Time to revisit the ‘upsizing IPO' strategy?
Their entry is welcome in a market that has struggled to attract large new listings for many years now, with the overwhelming majority of fresh entrants being small, sometimes-unprofitable companies on the Catalist with market values well below S$100 million.
Interestingly, the entry of the two new big listings brings to mind events almost exactly 20 years ago in July 2005 when the Singapore Exchange (SGX) announced an 'upsizing'' goal, which was a bold, rebranding strategy aimed at attracting bigger companies to list here.
Its head of listings back then borrowed a term from fast-food chain McDonald's, saying the aim was to 'upsize' its companies because 'larger companies tend to attract institutional investment and these are the sort of investors that tend to have more long-term holding power plus they are more strategic in their investment planning' ('SGX gears up to fight the competition', BT, Jul 18, 2005).
No firm target was set for desired company size, but a ballpark market-capitalisation figure of at least S$300 million was mentioned.
'Bigger is better' was seen as the way forward, because most listings in the early part of the decade had been small, obscure firms whose offerings had suffered the ignominy of undersubscription and whose amounts raised from listing, net of fees and expenses, were so paltry that many questioned the wisdom of listing in the first place.
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However, by the time upsizing was publicised, it was actually already working – between January and July 2005, there had already been 37 new listings which raised S$2 billion and added S$7.2 billion to the market's capitalisation – and continued to work for a while longer.
Unfortunately, 20 years later, not only has that momentum been lost, but some might also even argue that the IPO market has regressed because almost all the companies that have gone public here in recent years are small firms that list on the Catalist via full placements and no public tranche.
Undoubtedly a big factor has been that regional exchanges have all upped their game and can offer services comparable to SGX – which means that today, a Malaysian, Thai, Indonesian or Philippine company would be more likely to list on its domestic exchange rather than here.
Should SGX revive its upsizing strategy given the fresh breath of life with the listing of NTT's Reit and Info-Tech? With the Straits Times Index at an all-time high and valuations having risen sharply over the past year, the timing appears right.
Size, of course, does not equate to quality, but investors would find larger companies more appealing because they do hold certain advantages over smaller ones.
In the area of corporate governance, for example, bigger companies tend to have larger and more diverse boards which means greater expertise, while the presence of institutional shareholders means that managements are, in theory at least, policed by relatively sophisticated players.
Big firms are also more likely to be tracked by research units and stand a better chance of one day being included in market benchmark indices.
Small firms should continue to be welcomed as they have every right to tap the capital market – but more big offerings wouldn't go amiss.

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