Published March 30, 2009

SGX remains keen on Chinese firms

This despite recent accounting scandals and corporate governance failures at some S-chips

By LYNETTE KHOO

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(SINGAPORE) The Singapore Exchange (SGX) is still keen to attract Chinese listings, despite the massive blow dealt to the reputation of S-chips by a slew of accounting scandals and corporate governance failures.

And this flies in the face of expectations of some market watchers who felt that SGX's push for Chinese listings is likely to - or should - take a breather, given the recent woes surrounding S-chips. It also reflects the lack of growth options for SGX, which has struggled to attract IPOs from countries other than China, they say.

'Our efforts to attract foreign listings, including China listings, will continue in line with SGX's Asian Gateway position to provide an international capital platform for Asian-centric companies seeking funding,' SGX head of listings Lawrence Wong told BT.

'Our efforts include working with China MOU partners and intermediaries,' he added.

SGX has inked MOUs (memorandums of understanding) with the provincial governments of Zhejiang, Shandong, Liaoning, as well as the Wuxi municipal government, to work on getting Chinese companies to list in Singapore.

'Our efforts to attract foreign listings, including China listings, will continue in line with SGX's Asian Gateway position to provide an international capital platform for Asian-centric companies seeking funding.' - SGX head of listings Lawrence Wong

Investors have turned jittery on the sector since late last year after a string of bad news, including the bankruptcy of FerroChina and accounting irregularities at FibreChem Technologies, Oriental Century and China Sun Bio-Chem.

The case of the still missing husband-and-wife team of China Printing & Dyeing, whose parent company went broke, also highlighted just how difficult it was to go after errant management based overseas.

Such issues prompted Senior Minister and Monetary Authority of Singapore chairman Goh Chok Tong, while in Shenzhen last week, to ask Chinese officials for tighter checks on Chinese companies listing here.

Not surprisingly, market watchers expect Chinese listings on the SGX to cool.

'With so many problems with the S-chips, one could envisage that SGX would be more stringent in its requirements than previously,' said UOB KayHian dealing director Chan Tuck Sing.

In some cases, S-chips have fallen off the radar of institutional houses. Some issue managers are also not keen to be seen as active in this sector. With no Chinese listings so far this year, the pipeline of Chinese IPOs appears to be drying up.

'Institutional investors do not want too much exposure to S-chips these days,' CIMB-GK research head Kenneth Ng said. 'Given the wide choices of established corporates with relatively cheap valuations, larger institutions generally do not see the need to take on extra risks.'

To be fair, given that about 150 S-chips are listed here, one has to expect that some will face difficulties, noted PrimePartners Corporate Finance director Mark Liew.

Also, the bearish IPO sentiment affects all stocks, not just S-chips. 'One should not be too alarmed at the dwindling numbers,' said Asian Corporate Advisors managing director Liau H K. 'To launch an IPO now, you need to be a brave man.'

Still, there is no hiding from the fact that the heyday of Chinese listings on SGX appears to be over. Apart from the crisis in confidence, issue managers noted that Chinese regulations - introduced since 2006 to limit the number of Chinese companies that can list overseas - have shrunk the IPO pool.

While SGX still offers a value proposition because of its transparency and faster listing procedures, Chinese listings drawn here are likely to be smaller firms which are unable to list in the US, Hong Kong, or China itself. 'Relatively speaking, for smaller companies, there is a bigger issue of corporate governance compared to the bigger companies,' said Mr Chan. There is also the question of whether investors have the risk appetite for small companies.

The pullback in Chinese listings could, however, be a healthy development, said some market watchers who welcome the slower pace in Chinese listings from the time when there was one Chinese listing out of every two foreign IPOs here.

Mr Liew said that given SGX's ambition to be an Asian gateway rather than just a China gateway, one Chinese IPO out of every three foreign IPOs or a one-in-four ratio 'would be a healthier target'. With its aim to attract listings from all parts of Asia, resource companies in Indonesia and consumer or manufacturing companies in Vietnam may come into play now, Mr Liew said.

For one thing, Mr Wong said that the exchange is exploring ways to enhance its offering, including examining its rules, to facilitate the listing of exploratory and mining companies that do not meet mainboard requirements relating to profit track records.