NTU spin-off, with Temasek Holdings as substantial shareholder, could raise up to S$510m and be one of the biggest non-Reit listings in years

 

REAL estate investment trusts (Reits) have reigned the Singapore bourse over the years but the potential listing of Nanofilm Technologies could set the stage for initial public offering (IPO) aspirants in the technology space, prompting greater diversity.

 

This comes as Nanofilm Technologies heads for a mainboard listing on the Singapore Exchange (SGX) with Temasek Holdings as a substantial shareholder.

 

The Nanyang Technological University (NTU) spin-off company, which specialises in advanced materials and nanoproducts, had on Friday lodged its preliminary prospectus.

 

A Reuters report cited three sources with knowledge of the matter that the initial public offering (IPO) of Nanofilm could raise up to S$510 million, making it one of the largest non-Reit mainboard listings in recent years here. This would also be the first mainboard listing since March.

 

The last mainboard listing in Singapore this year was the IPO of United Hampshire US Reit, which raised US$394 million. The last two non-Reit listings on the mainboard, however, was in 2018 where Koufu and PropNex raised S$74.3 million and S$40.9 million respectively. There were no non-Reit mainboard listings in 2019.

 

Against this backdrop, market watchers The Business Times spoke to said that the successful listing of Nanofilm bodes well for IPO aspirants that are considering to list here.

 

Tay Hwee Ling, disruptive events assurance leader at Deloitte South-east Asia and Singapore, said: " If Nanofilm commands a good valuation, it would polish the mainboard' s image as an incubator for tech unicorns.

 

" Following Nanofilm' s IPO, we can expect more mainboard IPOs to seek listing in the months ahead."

 

Gail Ong, head of equity capital markets practice at WongPartnership, said: " Companies considering the suitability of an IPO will always be heartened to see successful listings of non-Reit issuers.

 

" Such listings will provide positive momentum and we expect that there will be several others from diversified industries over the next several months."

 

One fintech said it is " closely watching" the IPO space, particularly the outcome of Nanofilm' s listing.

 

After all, Nanofilm' s upcoming IPO is backed by its strong ties to NTU and Temasek.

 

" Certainly, Temasek' s investment in an IPO does increase the appeal of the IPO and boosts investor confidence," said Deloitte' s Ms Tay.

 

Cornerstone investors had agreed to subscribe for some 104.3 million shares amounting to around S$270 million - taking up more than 50 per cent of the offering.

 

" That said, established companies of decent size and strengths with longer track record who qualify for mainboard listing, can also carry their own weight in giving confidence to investors," said Ms Tay.

 

While the local exchange is still far from the likes of the Chinese market or the tech-heavy Nasdaq, there is potential for more tech listings as investors shift away from yield and look towards growth stocks.

 

This comes as the onset of the Covid-19 pandemic had spurred greater interest in tech stocks.

 

Tham Tuck Seng, capital markets leader at PwC Singapore said he is optimistic that Singapore' s capital markets can benefit from the tech rally given that the Republic has an " excellent tech infrastructure ecosystem and together with its progressive capital markets regulatory regime" .

 

" In the current pandemic, we may see more tech listing aspirants being unearthed given the benefit from continued technology disruption and long term growth in technology spending in areas such as 5G wireless, artificial intelligence, cloud computing, big data and cyber security," he added.

 

As such, Nanofilm' s growth over the years will be extremely attractive for investors looking in the space, said market watchers.

 

For the first half of 2020, Nanofilm' s net profit stood at S$18.5 million, up 62.3 per cent from S$11.4 million a year ago. Revenue for the half year climbed 40.9 per cent to S$77.8 million.

 

Still, Reits will continue to be the main driver of the Singapore IPO market amid a low interest rate environment that is expected to stay in the short to medium term, said Mr Tham.

 

There is therefore still work to be done in order to encourage greater diversity and attract larger non-Reit listings.

 

" Everyone in the listing ecosystem, including the SGX, the relevant regulatory bodies, and professionals such as investment bankers, lawyers and accountants, must continue to invest time to look for high-growth companies for IPO or even work to entice sizeable companies listed on NYSE or Nasdaq to consider dual listing in Singapore," said Mr Tham.

 

He added that support schemes rolled out by the government to encourage research and development in the tech sector will be a contributor to the development of new economy companies which may eventually seek to IPO.

THE total market turnover value of securities on the Singapore bourse rose 23 per cent from the preceding year in September to S$24.3 billion, while the securities daily average value climbed 18 per cent to S$1.11 billion.

 

Securities average clearing fee for the quarter was 2.74 basis points, an increase from 2.60 basis points a year ago due to a greater spread of participation by different market segments.

 

Optimism of improving market conditions had fuelled capital market fund raising, said the Singapore Exchange (SGX) in its monthly market statistics report on Monday. The total funds raised from equity and bond listings on SGX rose 63 per cent year-on-year in September to S$40.8 billion - the highest amount since February.

 

SGX-listed companies continued to tap the equity capital markets with secondary fund raising of S$2.11 billion, twice the amounts last year. Total secondary fund raising for July to September reached S$2.72 billion, up 36 per cent from the same quarter last year.

 

Meanwhile, the market turnover value of exchange-traded funds (ETFs) surged 114 per cent from the preceding year to S$325 million in September. This brought the total to S$1.2 billion for the third quarter, up 110 per cent from the same period last year.

 

In the third quarter of 2020, trading in the SPDR STI ETF and Nikko AM STI ETF, the two STI-tracking ETFs on the exchange, jumped 183 per cent year-on-year to S$793 million.

