Companies urged to work ‘hand in glove’ with SGX as it eyes regional family businesses for IPOs

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SINGAPORE (June 27): China Aviation Oil, which was rocked by a corporate governance scandal back in 2004, has since gained back the favour of investors in a big way.

Since February, the Singapore Exchange-listed jet fuel trader’s share price has doubled to S$1.19 as of end of Monday, amid higher volume. The company now has a market value of around S$1 billion and is the largest energy stock listed here.

Chew Sutat, SGX’s executive vice president and head of equities and fixed income, says CAO’s turnaround wasn’t by chance. Besides running a well governed business helmed by CEO Meng Fanqiu, the company actively undertook a wide range of investor relations activities, taking part in the various activities organised by the exchange to reach out to the wider financial community.

Chew points out that the gain in CAO’s share price was the more remarkable given that the broader energy sector has been in a slump for the last two years, and that the wider market conditions are not rosy as well. In addition, CAO’s free float is limited: half the company is indirectly owned by the Chinese government, and another 20% is held by BP.

“When [SGX and companies] work hand in glove, you can see the results,” says Chew at a media briefing on Monday. He was giving an update on the pulse of the market following a reorganisation of the SGX.

While other companies have also tried engaging investors, the results have been mixed. Chew’s suggestion is for them to be focus on which investors to engage and to do so in a more proactive manner.

There is a need for more two-way interaction and communication. For example, when some companies need to raise more funds, they turn to financiers and issue them convertible bonds, resulting in severe dilution down the road. This has led to criticisms that such fund-raising avenues are unfair to existing shareholders as they see their holdings plummet in value.

"But is he or she willing to put that additional dollar into the company when it needs funds? I don’t know,” says Chew.

While Chew notes that it is easy for shareholders to point fingers, they should take a harder look at the business models of the companies they invest in instead.

New listings

Chew does not deny that the market conditions are tough. On one hand, the sell-side players have been seeing research activities reduced; on the other hand, the buy-side players worry about clients entrusting them with less funds. “More and more, people are just hugging indices,” he says, alluding to the popularity of ETFs and index investing.

Nevertheless, Chew points out that the Singapore market has done relatively well relative to regional peers. In the first half this year, the STI was down 1.7%, relative to the 8.3% decline for the Hang Seng Index and 23.2% drop for the Shanghai Composite.

In addition, the Singapore market remains the most favourable market for yield chasers, at 4% in the first half. This is just 0.1% below Hong Kong, and 2.9% average for the region. A total of S$10 billion in dividends had been paid out by Singapore companies — a figure that will further balloon when Singtel, the largest listed company here with the widest shareholder base, pays out S$1.7 billion this August.

And although there have been some high-profile delisting or privatisation exercises, like Osim International and Neptune Orient Lines, Chew remains optimistic that the Singapore bourse still has its attractions.

There have been a couple of big listings like Manulife US REIT as well recently. In addition, an upcoming big IPO is that of Fullerton Healthcare, which plays right into the longer term secular trend of growing demand for healthcare and consumers products and services of this region. “There are new interesting growth stories coming through,” says Chew.

He maintains that SGX is still keen on attracting companies from China to list here, but investors have to be accept the fact that large Chinese companies, particularly state-owned enterprises, won’t go for a primary listing in Singapore.

Nevertheless, there are other untapped areas across the region. For example, Chew hopes to position the SGX as the right platform for business families to list their various companies here. For example, the Salim group of Indonesia already has five listed vehicles here.

More recently, the Thai family behind Thai Beverage, helmed by patriarch Charoen Sirivadhanabhakdi, now controls REITs spanning the gamut from logistics to commercial, with the latest addition the IPO of Frasers Logistics and Industrial Trust.

An upcoming recent listing, albeit a secondary one, is glove-maker Top Glove, which is controlled by Malaysian tycoon Lim Wee Chai. Chew hopes that there will be others like Charoen and Lim.

Chew is also looking forward to more participation in the Singapore market from the wealth management industry based here, which booked more than S$2 trillion in assets. “How can we work together, to channel just a fraction of that back to the domestic capital market? We are talking about big numbers,” he says.