Published October 27, 2009

S-chips pay attention to lure of Taiwan

Attractive premiums a draw for secondary listing but cost-benefit not always clear: market-watchers

By LYNETTE KHOO

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(SINGAPORE) After reports that some Singapore-listed Chinese companies or S-chips were seeking secondary listings in Hong Kong and the United States, it has emerged that some of them have pinned their hopes on Taiwan.

Industry sources told BT that they have gained mandates from both Singapore and Chinese companies listed on Singapore Exchange (SGX) to issue Taiwan Depository Receipts (TDRs) to Taiwan's investing public.

One local law firm says it is working on a few TDR mandates for Singapore and Chinese firms, while another says it is working on a TDR issue for a Singapore company.

'We do see more interest in issuing TDRs at this time. We have received quite a few enquiries and some ongoing mandates for this exercise,' a local corporate lawyer told BT.

There are currently two SGX-listed stocks that have issued TDRs in Taiwan.

They will soon be joined by Changtian Plastic & Chemical, which has proposed to issue up to 132 million new shares in the form of TDRs to raise 300 million yuan (S$61.2 million) in gross proceeds.

Malaysian tech firm Action Asia, a subsidiary of a Taiwanese company, is also seeking to raise gross proceeds of up to S$24 million in a TDR programme through the issuance of up to 240 million new shares.

So why are TDRs popular now? Several offshore companies have had successful listings in Taiwan of late, while the listing process itself is easy and hassle-free, industry players noted.

Most TDRs are currently trading at strong premiums. SGX-listed Medtec saw its TDRs close 251 per cent above their initial listing price.

The TDRs of another SGX-listed firm, Eastern Asia Technology, closed 3.48 per cent above their initial listing price yesterday.

Hong Kong-listed Want Want Holdings, which was once listed on SGX, has also fetched a 22.28 per cent price premium over its initial TDR listing price.

On the heels of this trend, Chi Schive, chairman of the Taiwan Stock Exchange (TWSE), has revealed that another six TDRs will be listed by year-end and predicted 20 more listings next year, bringing the total number to 34.

SGX is among around 15 stock exchanges approved by the Taiwanese authorities for secondary listings on TWSE.

With its ties with China warming, Taiwan also hopes to gain from the China growth story.

TWSE has cleared regulatory hurdles to woo Chinese companies.

For example, capital raised by a foreign issuer in Taiwan may be used for direct or indirect investment in mainland China. Before this, many companies that wanted to raise funds for businesses in China had chosen to list in Hong Kong or Singapore instead.

Ernest Kan, head of IPO at Deloitte & Touche, noted that the 20 Taiwanese companies listed on SGX were now a 'vulnerable group'.

Some have been approached by Taiwanese lead managers and merchant bankers on prospects of a 'homecoming'.

His firm is handling a couple of TDR mandates from SGX-listed companies, with one at the advanced stage.

He noted that companies whose parent firms and clients are in Taiwan would benefit from Taiwan investors' familiarity with their business.

The listing process in Taiwan is also speedy. TWSE takes only 10 business days to review applications for TDRs while the Taiwan central bank reviews the documents within a concurrent 12 business days.

The listing process for dual listing takes about two to three months in Taiwan, shorter than in Singapore and Hong Kong, where it takes about three to four months each.

Listing fees in Taiwan are also lower than in Singapore, Hong Kong and China for companies of comparable size.

Post-listing annual fees alone range from NT$50,000 to NT$450,000 (S$2,150-S$19,335) in Taiwan, HK$145,000 to HK$1.2 million (S$26,065-S$215,670) for Hong Kong mainboard and S$25,000 to S$100,000 for SGX mainboard.

Like any other secondary listings, companies issue TDRs in the hope of bolstering their investor base, liquidity and ultimately valuations.

They may either convert existing shares or issue new shares and deposit them with a Taiwan custodian bank for the purpose of issuing TDRs.

But industry players noted that the costs may not always justify the benefits of the secondary listing as TDRs are participatory in nature and not fungible. Arbitrage opportunity may be limited.

'The cost-benefit is not always clear,' said Rachel Eng, head of capital markets and corporate department at WongPartnership.

'When a company launches a small tranche to trade there and there's no arbitrage, there's no excitement,' she added. 'Though on paper it may look good, after the initial reception interest may dwindle.'

In comparison, American Depository Receipts tend to provide arbitrage as they may come with a conversion option to shares.

These have also gained popularity with some S-chips here, with telecom firm Sinotel and knitted fabrics maker China Taisan testing the waters.

Industry players said that companies should address the basic reasons behind the lack of liquidity in primary markets before considering a secondary listing.

But for those with a Taiwanese management and in the technology sector, Stamford Law partner Ng Joo Khin said it would make sense to consider issuing TDRs on their home turf.