Mainland Chinese companies registered in China will now able to list in Singapore, a move that will allow the Southeast Asian exchange to compete with Hong Kong to attract China’s corporate giants.
Singapore Exchange said on Monday that it would create a framework in cooperation with China Securities Regulatory Commission to allow the new listings. Chinese companies have been allowed to list in Singapore before, but they had to be incorporated outside mainland China.
People are silhouetted against the backdrop of Singapore’s financial Skyline and
the Singapore Flyer Ferris wheel. Associated Press
Hong Kong has listings of both Chinese registered “H-shares,” the equivalent of what this new agreement between Singapore and China would allow, and “red chips,” or Chinese companies incorporated outside China in places such as the British Virgin Islands and the Cayman Islands. Some of Hong Kong’s largest companies, such as state-owned oil giant China Petroleum & Chemical Corporation, or Sinopec, are H-shares.
“The direct listings framework will enable companies from China to more efficiently tap the capital markets in Singapore and reach out to our global investor base, offering the latter more choices and access to the growing Chinese economy,” said Singapore Exchange Chief Executive Magnus Böcker.
As is the case of getting listed in Hong Kong, Chinese firms would have to obtain approval from the CSRC before seeking a listing on SGX, pushing them through multiple regulatory hurdles. They must also comply with Chinese law and meet Singaporean regulatory standards, including adopting international accounting standards, according to SGX.
The framework, active from Nov. 25, won’t be an overnight revolution for SGX, which calls itself Asia’s gateway but struggles to compete with its larger counterpart in Hong Kong.
“In terms of SGX earnings as a whole it’s unlikely to be relevant any time soon,” said Stephen Andrews, head of Asian financial services at UBS. “[But] sometimes you have to fire 50 bullets and two or three of them hit and become big.” He added that Chinese companies would likely need additional incentive to choose Singapore over Hong Kong, which was more commonly seen as their “natural home.”
Singaporean and Chinese regulators will likely want to reassure investors that the move won’t lead to another wave of accounting scandals, which brought down several Chinese companies in recent years.
In one such case from 2009, China-based education company Oriental Century Ltd admitted inflating sales and cash-balance figures. Its stock plummeted and its CEO lost his job—one of several as the so-called “S-chip” scandals spread.
In a separate scenario in 2010 involving Singapore-listed China Milk Products, investors found themselves in a regulatory black hole when the company ran nto trouble.The company’s management was based in China but it was legally headquartered in the Cayman Islands, prompting disagreements between regulators over who had jurisdiction over what.
Despite these scandals, SGX counts 140 companies still listed in Singapore but deriving most of their revenue from China. Among the largest are real-estate developers Yuexiu Property Co and Yanlord Land Group Ltd.
Source: 27th November 2013 Wall Street