In recent years, the phenomenal rise of tech companies, specifically in Asia, has seen as many as 35 startups achieving unicorn status in Southeast Asia alone. Some of these companies call Singapore home. But as they began making waves in the market for their plans to go public, their decisions to bypass the Singapore Exchange (SGX) have also raised eyebrows.
In April 2021, super-app Grab released news of plans to go public in the United States, in what was considered as the largest blank-cheque company (also known as a special purpose acquisition company, or SPAC) deal ever, and a first-of-its-kind listing. This was then followed by PropertyGuru - another homegrown tech company - announcing in June 2021 that it would be listed on the NYSE in early 2022.
But in September 2021, the SGX announced a pivotal move. It would be among Asia’s first major bourse to allow SPAC listings, providing retail investors the never-before opportunity to diversify their investment portfolios and invest in private companies. It was deemed a move that could provide much-needed enthusiasm to Singapore’s Initial Public Offering (IPO) market, which has not drawn much significant interest from domestic and international businesses in recent years.
How are these events significant for both the SGX and the future of businesses in Singapore? Ben Chester Cheong, Lecturer of Law Programmes, SUSS and concurrently an Of Counsel at RHTLaw Asia LLP, who specialises in company and contract law, law & technology and financial regulation, shares his insights.
SGX’s Place on the World Stage of Indexes
From the outset, he believes that a reason why homegrown companies are listing outside of Singapore is down to the perception that overseas markets such as the US provide better valuations. These markets thus appear as more lucrative options, as businesses are able to raise more funds because stocks are valued at higher multiples.
He elaborates further on how the SGX stacks up to other major bourses
Against the New York Stock Exchange (NYSE), the SGX is comparatively much smaller. As at October 2021, the NYSE topped the world chart as the largest stock exchange operator by market capitalisation of listed companies, at just over US$28 trillion. The same year, the SGX sat at just about US$ 700 billion.
When compared to the London Stock Exchange (LSE), the SGX is similar in terms of mainboards for larger companies and sponsor-supervised boards for smaller companies. However, the LSE is the oldest stock exchange in the world, and also the largest in Europe. What this means is that with its years of operations, it can boast the most international listings, as well as provide access to the world’s deepest and most liquid pools of capital.
Closer to home, the Hong Kong Stock Exchange (HKSE) is the SGX’s greatest competitor when it comes to listing and trading. While the HKSE and the SGX are comparable in size, the HKSE's greatest hold over the SGX is that it presents easier access to Chinese capital and a more visible presence in greater China. On top of that, the HKSE edges over the SGX in providing more liquidity.
How Has the SGX Adapted To Stay Relevant?
Ben Chester Cheong also observes that the SGX had always been traditionally dominated by finance and property names. In fact, in 2019, they accounted for 98% of gross IPO proceeds. And while that remains a strong point for the SGX, attracting IPO listings in the REITs sector alone is not enough. This is evidenced by the fact that from 2010 till 2019, Singapore actually recorded fewer new stock listings than Bangkok, Jakarta or Kuala Lumpur.
However, the Singapore government has actually already begun making efforts to position Singapore as an attractive listing venue for startups and tech companies. In 2017 for example, the Ministry of Trade & Industry (MTI) launched the Startup SG initiative, which introduced schemes and nurtured networks in the effort to cultivate a thriving startup ecosystem in Singapore.
Then in 2018, the SGX approved one of the biggest changes to its listing rules by giving the go-ahead for companies with dual-class shares (DCS) structures to seek a primary listing on its main board, owing to the increasing popularity of dual-class structures in recent years. This is particularly the case among technology startups, many of which use this strategy to retain control over their outfits. By adopting DCS, the SGX has demonstrated a receptiveness and understanding of changing times in business models and management. The efforts resulted in AMTD International Inc., a NYSE listed company, becoming the first company with a DCS structure to list in Singapore through a secondary listing in April 2020.
Tech startups, especially those in Asia, are the newest sensation in the global equity market, thriving in Singapore particularly. In fact, Singapore leads the ASEAN region in venture capital investment and has been home to 10 unicorns.
