Listings drawback: Motorists travel along the central business district in Singapore. Poor valuations and low liquidity are some of the main reasons for the increase in delistings in the city-state. - AFP
OVER the past decade, much has been made of the fact that several companies have opted to surrender their public status and delist their shares from the Singapore Exchange (SGX).
These departures have mainly been through takeover-cum-privatisation offers, commonly originated by major shareholders and other concert parties.
Whatever the mode of departure and motives for leaving, the news is invariably received negatively – both by the market as well as the media.
It is usually the case that SGX’s critics seize upon news of these exits as yet another indication of the poor status of the local stock market.
It is only fair, however, to point out that there are several mitigating factors to consider.
The first is that delistings – whether through privatisation offers or otherwise – are not peculiar to the Singapore market.
Market norm
For example, the Hong Kong Exchange in its August 2024 Report On Initial Public Offering (IPO) Applications, Delisting And Suspensions said that although it welcomed 43 new listings in the eight months to Aug 31, 2024, it also saw 31 delistings.
In Nikkei Asia’s July 2024 report, “Delistings outnumber IPOs by value in Hong Kong so far this year”, it said depressed share prices and China’s economic downturn have taken a toll on many listed companies in Hong Kong, which was triggering a wave of delistings.
“These include Chinese firms, Hong Kong firms and French top international cosmetics brand L’Occitane.
Deal advisers say they are receiving more inquiries from bankers and investors on taking companies private,” reported Nikkei Asia.
Over in the United Kingdom, the London Stock Exchange saw 88 delistings in 2024 versus only 18 new entrants, the most significant net outflow of firms since the United States sub-prime crisis of 2008.
According to news reports, the main reasons for this exodus were, similar to Singapore, poor valuations and low liquidity.
In the 1990s, because of the prestige attached to a public listing, companies were prepared to pay a premium to get listed, a rough estimate being S$20mil on top of takeover costs if going through a backdoor listing route on the main board and possibly S$10 million for a similar route to get on the second board.
Today, the reverse applies – a premium is always paid to leave the market, though of course whether the premium is fair and reasonable, as is required by the rules, is usually challenged by minority shareholders and is often the subject of heated debate.
In this connection, the Securities Investors Association (Singapore), or Sias, has been actively fighting for better exit offers, particularly when the original offer was seen to be too low.
The real question to ask is this: If we accept that a public listing is no longer as valued as it was in many markets, not just SGX, and bearing in mind that companies can source capital from a multitude of alternative, non-public avenues like private equity or crowdfunding platforms, then perhaps we need to view delistings less negatively and instead as a natural consequence of an evolving market.
If so, then it might mean that companies which are unwilling to stay the course might be better off making reasonable exit offers to their shareholders and going private for the benefit of all concerned.
This is all the more so when you consider that the common reasons cited for delisting are high compliance costs, thin trading of one’s shares, persistent price undervaluation and the need for greater management flexibility in running the business.
Recouping investments
Shareholders in such firms might actually be better off recouping their investments and possibly switching the money into alternative and potentially better uses rather than suffer low volume and poor prices for years on end.
SGX, too, might be better off. Granted, the more companies that list and remain listed, the better it is for the exchange in terms of revenue from listing fees.
Ultimately though, in the long run, it must be better to have strong companies listed whose shares are actively traded rather than those whose shares are inactive and undervalued even if they are fundamentally sound.
To take the argument one step further, companies which choose to list today, at a time when a public listing does not necessarily confer the same benefits as in the past, must also do so with their eyes open and with full knowledge of the consequences. They have to be prepared for the possibility of a lukewarm or tepid market reception for their shares.
Due diligence
Investors, too, have to perform their due diligence and seek out good companies in which to invest while always bearing in mind that this is a “buyer beware”, disclosure-based market which may not be as efficient as might be hoped.
This is not to suggest that SGX ignores the signals from an increasing number of delistings.
Instead, it should continue its efforts to help boost liquidity and perhaps even look at new ways of generating investor interest in smaller, relatively unknown companies.
What should help in this regard are the measures that have been announced by the Monetary Authority of Singapore’s Equities Market Review Group so far and those that are scheduled to be released later this year.
However, the market needs to understand that listings and delistings should not necessarily be viewed in the same way they were, say, 15 to 20 years ago.
Furthermore, delistings are a relatively common occurrence elsewhere, even in seemingly attractive and developed markets. — The Straits Times/ANN
David Gerald is president of the Securities Investors Association (Singapore). The views expressed here are the writer’s own.
