Analysis and summary of SGX IPO trend in 2016 December 22, 2016

Coming to the end of the year, I thought that providing a summary and analysis on the Initial Public Offering (IPO) trend on SGX in 2016 would be a good way to wrap up the year.

Initial Public Offering

As of 21st November 2016, IPO proceeds amounting to S$2.3 billion has been raised across 16 deals on SGX this year, which is equivalent to 36% of the total funds raised among the six Southeast Asia (SEA) stock markets. This also puts Singapore in the No.1 spot for IPOs in SEA this year.

This increase is fourfold from the S$512.4m raised from 13 deals in 2015. We can say that the IPO market in 2016 is actually better than 2015.

Even though the IPO proceeds increased by fourfold, they are mainly concentrated in only 3 companies. These top 3 listings which have contributed to 80% of the total market proceeds this year are Manulife US REIT, Frasers Logistics and Industrial Trust and EC World REIT. All these 3 listings are relatively big IPOs but they are all concentrated in the REITs sector – a sector more known for its stable dividend yield.

So why weren’t there more large size IPOs from other sectors this year? We can attribute this to 2 main reasons:

i) 2016 is a year full of uncertainties. At the start of the year, the market is already aware of potential black swan events like Brexit referendum and U.S. Presidential election. In an unstable economic and political environment, private companies’ owners are more likely to take the conservative wait-and-see approach. They would prefer to wait out these uncertainties to gain a chance to list their companies at a more favorable valuation in future.

ii) At the moment, SGX does not allow dual-class shares listings. This forces companies’ owners who wish to retain the control of their companies after IPO to seek listing on other exchanges. One such example was the listing of Manchester United on NYSE instead of SGX back in 2012. SGX is currently reviewing their approach on dual-class shares listings.

Factors that have affected interest on IPO

i) The performance of IPOs

The performance of the IPOs this year have been mixed. HC surgical, Advancer Global and Acromec are the only exceptions as they generated over 150% return on their IPO price, as of 05/12/2016. With the rest of the IPOs being flat or down, this may have dampened investor sentiments in IPO investing and in turn affects the willingness of companies to be listed.

The share price of the other 13 companies which debuted this year performed blandly, with some even dropping beneath the IPO price. In terms of percentage, this means that only 18% of the IPO this year performed relatively above expectations.

ii) Macro-economy
Due to the political and economic uncertainties, investors generally become more risk-adverse. As IPOs belong to the more high risk category of investment, it was shunned by many investors this year.

iii) Micro-economy
As mentioned earlier, the prohibition of dual-class shares listing by SGX at the moment may have also pushed some companies away from listing on SGX

Not all doom and gloom

With so many factors discouraging the companies from being listed, is it all doom and gloom for Singapore’s IPO market?

Not true. If the economy turns out for the better in 2017, which will in turn improves the mood of the stock market, the IPO market should be lively once again.

For example, during the bull market back in 2013, the public trench of 83.98 million shares of SPH REIT IPO at $0.90 SGD per piece was 25 times oversubscribed.

Compare this to one of the biggest three IPOs in 2016 – Manulife REIT’s public trench of 45.8 million shares at $0.83 USD per piece, which was only 1.6 times oversubscribed.

We can infer from this that there is a certain co-relation in the economy health and the interest in the IPO market.

Summary

With the OPEC and non-OPEC countries coming to an agreement to reduce output on oil production, this may inject some much-needed life into Singapore’s O&G industry within the next 2 years. With the O&G sector traditionally being the powerhouse of Singapore’s economy and if the oil price continues to sustain above the currency level, the economy outlook should be less pessimistic in 2017. IPO companies should be able to garner more interest in this upcoming year.