W hen Chinese tech giant Alibaba made its debut on the Hong Kong Exchanges and Clearing (HKEX) in November, the world sat up to watch. The stock finished 6.6 per cent higher in a heavily oversubscribed initial public offering (IPO) that raised about US$13 billion. It easily became one of the biggest listings globally last year, second only to Saudi Aramco, Saudi Arabia’s state-owned oil company. For the HKEX, it was a homecoming of sorts, given that founder Jack Ma had wanted to go public in Hong Kong back in 2014, before the company – which owns the South China Morning Post – decided on New York for its first listing. It was also the largest IPO to have landed on the stock exchange last year, propelling the local bourse to retain its crown as the world’s top fundraising destination – a bright spot for a city that continues to be rocked by months of civil unrest . Elsewhere, four months earlier, competitor Singapore Exchange (SGX) had also hosted what would become its largest IPO for the year, but to a slightly different reception. US office real-estate investment trust Prime US Reit ended its first day on the open market on a tepid note, closing at its IPO price of US$0.88. The stock sale, also oversubscribed, raised US$833 million. While the first day of trading for these two stocks is merely a snapshot of how they could perform in time to come – with no immunity to swings both upwards or down – they do provide an indication of the widening gap between Hong Kong and Singapore when it comes to raising capital. Specifically, as Hong Kong retains its IPO crown, Singapore is trailing further behind in attracting growth-oriented companies. “Hong Kong has outshone Singapore in the global IPO race over the years, mainly driven by a strong pipeline of mainland companies seeking to list overseas,” said Singapore-based CMC Markets analyst Margaret Yang. “Singapore is simply lacking an equivalent competitive edge.” A TALE OF TWO EXCHANGES Amid a host of global uncertainties, the HKEX attracted 161 IPOs and first-time listings (Mainboard and GEM) amounting to US$40.28 billion last year, according to financial data provider Refinitiv. Besides the mammoth Alibaba listing, the stock exchange was also home to Budweiser Brewing Co APAC’s US$5.75 billion launch. The SGX, in comparison, drew 11 deals (Mainboard and Catalist) worth US$1.96 billion. After Prime US Reit, Lendlease Commercial Global Reit and Eagle Hospitality Reit took the top spots, raising proceeds of US$738.4 million and US$482.1 million respectively. The bourse has been grappling with a slew of delistings in recent years. It had 722 listed securities in the market as at December 2019, compared with a peak of 782 in 2010, going by data on the SGX. Notably, many of the delistings included Singapore companies that chose to list in Hong Kong over their home market. Singapore schools offer ‘security’ for families leaving Hong Kong protests behind Among some of the high-profile ones were Singapore massage chair-maker Osim International, which left the SGX in 2016 and attempted to list on the HKEX as V3 Group, though unsuccessfully. Singapore-based gaming unicorn Razer also dealt the bourse a blow when it opted to go public in Hong Kong in 2017. In 2018, GIC-backed warehouse operator Global Logistic Properties quit the SGX, and, last June, dual-listed Fortune Reit also packed up and left, citing a decision to better reflect the Reit’s asset profile (all of its properties are located in Hong Kong) and move out of thin trading volumes on the SGX. Engineering services provider CTR Holdings was the latest to get on the bandwagon. In a comparison of the two financial hubs, the biggest draw for such companies has been HKEX’s liquidity. “The Hong Kong market offers better liquidity and a larger pool of investors from North Asia. This gives Singapore companies better access to the liquidity pool and perhaps higher valuations,” said Yang. HKEX’s total market capitalisation, at HK$39.45 trillion, is more than six times that of the SGX, and its daily turnover around 13 times more, based on December’s figures. It has seen 22 listings so far this year, of which seven took place on Thursday – its single busiest day since July 2018. She added that while Singapore boasts advantages such as its favourable tax scheme – “making it a perfect destination for Reit listings” – a stable political environment, and a reliable regulation and legal system, the problem was that it lacked liquidity and connectivity with the rest of the world. The HKEX is involved in a cross-border investment channel that links Hong Kong and the mainland, known as the Stock Connect, which allows international and mainland investors to trade securities in each other’s markets through the trading and clearing facilities of their home exchange. The scheme, launched in 2014, covers more than 2,000 equities in Shanghai, Shenzhen and Hong Kong today. Singaporeans in China: how the ‘third wing’ of the Lion City’s economy took flight “We are in an unparalleled moment in history for business and capital formation in China – as such we expect Hong Kong to continue to be an epicentre for new issuance and a focus for global investors. Alibaba’s success is a good barometer of this trend,” said Udhay Furtado, the co-head of Equity Capital Markets at Citi Asia Pacific. That said, Singapore continued to have unique advantages in a global listing