Published January 13, 2009

Will 2009 see a repeat of 2000-2002's privatisations?

By R SIVANITHY

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MOST stock market observers know that 2008 was a pretty bad year as far as new listings were concerned - only 30 companies went public last year compared to 61 in 2007, which in turn meant funds raised plunged 77 per cent to just US$1.2 billion versus US$5.3 billion the year before.

Clearly, gaining a listing isn't as attractive as it was a couple of years ago (note that 10 companies also postponed their 2008 offerings) when new market entrants were assured of premium prices and high demand - at the start of 2009, only two of 2008's debutants' prices were above water and both only just.

But what about the opposite of an initial public offer (IPO)? If being listed isn't appealing to new companies, might it not also be unattractive to existing listed companies whose shares have persistently underperformed? If so, how many reasonably-sized, profitable firms are frustrated by present market conditions and might now be toying with the idea of going private?

Hollowing-out

Several years ago in the aftermath of 1998's Asian crisis and 2000's dotcom crash, the local market underwent an alarming 'hollowing-out' that saw dozens of profitable mid-to-small cap companies elect to delist rather than remain public.

Between 2001 and June 2002 for example, a total of 41 companies with a combined market value of $44 billion surrendered their listing status, some like major electronic manufacturers NatSteel Electronics, JIT, Omni Industries and NatSteel Broadway because they were taken over by foreign interests who decided against remaining listed, others like Times Publishing and Centrepoint Properties because their respective parents probably had enough of an under-performing market and decided their interests as a whole would be better served with these subsidiaries privatised. Now that a multi-year bear market is possible, will 2009 see a repeat?

Based on last Friday's closing prices, there are 163 Singapore Exchange-listed companies, or about 21 per cent of the whole market, whose market capitalisation lies between $100-499 million. If we raise the 'mid-cap' definition to $100-999 million, the figure rises by 27, giving a total of 190 or 24 per cent.

(About 528 firms or 67 per cent of the market have a market cap of below $100 million. Some of these 'small caps' might also be candidates for privatisations).

Whatever the case, these mid-caps might view themselves better off without having a public listing - they are average-sized, reasonably profitable companies whose shares have collapsed, thus making remaining listed questionable.

After all, if in the view of their management the market is underestimating the company's worth and if this underestimation persists for years, then is there any point in paying listing fees, incurring all the costs associated with a public listing while having to also observe stringent listing and disclosure regulations?

Alternatively, some of these might present tempting takeover targets given their depressed share prices.

There's also a third delisting possibility which cannot be ignored, though this doesn't involve companies going private - among the ranks of the 'mid-caps' are dozens of China stocks who may decide that a return to the mainland or Hong Kong might enhance their chances of enjoying better valuations if and when a turnaround comes.

Cash-starved

There is, however, one difference from the present environment and that of 2000-2002. Back then, corporate predators and frustrated parent companies were flush with cash and could easily afford the large sums required to buy shareholders out at modest premiums and delist companies. This was because the crisis was largely confined to this part of the world and only certain sectors were hit.

This time the crisis is global, all sectors have been affected, companies big and small are cash-starved and with credit now impossible to come by, it would be more difficult for companies to take themselves or others private.

So while some privatisations are likely over the next year as the bear market forces companies to re-examine their rationale for being listed, it's unlikely that the numbers will be as high as they were some 6-8 years ago.