IPOs and the S'pore company brand

ASK any investor why he is willing to plonk down his money on the local stock market and a common theme is likely to emerge.

Whether it is the man in the street following a hunch or a sophisticated global fund manager managing many millions, almost all have faith in the strong regulatory framework here.

In other words, they feel their money is safe when they invest here and that the stock market offers a venue for considered investing and not a mere roll of the dice.

It is the strongest selling point of the Singapore Exchange (SGX) - a fact not lost on its boss, Mr Magnus Bocker. He is at pains to stress the importance of upholding these high listing standards to ensure investor confidence.

In that spirit, the SGX's recent move to attract better-quality companies to list here was widely applauded as it raised the bar for a mainboard listing - requiring companies to have a market value of at least $150 million if it was profitable in the last financial year or a minimum pre-tax profit of at least $30 million.

Equally well received was the bourse operator's bid to attract the investing public to become more active investors by suggesting that they should be given at least 5 per cent of initial public offering (IPO) shares.

Still, while the SGX's plan for a makeover looks good on paper, some teething problems need to be dealt with.

Take the move to raise the profitability hurdle for a mainboard listing. This will put a mainboard listing even further out of reach of the small and medium-sized enterprises (SMEs) hoping to go public here.

And this means that in future, overseas businesses are likely to form the bulk of SGX mainboard IPOs. As it is, they already account for about 60 per cent of IPO hopefuls queueing to list.

However, that may not sit well with retail investors, which the SGX hopes to entice in bigger numbers to take up IPO shares.

Overseas businesses rarely make use of Singapore-registered companies as their listing vehicles.

Instead, they reorganise their businesses into holding companies incorporated in other jurisdictions such as Bermuda and the Cayman Islands before they wade ashore to list here.

But ask any retail investor - or even a fund manager for that matter - to find these jurisdictions on the map and chances are that they would be struggling.

Worse, many of them assume that the same stringent legal framework governing Singapore- registered companies also applies to foreign firms listed on the SGX when this may often not be the case.

True, that may not pose a problem if listed companies adhere to the rules prescribed by the SGX's listing manual.

Its rule book was updated last year to further beef up corporate governance following a series of accounting scandals afflicting mainland Chinese companies.

But there have been glaring exceptions where listed firms have not kept to the rules, such as China Sky Chemical Fibre, which openly defied the SGX's directive to appoint a special auditor. It even went on a public offensive to air its grievances against the bourse operator.

Also, aggrieved investors wishing to seek legal redress against a foreign company listed on the SGX have discovered that they have to pursue their lawsuits in overseas jurisdictions, such as Bermuda, where it is incorporated - often to no avail.

The solution? The Government has just unveiled sweeping changes to the Companies Act to ensure Singapore enjoys standards in corporate regulations rivalling any major financial centres which an international investor would care to compare with.

The step forward is to make a concerted effort to promote the Singapore company brand to foreign businesses beating a path to our door to raise capital from our financial market.

For a start, let's at least make sure that they use a Singapore-registered company as their listing vehicle.

This will provide an additional layer of comfort to anyone investing in our stock market as he can seek redress in a Singapore court if anything goes wrong.

It is a pity that after the previous review of the Companies Act in 2002, the SGX did not pursue the opportunity to foster the use of Singapore-registered vehicles for listing purposes more vigorously.

With the latest reforms, the time is ripe to redress the situation. After all, one big attraction for any company planning to do business here is the robust legal framework offered by our Companies Act.

Time to act.

engyeow@sph.com.sg