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Want to list in Hong Kong? Singapore firms need deeper pockets

Want to list in Hong Kong? Singapore firms need deeper pockets

Source: Straits Times
Date Published: 12 Apr 2019
Author: Claire Huang

Small-cap companies fall short when it comes to costs and stamina in the listing game. 

An increasing number of smaller Singapore firms have had their listing applications thrown out by the Hong Kong Stock Exchange in the past six months amid a more ruthless vetting process.

The rejections raise suggestions that the companies are just not competitive enough compared to other applicants, or that they do not have a compelling enough story for the bourse operator to want them.

The case for listing in Hong Kong is a strong one given that its share market has just overtaken Japan to become the world's third largest in terms of value, behind only the United States and China. That size also means it can be far more choosy when it comes to deciding which applicants make the cut.

Hong Kong lawyer Christina Loh noted that while there are Singapore success stories such as tech firm Razer, many others come up short.

Ms Loh said small and medium-sized enterprises (SMEs) from Singapore, or places such as Malaysia and China, are simply not competitive when it boils down to costs and stamina in the listing game.

She noted that small-cap companies do not want to pay too much so they go to smaller Hong Kong law firms and sponsors, but that can backfire as they do not have the experience and expertise to resolve issues.

"Things can just unravel very quickly," she added.

The reality is that while such law firms are more affordable for SMEs, they may lack market intelligence and know-how, observers added.

Big sponsors such as Morgan Stanley or China International Capital Corporation "will not use a local firm" but will opt for one with a more global reach, said Ms Loh, a partner at Hong Kong international law firm DLA Piper.

Not helping is the fact that a Hong Kong listing is an inevitable drain on a company's resources.

A larger law firm's fees for an initial public offering alone, without drafting the prospectus, are around US$1 million (S$1.35 million).

Industry players also note that the odds are not in smaller firms' favour as the Hong Kong Stock Exchange and the Securities and Futures Commission control the timetable.

"This US$1 million will buy our time for eight months to a year. After one year, if you're still not listed, it's an additional set of costs, so it takes stamina," Ms Loh said.

"You're pouring money into something that you don't know if you can succeed, so by the end of one year or even before that one year, I think a lot of Singapore and Malaysian companies would have given up."

Drew & Napier corporate and finance director Julian Kwek said it is not that Singapore firms cannot compete with the other listing applicants, but that the trend has something to do with being the flavour of the month.

"There was a period a few years ago where it was all aimed at London's alternative investment market," he noted. "And then there was a period where people were all looking at Nasdaq or Taiwan."

Hong Kong became popular as well in the light of less stringent listing criteria, but it is now booming and the bar has been raised.

"Now it's more difficult," noted Mr Kwek.

Industry players say companies in technology, healthcare, biotech, semiconductor and traditional manufacturing are favoured by the Hong Kong Stock Exchange.

The bourse rolled out new listing rules last April that opened the door to new-economy and pre-revenue biotech firms for the first time.

It noted that 37 companies listed in Hong Kong in the first quarter, raising US$2.6 billion. The eight firms from new and innovative sectors represented 44 per cent of those total funds raised.

Firms that get the cold shoulder tend to be in construction and real estate, microfinancing and mining.

One recent example is the rejection of Singapore-listed builder Lian Beng Group's application to list its associate company, United E&P.

Still, Mr Kwek thinks Singapore firms will invariably "find a landing spot, one way or the other", as there will always be another market for applicants.

After all, those businesses looking for financing to expand may turn to private equity funds, which are giving the Singapore Exchange a run for its money.

Firms that get the cold shoulder tend to be in construction and real estate, microfinancing and mining.

Source: Straits Times © Singapore Press Holdings Ltd. Permission required for reproduction.




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