In late May, an unusual event happened right in our neighbourhood. William Li’s Nio Inc, a China-based electric vehicle maker already primary-listed in New York and secondary-listed in Hong Kong, added Singapore to its list of capital raising and trading venues.
Aside from the exciting EVs that graced the podium of the building where the Singapore Exchange’s (SGX) offices in Shenton Way are, adding a touch of glamour to a formal neighbourhood, Nio has also established a R&D centre for AI and autonomous driving here and intends to collaborate with science and research institutions.
A $38 billion company at point of listing by introduction, it has thus far confounded the usual naysayers on a number of fronts. First, it made the rare move of choosing a tertiary listing and in Singapore. Next, it is already generating some basic daily liquidity of regularly having daily turnover of over $1 million — more than enough for the average retail investor to buy or sell. SGX, uniquely amongst Asian exchanges, has enlisted market makers and facilitated a pool of ADRs for trading, and even more than Hong Kong on some days in June.
This is something that even our own local Sea and Grab Holdings have eschewed to do thus far. One explanation provided was that the market here is not so volatile and investors here may not appreciate the big swings in tech shares. Ironically, it is precisely because Nio’s ADRs are 3–5% up or down in the US each night, that it finds its way into top gainers and losers list daily and ipso facto draws trading interest!
West Side Story
In this column on Dec 6, 2021, “Tap the keg overseas but bring the party back too”, we explored the thesis of raising global capital in arguably deeper and larger markets in the US for certain industries — a smart thing to do to lock in capital (and pay bankers justifiably larger fees if the price is right).
See also: Staying grounded while flying mile-high
However, it forewarned the risks of sustainability in a market far, far away. This is especially so for relatively smaller companies (defined in the US markets as less than US$5 billion or $6.85 billion). In the large ocean there, even companies of this size can be rapidly lost even in the best of times, much less smaller ones, such as Reebonz and Berjaya’s MOL, both which are delisted from the US.
Two recent debutants are Property Guru, which is 40% off, and TDCX, which has dropped to around a third of its peak. Others failed to take off altogether, with Carousell dropping its de-spac plans. Neither were the big guys spared. Grab is almost 75% off its opening price on the Nasdaq — after having pulled off what was then the world’s largest de-spac of US$40 billion. Sea, whilst still a very respectable US$44 billion company, is less than a quarter of its peak last October, when its then-phenomenal market cap was larger than those of DBS Group Holdings, Oversea-Chinese Banking Corp, United Overseas Bank, and Singapore Telecommunications combined.
It is arguable, if these companies had chosen to plant a leg here in our local market concurrently at point of listing or after, would they have been able to aggregate regional and domestic institutional demand (with mandates restricted to this region). Similarly, if they had indeed listed here, what would be the combined might of their legions of partners, consumers and followers, many of whom are willing to cheer our unicorns on to greater success, but without having to stay up at night to participate. Or, they could simply be like the Jardine group of companies here, where four of them are hefty in their own right to be part of the FTSE STI and enjoying even more passive investor capital and liquidity by virtue of being so.
See also: The curious incident of the debt in the day-time
With additional price discovery both in the East and West, and investment dollars garnered from our own backyard more directly, it may be a smarter move now that winter has descended upon the US indices — just look at the 30% year-to-date drop suffered by the Nasdaq. As Sequoia flagged in its May report titled “Adapting to Endure”, 61% of all software, internet and fintech companies are trading below pre-pandemic 2020 prices, and a third are trading below the Covid lows of the March 2020 panic. “Growth at all costs is no longer being rewarded” as interest rates rise and inflationary pressures are brought to bear.
Perhaps it is time to fall into the warm embrace of Sunny Singapore — the best performing market in the developed world in 2022 so far that is continuing to keep its head above water, and leave our Pinkerton tendencies aside for now. After all, if Digital Core REIT and other Western data centre operators, rumoured to be on the way, list REITs successfully here, and Chinese decacorns like Nio are successful, it would be odd for homegrown champions and regional brands with consumers, businesses and perhaps even homes here not to have a greater lift.
Singapore International
Back to Nio Inc. Why did it choose a tertiary listing when it has already a back-up in Hong Kong from potential Trumpian capitalism in the US, where the political and regulatory climate is forcing some 200-plus of the remaining Chinese ADRs to seek other options in case of potential delisting, and the “trade war” from Huawei to President Xi Jinping’s friendship with his Russian counterpart Vladmir Putin shows no sign of receding? And why Singapore?