What remains is to attract such tech companies to list. And now, with the new SPAC offering, the SGX can indeed provide a key proposition for such companies to do so.
The Importance of SPACs
SPACs are shell companies without any operations. They are created and sponsored for the sole purpose of raising money through an initial public listing, and eventually acquire another operating business. They have been around for decades in the US but have exploded in popularity recently, as an alternative way for private businesses to list, since they bypass the traditional IPO route which can be a time-consuming and complicated process.
But is it the right move for the SGX to offer SPACs?
Ben Chester Cheong is in favour, believing it will help to shore up a relatively quiet equity capital market in Singapore, while increasing the prestige and pedigree of a listing in Singapore - something that NASDAQ and NYSE have been able to do. Also, Singapore will now be able to attract listings of technology startups in ASEAN and South Asia, as these companies may prefer a Singapore listing over a US listing from a geographical standpoint.
However, he also makes it a point to mention that the success of SPACs will depend on how flexible the SGX is when it comes to approving these IPOs and mergers. If Singapore were to overregulate and regulations become too complex, it may end up losing these potential listings to the US again.
What Else Can Homegrown Startups Look Forward to, Closer to Home?
Along with SPAC offerings, local and regional tech companies can look forward to a host of attractive initiatives, newly launched by the Singapore government.
Headlining these initiatives is a fund, co-invested with state investment firm Temasek, to help companies raise capital through public listings. It starts with a first tranche of SGD1.5 billion towards supporting promising high-growth enterprises and market leaders in their initial public offerings in Singapore.
Along with that, another new fund starting at SGD500 million has been established with the investment arm of Singapore’s Economic Development Board (EDB) to invest in later-stage companies and help them work towards an eventual public listing. Other initiatives include increased grants to help companies defray the cost of listings, and help for high-growth companies to raise funds privately, prior to a public listing.
Ben Chester Cheong believes that this move would help provide the credibility needed to increase Singapore’s listing volumes and add liquidity to the market, positioning the SGX as Asia’s new attractive option for Asia’s homegrown startups.
Bourse of the Future
As of 27 January 2022 - and just 4 months after announcing its SPAC offering - the SGX has welcomed 3 new SPAC listings. While these are early days yet, it is a hopeful sign that the SGX has taken the right steps towards positioning itself, as Loh Boon Chye, Chief Executive of SGX had envisioned, “The preferred fundraising destination for corporates, not just for Singapore and Southeast Asia, but from around the world.”
“What I hope will happen eventually is that any organisation, corporate or financial institution, when it thinks about accessing, investing in and raising capital in Asia, they think of us first. Asia equals SGX”.
 TechCrunch (OCT 2021) Predicting the next wave of Southeast Asia tech giants | TechCrunch
 The Straits Times (APR 2021) Grab's US listing plan casts spotlight on South-east Asian ecosystem | The Straits Times
 Bloomberg (JUL 2021) PropertyGuru to Go Public in $1.8 Billion SPAC Deal - Bloomberg
 Straits Times (SEP 2021) Debrief: Spac listings on the Singapore Exchange | The Straits Times
 ASEAN Briefing (SEP 2021) Singapore Exchange Becomes the First Major Bourse in Asia to Allow SPAC Listings
 CEIC Data (APR 2021) Singapore Market Capitalization, 1999 – 2021 | CEIC Data
 INVESTOPEDIA (JAN 2021) London Stock Exchange (LSE) Definition
 ASIA MONEY (SEP 2019) Asiamoney SGX: Singapore scrambles for listings
 INVESTOPEDIA (NOV 2021) Dual Class Stock Definition
 TECHCRUNCH (AUG 2021) A close look at Singapore's thriving startup ecosystem | TechCrunch
 CNBC (SEP 2021) SGX CEO on initiatives to attract SPAC listings to Singapore, tech IPOs
 CNBC (SEP 2021) Singapore government announces $1 billion new fund to boost local stock market