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AS MORE regional bourses vie for the same pool of Chinese initial public offerings (IPOs), Singapore Exchange (SGX) needs to improve the perception of S-chips in order to attract quality listings and cast its net wider to draw issuers from the region, market watchers say.
China is seeking to develop its Shenzhen SME board as the next Nasdaq to attract fast-growing Chinese small to medium-sized enterprises (SMEs), while Hong Kong has been well-placed with China as its hinterland. Now, there is Malaysia, which has recently scrapped a rule that requires listed companies to set aside 30 per cent equity for bumiputras.
At the same time, the pool of restructured Chinese companies or 'red chips' ready to list outside China is shrinking. Companies that are not restructured before September 2006 will require approval from the China Securities Regulatory Commission (CSRC) to list overseas.
'We should be looking at how we could build a reputable financial centre that attracts quality companies in the region to list and not just from a particular jurisdiction,' said Robson Lee, a partner at Shook Lin & Bok.
No doubt, SGX has sought to do just that with its Asian gateway strategy, even though that has not showed up in the demographics of listings here.
Of the 309 foreign listings on SGX, 149 are Chinese companies. The bourse has gathered only a handful of issuers from other countries such as Indonesia, Malaysia, Australia and Taiwan.
This partly hints at the difficulty in finding regional companies that are up to scratch, market watchers reckoned, for there is also a corporate governance gap to be bridged for issuers from developing countries.
Even if we try to carry out a dual listing of good companies that are already listed in their home countries, some companies may find that listing compliance in the secondary market is more stringent than their primary markets, Mr Lee said.
But market players believed that there should not be a let-up in efforts to beef up corporate governance and listing compliance here. To attract bigger and better listings, poor market perception clouding S-chips has to be cleared.
'In the longer term, we should be aiming for bigger and better companies. But how are we attracting the bigger ones when these companies perceive that the Singapore market is not giving them the kind of valuations they should be looking for?' asked David Hoon, co-head of investment banking at CIMB.
Ng Joo Khin, director at Stamford Law, and independent director of SGX-listed China Farm noted that it is not true that all S-chips are not up to scratch. 'Perhaps analysts here could do their part by following the S-chips sector more closely,' he said.
SGX has increased communications with listed companies and market professionals, with issues of veracity and governance being the focus of their dialogue in recent months. Its efforts in upholding corporate governance standards have been publicised in its regulatory columns.
Still, one sticking point remains - the apparent lack of enforcement when things go wrong at Chinese companies due to errant management.
Roger Tan, vice-president of SIAS Research noted that one important thing that SGX can do to improve market perception of S-chips is to 'show investors that they can and will take credible action against errant S-chips management and hold them liable when they breach rules and regulations'.
A swift resolution of issues plaguing troubled S-chips and a review of corporate governance standards could rebuild investors' confidence in S-chips, added Allen Cheong, head of investment banking at Daiwa Securities SMBC Singapore.
'When that happens, we will see an improvement in supply and demand for new S-chips,' he said.
Some market players believed that a major catalyst could come from a successful introduction of a large Chinese listing on SGX.
While waiting for the big ones to come, we should continue to attract medium-sized companies such as Want Want Holdings, Mr Ng of Stamford Law said. The Taiwanese F&B firm was delisted in 2007 on the premise that its share price did not fairly reflect its underlying assets.
Now in the process of delisting is Hong Kong sofa retailer Man Wah, which is said to be making Hong Kong stock exchange its next stop.
'We are a good platform for medium-sized companies to start with,' Mr Ng added. 'Hopefully, they would stay with us.'
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