HKEX vs SGX: This is why SGX-listed companies are moving North

The Singapore stock exchange’s rivalry with its Hong Kong counterpart has been intensifying in recent times.

For one thing, the Hong Kong stock exchange is much larger. A recent report ranks HKEX at #6 in the world with the 1,866 companies listed on it having a total market cap of US$3.3 trillion.

The SGX does not even make it to the top 20. The market cap of its 750+ listed companies is barely a fifth of that of the Hong Kong exchange. The greatest advantage that HKEX has over its rival is that it gives the companies listed on it access to mainland China.

Singapore-based OSIM, a company that sells massage chairs and other health products, provides an example of the attractions that a Hong Kong listing holds. OSIM’s shares had been listed on SGX as far back as the year 2000. After 16 years on the Singapore exchange, the company decided to delist and get itself listed in Hong Kong.

The company’s business strategy played a large role in its decision to shift. OSIM has 172 stores in mainland China and 35 in Hong Kong. It has only 26 stores in Singapore. Company founder Ron Sim said that one of the other reasons for the move to HKEX was that he was not satisfied with the valuations in Singapore.

The company is relisting itself as the V3 Group on the Hong Kong exchange. Justifying the move, James Allen, a former member of the Hong Kong stock exchange listing committee, said, “Hong Kong is a deeper market with more liquidity, so perhaps V3 also believes it will get more trading… and more investor support.”

 

An increasing number of firms are delisting from SGX

In the last 18 months, several Chinese companies have taken the decision to delist from SGX. Of the 10 companies that decided to quit SGX this year, six are from China. Last year, a total of eight Chinese firms moved out of the Singapore exchange.

Chinese companies listed in Singapore, referred to as S-chips, sometimes delist because they are unable to meet the Singapore exchange’s requirements. Sundaram Janakiramanan, a professor at the Singapore University of Social

Sciences points out, “The exchange will take action if the company does not satisfy the minimum financial performance… Thus, these companies may decide to delist and go private.”

Currently, there are over 100 S-chips listed on SGX.

 

Startups prefer a Hong Kong listing

CMON, a gaming company with its roots in Singapore, chose to get listed in Hong Kong on the HKEX’s Growth Enterprise Market (GEM) board. This is a separate section of the Hong Kong exchange and is distinct from the HKEX’s main board, which has more stringent listing requirements. There is a total of 251 companies listed on GEM.

Ng Chern Ann, co-founder of CMON, explains that he chose the Hong Kong exchange over SGX as the former has more “pull factors.” Singapore does not offer the volumes and liquidity that HKEX does. Additionally, the large number of gaming companies in Hong Kong gives CMON the ability to source talent to develop its games.

Another Singapore startup that has chosen HKEX over the Singapore Exchange is property and energy management firm Anacle Systems. This company has also opted to list on the GEM board.

Why did Anacle choose Hong Kong? Founder and chief executive Alex Lau says that a listing there provides more publicity. It also gives the company the opportunity to approach larger numbers of investors and fund managers. The funds that the company will raise will allow it to expand in China, Hong Kong, South Korea, and the Middle East.

Anacle points out that since Hong Kong was one of its target markets for expansion, it decided to list on HKEX.

 

The race to stay relevant

One way that a stock exchange can attract more companies is to allow the listing of dual-class shares. The New York Stock Exchange, the world’s largest, lifted a ban on dual-class shares in the 1980s to compete with NASDAQ.

Large Chinese companies like Alibaba Group Holding Ltd. and Baidu Inc. have listed in New York because of this reason.

 

Neither Singapore nor Hong Kong allows the listing of dual-class shares, which give certain shareholders greater voting rights. If a company issues such shares, its founders can retain control by keeping a disproportionate share of voting rights.

In 2015, 15% of the IPOs in the US involved dual-class shares. This was a 15-fold increase from the 1% of companies that opted for this route in 2005. Many technology companies prefer to list through this route. It enables the founders to continue taking key decisions about the company’s future while allowing for the raising of large amounts of capital.

Both the Hong Kong exchange and the Singapore exchange are actively considering changing their rules to allow dual-class listings. According to a report in Bloomberg, Prime Minister Lee Hsien Loong has given his approval to the Singapore exchange for this.

 

Hong Kong’s greatest advantage is its proximity to China

Reducing the number of companies that decide to delist from SGX and move to the Hong Kong exchange could be a challenging task. Hong Kong’s access to the vast Chinese market and its large investor base gives it an upper hand.

The Hong Kong exchange had established the Shanghai-Hong Kong Stock Connect in 2014. This allowed investments to flow easily between the mainland and Hong Kong and also in the opposite direction.

The recently launched Shenzhen – Hong Kong Connect increases the advantage that HKEX has. Access to these two mainland exchanges provides international investors with an entry point to about 80% of the combined Chinese markets.

 

(By Ravinder Kapur)

Related Articles
- Top 8 blue chip stocks in Singapore that you must invest in 2017
- Here’s why Garena is listing in US and bypassing SGX
- What’s wrong with Uber?