Singapore’s IPO market showed positive improvements in the first half of 2016 with a total of 8 IPOs – 5 Catalist and 3 Mainboard listings – compared to only 3 IPOs in 2015 H1, according to a report issued by Deloitte Singapore titled "Singapore IPO market 2016 mid year report."
The Singapore Exchange (SGX) continued to impress both in terms of volume in 2016 H1, with the 8 listings raising over S$1.6bn and having a market capitalization of more than S$2.2bn. This is more than 29 times of total funds raised in 2015 H1 which was only S$56m.
“In spite of the ongoing erratic global economic developments, we ended the first six months of 2016 on a positive note with nearly a three-fold increase in IPO listings as compared against that of the same period in 2015,” says Dr Ernest Kan, Deloitte Southeast Asia Leader for Global IFRS and Offerings Services.
Kan notes that proceeds for this period rose sharply due to two jumbo listings each raising S$633m (Manulife US REIT) and S$903m (Frasers Logistics & Industrial Trust), exceeding the S$276m proceeds raised by the sole Mainboard listing (BHG REIT) in 2015.
“This sets a good stage for IPO aspirants and investors which we hope will encourage and whet their appetite for new share offering activities in the second half of 2016,” adds Kan.
Analysis of the trends observed in the past four years suggests that the number of IPOs in the second half of the year are far more optimistic, sometimes more than doubled that of the first half, going against the conventional wisdom of market sentiments.
“Taking into consideration such historical trends, we are expecting more IPOs in the second half of 2016, with companies demonstrating their confidence in planning listings as announced in various media reports, including mm2 Asia’s subsidiary, UnUsUal and Q&M Dental (China) for SGX Catalist board as well as Greenland Group and Shanghai based EC World REIT from Forchn Holdings Group on SGX Mainboard,” shares Kan who is also the Deputy Managing Partner for Markets at Deloitte Singapore.
Traditionally, the biggest contributor to total funds raised on the Singapore bourse are the REITs and Property Trust listings and this listing group has experienced high growth and remain attractive today because of their appealing distribution yields and relatively stable lease-based cash flows.
“We believe REITs will continue to perform, having dominated the market in the last five years accounting for more than 60 per cent of total funds raised via IPO since 2013. If you look at the sizeable trust listings over the years, the actual yield for REITs listed between 2011 and 2016 H1 (at an average of 7.90%) outperforms the forecasted yield at IPO (at an average of 7.10%),” added Kan.
Window of opportunity
The Singapore market performance will continue to be impacted by weakening GDP growth and sluggish crude oil prices that affects investing and listing decisions. There is a strong correlation between the performance of the STI index and crude oil price movements as seen by how the drop in oil prices since 2014 has weakened Singapore companies in the manufacturing sector. However, there is a lesser correlation between the STI and GDP growth as STI’s largest industry of Real Estate comprising eight stocks only contributes a trivial amount in GDP growth.
“Following the pickup for fund-raising and public listings in 2016 H1, I believe the window of opportunity remains open in the next six months as fund managers have deep pockets to invest in IPOs.
“The financial markets will continue to operate in a challenging macroeconomic environment as the development of Brexit starts unfolding but that said, we are also seeing a new paradigm where investors are getting more accustomed to markets with higher volatility,” says Kan.