In Fight for Stock Market Listings, SGX Trusts in Niches – WSJ

Posted on March 8, 2011 by

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The effort by Singapore’s stock exchange to purchase Australian rival ASX for more than US$8 billion marks the centerpiece of its push to catch up with Hong Kong’s surging stock market and stay relevant as competition intensifies.

But Singapore Exchange also is going after niches that its larger rival overlooks, as it moves to match the Hong Kong stock exchange’s appeal to far-flung companies looking to list in Asia’s heady growth markets.

Singapore recently won the US$6.4 billion initial public offering of Hong Kong billionaire Li Ka-shing’s Hutchison Port Holdings Trust. If successful, the offering will be the city’s largest ever. It also won a pending IPO of nearly US$500 million by U.K. gym operator Fitness First, owned by London buyout firm BC Partners. The offering is planned for the third quarter. Bankers say other European, Vietnamese and Indonesian companies involved in real estate, commodities and consumer businesses are looking to Singapore.

“We have been actively going around profiling ourselves [as a listings venue for foreign companies] in our own way,” said Lawrence Wong, executive vice president and head of listings at the exchange.

Singapore has a long way to go. Hong Kong has been the world’s hottest IPO market for two years in a row, raising a total of US$53.2 billion last year in a wave that included such foreign companies as Russia’s UC Rusal. Singapore raised US$6 billion; its largest foreign IPO was the US$224 million offer by Norway’s STX OSV Holding.

While it moves to seal the ASX deal amid regulatory scrutiny, the Singapore Exchange is focusing on niches.

One is business trusts. While Hong Kong began listing real-estate investment trusts in 2005, it limits public listings by other kinds of trusts. The Singapore Exchange has been marketing the structure aggressively.

The Hutchison Port IPO “is a very clear statement that our business trust structure can help companies achieve certain business and financial objectives, which otherwise might be difficult to achieve in a normal company structure or may take a longer time,” Mr. Wong said.

The trusts give their operators greater flexibility to sell securities backed by the cash flow from a broad range of assets, though that flexibility could expose investors to greater risk if the cash flow involved is less than steady.

“Hong Kong regulators have not come up with the relevant rules for listing business trust[s] because they may be concerned that investors do not fully understand the higher level of risks,” said Vivian Lam, a partner in the corporate department of law firm Paul Hastings.

She added that a “business trust is so versatile that you can put anything into it, and it can be marketed not as an income play at all because there may be [initially] little or no income.”

Singapore is also a preferred destination among investors for REITs, compared with Hong Kong. While Hong Kong only has seven listed REITs, with a total of US$13.5 billion in market capitalization, Singapore has 25 valued at US$30 billion. Analysts say that the size of Singapore’s listed REIT sector makes the city-state a natural choice for others.

Sandeep Pahwa, head of investment banking in Southeast Asia for Barclays Capital, said six to seven REITs are looking to list in Singapore and could raise US$3 billion to US$4 billion in the next 12 months.

According to people familiar with the situation, Mapletree Commercial Trust, which is linked to Singaporean sovereign-wealth fund Temasek Holdings, is seeking US$1 billion in an IPO.

Other areas the Singapore Exchange has heavily marketed are the potentially lucrative, but often speculative, areas of technology and biotechnology.

The exchange is pitching its closeness to rapidly growing Southeast Asian economies. Last month, SGX, along with exchanges based in Malaysia, the Philippines and Thailand, announced a plan to develop a trading link by the end of 2011. The arrangement would enable investors to buy or sell shares listed on any of the exchanges while settling the transactions in their own market.

It isn’t clear whether these niches will help Singapore compete with Hong Kong, with its close ties to mainland China, if the ASX deal falters.

In a sign of how limited the niches can be, Perennial China Retail Trust, a unit of property investment firm Perennial Real Estate, Saturday postponed an IPO that was expected to raise 1.1 billion Singapore dollars (US$896.86 billion) via a business trust. A person familiar with the matter cited competition with the Hutchison Port IPO.

“The Hong Kong market is deeper,” said Mervyn Chow, Credit Suisse Group’s co-head of equity capital markets for Asia, excluding Japan. “In Singapore, apart from REITs and property companies, there are few US$1 billion-plus IPOs. For this reason, there are strong arguments for jumbo overseas companies seeking an Asian listing to choose Hong Kong.”

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