context, he added. “Citi has led a robust uptick in financing volume for S-Reits and we expect to see large regional Southeast Asia businesses list on SGX.” FOR BETTER OR FOR WORSE? But making the shift from Singapore to Hong Kong has not been all smooth sailing. Many of the companies that moved have seen their share prices dip below the IPO prices – Razer today trades at about a third of its HK$3.88 IPO price, at HK$1.44 – while others, like V3, have not been successful in getting a listing off the ground. “The relatively smaller size of these companies [compared to other listings] means they may not be able to attract as much investor attention post-listing,” observed Tham Tuck Seng, Capital Markets Leader at PwC Singapore. Stefanie Yuen-Thio, joint managing partner of TSMP Law Corporation in Singapore, said: “You need to be a heavy hitter to make waves in Hong Kong, and companies that would be feted as home-grown stock market darlings in Singapore may get a more lukewarm reception in Hong Kong. “I wonder if these same companies would consider listing in Hong Kong today, given its unrest and the general market sentiment that the protests are an irreversible tectonic shift in the foundation of the Special Administrative Region.” The question remains: was leaving Singapore for Hong Kong the right call? “In terms of stock performance, it is driven by different factors, so it’s really hard to say,” said Hong Kong-based Kenny Wen, who is wealth management strategist at Everbright Sun Hung Kai. “But in terms of trading volume and attracting global institutional investors and mutual funds, I think they have been better off.” How Singapore’s schools prime youth for success in Hong Kong and mainland China Beyond market depth and higher daily trading volumes, Wen said that listing regulation reforms in 2018, such as new rules for biotechnology companies and those with weighted voting rights, had helped keep the HKEX in the lead. He pointed out that while the social unrest in Hong Kong had put a dent in the city’s reputation as a financial and business hub, pushing the economy into recession for the first time in a decade, it had had little impact on the IPO market so far. A more significant factor was the ongoing US-China trade war , which has led several Chinese companies listed in the US to move back to Hong Kong, including Alibaba. Nasdaq-listed Chinese search engine Baidu is said to be eyeing a secondary listing in Hong Kong as well. “Getting Alibaba to list successfully in Hong Kong was very important. It shows that even though there was social unrest, we were still able to handle this mega-deal smoothly,” he said. “It will become a model case for attracting other Chinese companies to be listed in Hong Kong.” That said, it is the lack of an end in sight to the months of unrest that poses a wild card for the HKEX. Yuen-Thio shared that she had heard it was business as usual in stock market fundraisings there, “even if some days the lawyers and bankers have to take a two-hour detour to get to the office because of transport disruptions from the protests”. “However, I believe that it is the future IPOs where the protests will have the most effect,” she said. “Companies planning to list in Hong Kong are looking for alternatives. Other stock exchanges and private equity funds are likely to be the big winners here.” SGX: A PLACE FOR NICHE LISTINGS To be clear, the SGX has also taken big steps to stay relevant and competitive. It went from initially barring dual-class share structures to giving them the green light in 2018, among other measures. Just last week, it scrapped the quarterly reporting requirement for listed companies unless they are associated with higher risks. But analysts believe more still needs to be done to promote Singapore as an IPO destination. As it stands now, Yuen-Thio believes a comparison between the two cities is outdated. “Hong Kong’s stock market is part of the Chinese financial ecosystem while Singapore stands independent. We do not have access to capital that China provides, but we are also an independent nation state. I believe that some IPO aspirants who had previously considered Hong Kong would naturally consider Singapore too, but it will be because of our reputation for being a reputable and independent financial centre; we are not for those looking for a stock market as a casino.” The key, PwC’s Tham added, is to recognise Singapore not as a one-size-fits-all exchange, but one that attracts niche listings. The SGX continues to be well regarded in sectors such as Reits/business trusts, health care, and food and beverage. “If we look at the IPO track record in Singapore over the last 10 years, the number of listings ranged between 10 and 30, with proceeds raised between US$400 million and US$8 billion,” he said. “We expect 2020 to be a busier year for IPOs in Singapore. Should the number of listings and total proceeds reach the top end of [its IPO track record], it would be considered a good year.” ■ Purchase the China AI Report 2020 brought to you by SCMP Research and enjoy a 20% discount (original price US$400). This 60-page all new intelligence report gives you first-hand insights and analysis into the latest industry developments and intelligence about China AI. Get exclusive access to our webinars for continuous learning, and interact with China AI executives in live Q&A. Offer valid until 31 March 2020.