Much has been and continues to be said of late about the IPO market in Singapore — or the lack of it rather. To be sure, Singapore is not alone. Global markets for new issues have been frozen over since the 2021 binge when Dealogic calculated over US$600 billion was raised globally. This is twice the last major top which was in 2007 just before the Global Financial Crisis and almost three times as large as 2000 at the apex of the Dotcom bubble. This 2021 record was more remarkable given that it came amid a pandemic that ironically fuelled risk-taking in NFTs, meme stocks and blank cheque spacs.
The global primary listings window is all but shut, even in the mighty US. From the record of 2021, IPO proceeds plunged 90% last year. Singapore’s forte in the listing of REITs too grounded to a halt as the sector grappled with rate hikes rather than the fallout from the failure of Eagle Hospitality Trust.
In fairness, the investing public’s fascination with IPOs and first-day pops have dwindled as markets mature and attain a greater balance between institutional and retail participation. Some of us may still remember the queues around Raffles Place for paper-based IPO prospectuses and application forms.
Financial headlines here lament with growing frequency about delisting attempts at lowball valuations. However, that has to be balanced with whether investors bother to spend time to sniff out persistently undervalued plays such as Lian Beng and Boustead Projects before lobbing those accusations at the controlling shareholders making the offers.
If perceptions remain that Singapore is suffering even as other markets charge ahead, here’s some data, courtesy of Duncan Lamont, head of strategic research at Schroders. In a report published in early August, Lamont says this has been a global trend. The number of US-listed companies, even accounting for the 2021 spacs boom, has dropped 40% since 1996. The number of companies listed on the UK’s London Stock Exchange (LSE) suffered a bigger drop of 60% from 2,700 in 1996 to 1,100 now. If the time frame is extended to the 1960s — that’s a plunge of 75%!
The parallels continue. The Financial Times likes to beat up the LSE — the way The Straits Times stick it to the Singapore Exchange when running dry of other story ideas.
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There are many idiosyncratic reasons why this is happening in different countries and why some countries have more IPOs from time to time. For example, Thailand and Indonesia have of late been the Asean stars on this front. Both have captive domestic funds, are obliged to deploy locally and both are emerging markets seeing an initial flurry of retail interest, much like Singapore in the 1980s and 1990s. Indonesia also has a supply-side drive of corporates saving tax through a listed vehicle as an important reason for its buoyant IPO markets. This has resulted in a slew of nickel plays listing, as they assume key roles within the wider electric vehicle (EV) ecosystem that is now in vogue.
However, the availability of more private equity capital is juxtaposed with growing compliance costs as shown by the thickness of IPO prospectus or annual reports (the Schroders study cites a 46% increase in length for FTSE 100 companies in the last five years alone). This means investors wanting more transparency from companies and protection by regulators may ironically reduce the availability of choices for them.
And while private equity has multiplied from being a mere US$0.5 billion industry in the early 2000s to US$7.5 trillion in 2022, it too requires public exits and the delivery of actual cash returns to its investors and not just rely on trade sales and shuffling of assets from fund to fund.
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Softbank lands
In 2016, chip designer Arm, then listed on the LSE, was privatised by Softbank for US$31 billion, which then tried to sell it to Nvidia Corp — which is up more than 220% year to date riding on the AI fad — for US$40 billion. However, competition authorities blocked the deal.
In recent weeks, the UK-based firm has filed for its IPO on the Nasdaq at a yet unspecified valuation that is estimated at between US$60 billion and US$70 billion or between 21x to 25x Arm’s annual revenue, roughly half that of 42x for gravity-defying Nvidia. Even so, that would make Arm one of the largest tech listings ever and for sure the largest IPO this year.
Nvidia itself has caught many off-guard, including Cathy Wood from Ark Innovation who said it was overvalued and promptly sold it on the way up earlier in the year. Nvidia’s latest results continued to surprise, with a 101% increase in quarterly revenue. Its own projections were even more bullish and in a clear signal that the company led by founder Jensen Huang believes that the share price has more upside, it is embarking on a $25 billion share buyback programme. It might be worth checking how much remuneration is tied to share-based compensation for Nvidia’s executives but it appears that AI will continue to carry the day.
The argument for Arm’s valuation now contains an AI narrative that brightens its prospects, given that its technology sits inside almost all of the world’s smartphones. With up to 65% share of processors and 41% share in the automotive sector, chips designed by Arm feature in internet-connected devices ranging from industrial sensors to home appliances. It even competes with a 10% share of the processors in cloud computing against Intel.
