SGX could see more S-chip listings

PHOTO: SGX could see more S-chip listings

A new approach that involves local and Chinese regulators collaborating to vet potential China listings should improve investor confidence in the S-chip sector, according to the Singapore Exchange (SGX) on Monday.

The reforms could also attract more listing aspirants amid a recent dearth of mainland firms seeking a place on the SGX.

Investors have bailed out of S-chips - China firms listed here - after a spate of corporate governance scandals undermined confidence in the sector.

The so-called "direct listing framework" between the SGX and the China Securities Regulatory Commission (CSRC) announced on Monday could turn that sentiment around.

It will allow Chinese-owned companies incorporated on the mainland to seek a listing here once they have obtained the approval of their CSRC regulators.

That would formalise a very straightforward but unpopular route for new China firms that want to list here.

The vast majority of the 140 S-chips listed here took a less direct route. The listed entity is actually a holding company incorporated in a place like Bermuda or the British Virgin Islands, which in turn holds the China assets.

This method was very popular as there were no restrictions before 2006 governing China companies that want to park their assets under overseas vehicles.

Once the assets were under the foreign holding company, Chinese owners could then directly apply to list them in Singapore. This meant they did not have to have dealings with any Chinese regulator in the initial public offering (IPO) process.

But new mainland rules in 2006, known as "Circular 10", forced company owners to obtain national and local government approval - which can be hard to get - before moving assets into offshore vehicles.

This also had the effect of helping to freeze the pipeline of S-chip listings - the last time there were significant S-chip listings here was in 2010.

Companies listing after 2006 could have got the right approvals or moved their assets abroad before Circular 10.

The direct listing framework will now do away with the need for offshore holding vehicles.

The process starts with an interested company filing its application with the CSRC and SGX.

The CSRC will review it before allowing the firm to list in Singapore. The SGX will conduct a review and green-light the listing if the firm passes its tests.

"Applicants must comply with all relevant laws and regulations in China, as well as all requirements and regulatory standards of Singapore and SGX," said the SGX in a statement on Monday.

Only Hong Kong has such a formalised programme for China listings; mainland firms listed in New York, London or Sydney tend to have gone via the offshore vehicle route.

But in theory any China incorporated company can list overseas as long as it gets CSRC approval, though this direct method has been very unpopular.

Only four S-chips chose this path for their IPOs, which took place between 1995 and 2007.

The direct listing framework announced by the SGX and CSRC on Monday will publicise this method of listing and likely smoothen the process.

SGX listings head Lawrence Wong said China companies had indicated to him previously that they could be interested in direct listings.

SGX deputy chief regulatory officer Richard Teng said the regulatory processes and due diligence conducted by the regulators in both countries "will provide greater assurance to the marketplace".

The change could attract more S-chip listings but industry watchers questioned if it will help to thaw the listings freeze.

"Chinese companies won't be jumping for joy. They will look at the example of other companies to see how this works out and how they manage to list overseas," said Mr Lin Song, partner of the China practice at RHTLaw Taylor Wessing. He noted that the process of submitting applications especially in China can be complicated.

Mr Peter Choo Chee Kong, the former "IPO king" who helped many small and mid-cap companies list here in the 2000s, questioned if investors would want to subscribe for S-chip IPOs after the corporate governance issues involving some firms. "You can do whatever you want, but is there demand nowadays?" he said.

"The market is very careful about Chinese companies because of the problems worldwide."

The new direct listings framework was one of the initiatives under an agreement for financial sector cooperation, inked between Singapore and China last month.

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