 

Uncertainties ahead of the US presidential election, on the other hand, boosted risk-management activity across asset classes, SGX noted. Total equity index futures traded volume on SGX climbed 9 per cent year-on-year in September to 15.4 million contracts. This included an 18 per cent gain in SGX FTSE China A50 Index Futures to 7.8 million, a 16 per cent increase in SGX Nifty 50 Index Futures to 2.3 million and a 30 per cent rise in SGX MSCI Singapore Index Futures to one million.

 

For the third quarter, equity index futures volume was about 12 per cent higher than the preceding year at 49.7 million contracts.

 

Overall, the volume of derivatives traded on SGX rose 5 per cent year-on-year in September to 20.4 million contracts. For July to September, the total of 63.9 million was up 3.3 per cent from the same period last year.

 

Average fee per contract for equity, currency and commodity derivatives for the quarter was S$1.22, up from S$1.15 a year ago. This was mainly due to an increase in proportion of volume from better-yielding derivatives products.

 

Traded volume in SGX commodity derivatives rose 18 per cent year-on-year in September to 2.1 million contracts. SGX' s bellwether iron ore derivatives climbed 18 per cent year-on-year to 1.8 million, while forward freight agreements (FFA) gained 20 per cent year-on-year to 83,402 contracts.

 

Reflecting a strong recovery in consumption, traded volume in petrochemical derivatives jumped threefold year-on-year in September to 4,148 contracts. SGX SICOM rubber futures, the global pricing benchmark for natural rubber, increased 3 per cent year-on-year to a five-month high of 136,381 contracts.

 

Singapore Exchange Limited (SGX: S68), or SGX, has witnessed a dearth of IPOs over the last two years.

 

SGX has struggled to attract listing aspirants and has witnessed net delistings in the last seven out of nine years.

 

Since 2010, the number of listed companies has fallen from 783 to 723 in 2019.

 

The pandemic isn&rsquo t helping, either.

 

In the first half of 2020, a Deloitte and Touche report stated that IPO activity witnessed a 53.2% decline in funds raised.

 

Singapore only saw six listings during this period, and five of those took place in the first quarter before COVID-19 caused valuations to plunge.

 

Out of these five listings, two were REITs that raised S$690.5 million, or around 95% of the total proceeds raised of S$725.04 million.

 

The latest IPO on the local bourse is Singapore Paincare Holdings (SGX: FRQ), which debuted on the Catalist board at S$0.22 without much fanfare.

 

With this persistent drought in quality listings, is this the end of the road for SGX?

 

Seeking greener pastures

 

Sadly, homegrown companies have been seeking alternative venues to raise funds.

 

This is like a slap in the face for SGX as it seems to imply that Singapore is not attractive enough as a listing venue.

 

Some examples include Sea Ltd (NYSE: SE) and Razer Inc (HKSE: 1337) that are listed on the New York Stock Exchange and Hong Kong Stock Exchange, respectively.

 

Local property listings company PropertyGuru chose to list in Australia rather than Singapore but that plan was eventually scuttled due to &ldquo market uncertainties&rdquo .

 

Granted, these three companies are classified as &ldquo technology&rdquo companies that believe they can garner higher valuations in overseas listing venues as opposed to Singapore.

 

Singapore has also built up a sterling reputation as a REITs listing hub, which may have inadvertently dented its attractiveness as a listing venue for progressive (but loss-making) technology companies.

 

Removing onerous rules

 

To be fair, SGX has, in the last three years, worked diligently to remove onerous requirements so that more companies will be attracted to list here.

 

One is the scrapping of the highly-unpopular minimum trading price rule (MTP), which states that companies with share prices persistently below S$0.20 will be forcefully delisted.

 

Many companies started to carry out share consolidations to skirt this MTP rule, resulting in significant value destruction as their share prices continued to tank.

 

Mandatory quarterly reporting has also been abolished early this year in favour of a risk-based approach, thus relieving companies of the burden and costs associated with more frequent financial statement preparation.

 

Still, it&rsquo s arguable whether these moves do make SGX more attractive, as the underlying perception is that the bourse is slow-moving, staid and lacks liquidity.

 

Expanding its suite of products

 

CEO Loh Boon Chye has taken a different tack, though.

 

Rather than just trying to court more companies to list here, he is in the process of evolving SGX into a multi-asset exchange.

 

What this means is that the group need not rely purely on listings and equities trading liquidity to grow its business.

 

In recent months, SGX has worked on expanding its suite of multi-asset products.

 

For starters, SGX and FTSE Russell, a global index and data analytics provider, have signed an agreement to deliver new Asian multi-asset solutions to clients.

 

Last month, the group announced the listing of the world&rsquo s largest Chinese pure government bond ETF with assets under management of US$676 million.

 

SGX has also launched crypto indices in collaboration with CryptoCompare, expanded its all-Asia waterfront for equity derivatives, and pioneered Asia&rsquo s first international REIT futures.

 

The examples above show the breadth of products being explored by SGX to satisfy their clients&rsquo investment requirements.

 

Forging partnerships and collaborations

 

Aside from the above business development efforts, SGX has also forged partnerships with other exchanges and brokerage houses.

 

SGX Regulation (SGX RegCo) and NASDAQ Inc (NASDAQ: NDAQ) have extended their cooperative partnership to allow companies to access capital markets on both exchanges.

 

Not forgetting China, the group had signed a memorandum of understanding with GF Securities Corporation, a leading brokerage house in China, to promote greater connectivity between Singapore and Chinese capital markets.