SINGAPORE: An Introduction to Capital Markets: Domestic

Overview of the Equity Capital Market in 2023 

2023 has been a muted year for the equity capital markets in Singapore, with fewer than ten new initial public offerings (IPOs) on the Singapore exchange (SGX), almost entirely on the Catalist board of the SGX, a listing platform for fast-growing enterprises seeking a primary listing. Unlike a Mainboard listing, a Catalist listing does not involve any quantitative requirements. However, companies seeking a primary listing on the Catalist must be brought to list by authorised full sponsors. Despite the scarcity in number, the newly listed companies hail from a variety of industries including healthcare, engineering, and professional services. Interestingly, 2023 also saw the first listing of a gaming-related company on the Catalist.

Another first is the successful de-SPAC mergers on the SGX. In 2021, SGX introduced new rules that enabled special purpose acquisition vehicles (SPACs) to list on the SGX Mainboard. Unlike traditional IPOs, which involve the listing of companies with operating businesses, SPACs are formed to raise capital through IPOs for the sole purpose of acquiring operating businesses or assets through a business combination. Since the introduction of the SPAC listing framework, three SPACs have listed on the SGX, one of which completed a business combination in 2023.

As could be expected, the number of delistings outnumbered the number of IPOs in 2023. In most cases, the shareholders were bought out at a premium over the last transacted share price. Most of the companies that were delisted were listed on the Mainboard or the Catalist for several years, and the lacklustre state of the capital market during the pandemic years was possibly a contributing factor to the increased number of delistings from the SGX during those years.

Another factor that could have contributed to the number of delistings in the first half of 2023 is the anticipation of the introduction of tougher legislation in the second half of 2023, which makes it harder for controlling shareholders to privatise listed companies.

Under Singapore law, an offeror has the right to compulsorily acquire the shares of any dissenting shareholder if the offer for all the shares of a target company has been approved by shareholders of the target company that hold at least 90% of all the shares of the target company (excluding treasury shares and any shares already held at the date of the offer by the offeror). Under the previous takeovers regime, controlling shareholders of public companies could incorporate a special purpose vehicle (SPV) to make an offer for the shares of the target company, and the shares held by the controlling shareholder could then be counted towards the computing of the 90% threshold requirement even though the SPV was controlled by the controlling shareholder. The controlling shareholder may also have control over other corporations that hold shares in the target company and these shares would also be counted in computing the 90% requirement.

In 2023, the Singapore Ministry of Finance and the Accounting and Corporate Regulatory Authority of Singapore accepted certain proposed amendments to the takeover rules which will close this loophole and make it fairer and more equitable for minority shareholders in a privatisation exercise. The result of the amendments, which came into force in July 2023, is that shares held by persons connected with the offeror are excluded from the computation of the 90% threshold for compulsory acquisition. Accordingly, controlling shareholders are now unlikely to be able to “game the system” by using an SPV to mount the takeover and subsequently forcing dissenting minority shareholders to accept a low-ball offer that may not reflect the value of the listed company.

Trends  

In 2023, the SGX continued to strengthen the listing rules and guidelines to promote transparency and good corporate governance. For instance, the board of a company listed on the SGX is required to have an appropriate level of independence and diversity. The tenure of independent directors has been limited to nine years in order to accelerate board renewal and promote board independence. Further, in the interests of transparency, listed companies are required to disclose in their annual reports the exact amount and breakdown of remuneration paid to their directors and chief executive officers.

On a broader level and in tandem with other parts of the world, sustainability reporting which entails the disclosure of environmental, social, and governance (ESG) goals, along with communicating the progress made, continues to feature prominently in Singapore. In 2021, the SGX introduced requirements for listed companies to incorporate climate-related disclosures based on the recommendations of the Task Force on Climate-related Financial Disclosures. Commencing from financial year 2022, listed companies are required to include climate reporting in their sustainability reports on a “comply or explain” basis.

In 2023, the SGX further mandated climate disclosure for companies in the financial, agriculture, food and forest products, and energy industries. Going forward, the materials and buildings, and transportation industries must also do the same. Investors are also viewing ESG initiatives as important factors in making investment decisions, and companies are likely to continue strengthening their sustainability practices and provide better disclosures.

This continued and enhanced emphasis on corporate governance and disclosure signals the SGX’s direction into 2024, towards high standards of corporate governance in Singapore for the benefit of the entire ecosystem.

Outlook for 2014 

Economists in Singapore are generally looking at 2024 with more optimism after the economy grew faster than expected in the final quarter of 2023. Such positive business sentiment can be expected to result in a more active equity capital market.

As an open economy, the capital market in Singapore will also be heavily influenced by global events and trends. For instance, interest rate cuts by the United States Federal Reserve will likely bring about more investment opportunities for real estate investment trusts (REITs). SGX-listed REITs have performed well in the past. However, due to remote working arrangements and interest rate hikes, the performance of most SGX-listed REITs has declined since the onset of the COVID-19 pandemic. As Singapore moves into a new normal of living with COVID-19, SGX-listed REITs may see an improvement in performance, and SGX could again be an attractive platform for the listing of REITs.

Delistings may also slow down in 2024 as market conditions improve and tougher acquisition rules kick in, making it more difficult for controlling shareholders to privatise listed companies.