Disclosed and known risks include sluggish demand across consumer applications. This is evidenced by Qualcomm’s 23% drop in sales and a forecast of a downturn till the end of the year, and our recent string of tepid results from AEM Holdings and Venture Corp. Also, open-source RISC-V designs developed at the University of California Berkeley are available without a licence or fee, which could undermine Arm’s entire revenue as it is derived from licensing and royalties.
In addition, Arm, which generates a quarter of its earnings from China, is increasingly compelled to comply with curbs by the US that include witholding designs of high-end CPUs from Alibaba Group Holding.
In my humble opinion, if AI is going to fuel the next tech Industrial Revolution (even if one has to wait till next year) just like how companies like Alphabet emerged from the ashes of the internet bubble, then it will trickle down to other parts of the chain at some point in time.
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My preference is to still stick with the known tried and tested tech stocks listed here, which are valued very modestly in comparison. If the future is positive and the market doesn’t value it well, they may be consolidated, which was what happened to Omni Industries and Natsteel Electronics in the early 2000s or more recently Hi-P, all for a nice premium.
Or maybe it will go the way of VinFast, a Vietnamese EV company that was listed via a spac in mid-August. The company, which has yet to post a profit, traded up to US$85 billion on its debut, which is almost twice Ford and GM’s US$45 billion market caps. VinFast’s stock has since surged to around US$158 billion. It is indeed the stuff that dreams are made of, so long as one gets out before the potential nightmare after.
Early exuberance
The post-summer return of IPOs has certainly made bankers busier and investors excited, especially in the US. Arm’s listing will potentially clear the way for larger deals in the West. A steady flow of growth and tech stocks braving the mid-August wobble is already rekindling some early examples of 2021’s meme stocks revivals. With the Fed nearing or at the end of its rate hikes, primary offerings and M&A transactions are now easier to price. Although the hikes are not over, some of the recent toe-dipping of public markets in the US have been positive. There has been exuberance although the gains by VinFast’s stock appear rather irrational. The Fed may hold higher rates for longer but some risk appetite seems to be bubbling, especially beyond the Magnificent 7 mega-tech stocks.
Everything has a season as we can see from the reversal of fortunes of Grab Holdings and Sea. The outperformance by Sea in the first half completely tanked after its profit announcement in 1HFY2023 was overshadowed by investors clamouring to see growth in the company. On the other hand, Grab, which continued to burn cash, was welcomed by the street. Although Grab at US$3.70 is still a far cry from its US$40 billion valuation at its listing via a Spac two years ago, it is at least finding its feet. As a result, the MSCI Singapore index, which includes Grab and Sea, has been steady and boring this year — just like the Straits Times Index even as Sea goes down and Grab goes up year to date.
Elsewhere, it is quieter across the Atlantic as the City of London is still paying the price for its flirtation with growth stocks like Deliveroo, which has massively underperformed. Many questions have been asked: With its huge fund management industry and assets under management, how did London “lose” the Arm IPO to the US? Perhaps to some extent, the City’s travails are similar to ours. If capital is global (so long as the capital and foreign exchange markets of the country are free from friction and taxes), then a stock like Arm should easily access global investors listed in New York, London or even Singapore.
The answer could be this: The US market has a deep domestic ecosystem of capital allocation for large-cap growth companies and certain sectors like biotech and growth tech. In contrast, London has institutional investors and domestic funds managing for yield. Nevertheless, that doesn’t mean all companies will be successfully listed in the US. Indeed, many small Asian fishes have gone to try their luck, like TDCX and PropertyGuru Group, both of which are now at a fraction of their IPO prices.
In Singapore, there is more than $3 trillion worth of capital and investible assets managed by our sovereign wealth funds, global and local fund managers, and family offices. Unfortunately, only a small fraction of that is allocated or has a preference for the local market. That is increasing slightly with 65 Partners as a catalyst and several family office initiatives started this year.
The local IPO market — as part of the global trend — may be cranking up towards the end of the year with a couple of homegrown and regional unicorns as well as secondary listings beyond the Catalist board. Private equity, including our three listed spacs as well as other deals simmering throughout the pandemic, are fidgeting for an exit. If we hope to have a roaring 2024 for new issues, we will need more booster shots in the arm when they seek an IPO to rekindle the market’s muscle memory.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange, and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest Singapore
