPOs also fell by 67%.

Return of REIT, SPACS

According to the report, there was also absence of Real Estate Investment Trusts (REITs) and Special Purpose Acquisition Companies (SPACs) listings in 1H23.
 
The most recent REIT listings were Daiwa House Logistics and Digital Core REIT in 2021, whilst SPAC listings cooled since the subsequent listing of three SPACs in January 2022.
 
Apart from rising interest rates, Tan said the decline in REIT listings can be linked to Singapore’s limited assets.
 
“Whatever building that we have that can be put into a REIT is already there. This means, REITs have to reach for overseas assets. As we know, overseas assets are quite different from Singapore assets and investors would not be so familiar with them,” Tan said.
 
Tan, however, underscored that the Singapore REIT market remains strong and continues to be ideal for investors.
 
Commenting on SPACS, Tan said the decline can be linked to the risk appetite of investors in Singapore.
 
“Singapore has never been known to be a highly speculative investor base market. Something like a SPAC obviously requires more risk taking traders who are looking at more speculative, as well as, maybe higher risk investment,” Tan said.

Growth areas

Whilst real estate continues to face a lot of headwinds, Tan believes REITs may return to the market given the premise that “interest rate stabilises.”
 
Apart from REITs, Tan believes healthcare, education, and AI industries will see growth in 2024
 
In Asia-Pacific, AI-related companies are also likely to attract investments, alongside biotech and pharmaceutical related business, said EY Asia-Pacific IPO leader Ringo Choi.
 
Biopharma companies are also getting a foothold in Singapore, said Tan.
 
Energy efficiency companies or companies whose business focus on ESG or carbon neutrality will also likely be the focus of investments in 2024, added Choi.
 
Traditional sectors such as manufacturing will also thrive.

IPO success

Knowing which industries are more prevalent in a market will also help ensure a company’s IPO success, said Tan.
 
Tan also reiterated the deed to select markets with good market valuation.
 
“Valuation is based on particular markets, valuation of peers that’s already listed. For example, if the market predominant price to equity ratio is only 8x, no matter how good the company is coming on board in the same industry, it is unlikely to be priced above that,” Tan explained.
 
Choi, for this part, suggested a down round to help brining valuations to a more realistic level, saying many companies listing in the US have already done so.
 
Expounding on a down round, Choi explained that it happens when companies are going public at a price lower than the valuations they achieved in previous private funding rounds.
 
“If the fund manager allows their company or their portfolio company to have a down round, they can match the reality of the present situation of the IPO markets,” Choi said.
 
Choi added that having a down round in that scenario could help boost the number, volume, and proceeds of an IPO “significantly” because the valuation of companies would be more aligned with market expectations, helping stoke potential demand for those deals.