There is always the long tail risk, if the quest for geopolitical hegemony could lead to the US stopping recognition of Hong Kong’s special status (which comes up to Congress periodically), which may lead to capital market withdrawal. For a Chinese company trying to be truly global, can it be dependent only on internal capital through Shanghai, Shenzhen and Hong Kong? Perhaps yes, eventually, but in the near term, access to global markets is still essential, especially during times of potential economic stress, not just for growth.
Even if as it was rumoured, Nio’s listing process in Hong Kong was stuck — prior to seeking a listing in Singapore, and miraculously, Hong Kong cleared the IPO thereafter, it makes good sustainable business sense to have a neutral venue (between China and the US) that is fully accessible to international capital, not to forget the US$4 trillion (and growing) of global AUM parked in Singapore. At a minimum, it is buying insurance. If there is an event, the US or Hong Kong register can be shifted to Singapore.
Even more so, by sinking roots here, becoming a more “Singapore International” business, apart from generating jobs and economic multiplier effects here, it makes good business sense for the Chinese company should its key future markets be expanded beyond a (presently friendly and benign) environment in Asean to Europe and the US.
Sink your teeth into in-depth insights from our contributors, and dive into financial and economic trends
As a founder of another multi-billion dollar Chinese company commented, Asean appears to be a good playground for Chinese entrepreneurs for the time being, but there is no assurance that the politics of the freedom of navigation and fishing in the South China Sea will not bubble over. Additionally, for a global business, it is inevitable to eventually enter the markets of the US and Europe because of their purchasing power and revenue pools, so to be shut out like Huawei is a disaster.
As a top-ranked place to do business by Forbes, The Economist and other international benchmarks, Singapore’s reputation as a “great place to do business” perhaps will increasingly be expressed even further through its capital markets. Already the most globalised by stock exchange metrics, with close to half the market capitalisation represented by international companies from the Jardines, to Thai Beverage and Wilmar International, Singapore’s very own Temasek-linked companies and private enterprises also generate a diversified revenue base well beyond Asean, Australia-Asia, and increasingly the West.
Would a re-characterised Chinese company that has global investors on its capitalisation table, beyond having its overseas headquarters here, but re-domiciling to become a Singapore business, with its C-suite, R&D, IP and even manufacturing based here, creating jobs and boosting the economy here, be further supported by having a public capital market presence here in addition to just using neutral Singapore as a banking and logistics hub?
All aboard the Little Red Dot
Just this last month, as public and private market valuations rebased from the excesses last year, I have met four separate groups looking to set up Cayman-registered funds and apply for licences in Singapore. They hail from the US, Hong Kong, Shanghai and Taiwan. Each of the partners have had decades of experience in private equity, consulting, investment banking or are very successful entrepreneurs who have previously made a lot of money for investors in China. Their common broad thesis is that with North Asian use cases of investment and business models, plus technology, Asean will be a source of growth and return. By setting up here, they will hire Singaporeans and perhaps add to demand for good class bungalows or the squeeze in the rental market.
They will join a growing queue of global participants at the Monetary Authority of Singapore (MAS) applying for capital markets services fund management licences, and the rumoured logjam of rumoured four-digit numbers applying to set up family offices. The professional accounting and legal firms are all busy supporting this demand. Parts of the labour market, beyond risk management and compliance roles in finance, or technology are tightening up. MAS managing director Ravi Menon’s announcement in May of more than 9,400 jobs to be created in the financial sector this year looks really promising and highly likely.
If as postulated, more capital is residing in and deployed through Singapore, some of it will surely stick here and find its way to the capital market for the benefit of all. What if this is augmented by a wave of new Singapore International firms anchoring industrial roots here?
True, one swallow does not a summer make, but if Nio — whose name in Chinese is directly translated as “blue skies coming” but can also be more broadly interpreted as a clean and bright future and perhaps, both an expression of latent demand and a catalyst for others — we could be in for a more exciting ride up in growth, building on the stable and reliability investable Singapore market. Given where markets are pricing growth today, it looks to be the right part of the cycle for this next reinvention of the market to take off.
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
