Singapore’s stock exchange is on course for another dismal year of delistings as scarce liquidity and governance scandals undermine its efforts to compete with regional rival Hong Kong.
Nine companies have dropped off the Singapore Exchange this year, or are in the process of doing so, according to Dealogic data, while just five companies have listed, putting this on track to be the second year in a row when more businesses have left the market than joined.
Analysts say that these departures have become a persistent problem for Singapore thanks to low liquidity and valuations, with frequent accounting and governance scandals at quoted companies eating away at investor confidence.
“Investors are so fed up with accounting scandals that they don’t want to invest in Singapore any more,” said Arnaud Vagner, who exposed the accounting problems that led to the near-downfall of Singapore-listed commodities trader Noble Group, and writes under the name Iceberg Research.
Rather than face further falls in share prices, Mr Vagner said, some owners had opted to take advantage of low borrowing costs to take their companies private.
Mak Yuen Teen, an associate professor of accounting at the National University of Singapore, said that even more stocks might be dropping off the bourse had SGX not revised its rules to remove a minimum trading price requirement. That requirement, scrapped on June 1, had put several stocks on a watchlist for potential delisting.
“The clock was ticking, and for a lot of them this year, [time] was running out,” said Mr Mak. Fifty-four companies would have faced delisting this month if the rule still applied, he added.
One of the options open to entities listed on SGX is to boost liquidity by bulking up to qualify for inclusion in index funds. But that too can increase the rate of delistings. About $8bn of the $9bn in market value of the delistings so far this year stems from the merger of two real estate investment trusts, in part for that reason, Mr Mak noted.
The amount of money raised on the exchange has fallen in recent years. SGX recorded 20 new equity listings in the 2019 financial year, raising a total of $1.7bn, compared with 22 listings worth $6.2bn a year earlier.
In May, SGX lost a key derivatives licensing agreement with index provider MSCI to rival Hong Kong Exchanges and Clearing, sending its own shares sinking. SGX warned that the ending of the agreement would hit 2021 profits by 10-15 per cent.
“The loss of the MSCI business was not something we were expecting and it was an area that was growing,” said Gabriel Sacks, Asian equities investment director for Aberdeen Standard Investments. He added that equities were “unlikely” to be a growth business for SGX for several years.
In response, SGX was trying to rely on other growth areas such as trading in bonds, currencies and commodities, he added. The SGX began clearing iron ore derivatives in 2009 and still clears nearly 100 per cent of all iron ore derivatives globally.
The exchange has said previously that delisting from public stock exchanges is a global trend and its focus remains opening access to Asian markets. “We are now developing even stronger pillars of new products to meet active and passive investors’ needs,” SGX said in a statement.