Singapore’s stock exchange is losing its charm as a preferred country for companies to raise capital through initial public offering (IPO).

There were only three IPOs on the Singapore Exchange (SGX) in the first half of the year, down from six in the same period of 2022, with the proceeds amounting to less than US$100 million (S$134.25 million), according to a report by professional services company EY.

By contrast, IPOs in Hong Kong rose to 29 during the first half of the year from 20 in the same period of 2022, and raised US$2.3 billion.

Within the 10-member Association of Southeast Asian Nations, there were 45 IPOs in Indonesia, 16 in Malaysia and 15 in Thailand, with total proceeds each topping US$500 million.

It is learnt that recent corporate governance failures and sluggish trading volumes in Singapore have weakened its appeal for companies raising equity capital.

According to EY’s global IPO leader Paul Go, the Singapore market is just not attracting the same breadth and profile of global investors into its market.

“There are many large-market-cap listed companies in Singapore which are majority owned by the country sovereign wealth funds, which makes it more difficult for the entrepreneurial SMEs (small and medium-size enterprises) to attract investors’ attention,” said Go in a report by Nikkei Asia.

In addition, 10 companies were delisted in Singapore during the first half of the year, up from eight in same period of 2022, according to the financial market platform Dealogic.

Declining listings in SGX

Overall, the number of listed companies in Singapore fell from 665 in May 2022 to 643 in May 2023.

Regional IPO facts and figures: Asia-Pacific by Dealogic

National University of Singapore accounting professor Mak Yuen Teen said some of the companies gave up their listings because of frustrations over the lack of liquidity on the exchange, while others have performed poorly or (are) embroiled in accounting or corporate governance scandals.

“These companies were forced to delist after they have been placed on watchlists or suspended and then delisted while some have just packed up and run,” he said.

Mak said he believes the grim look for IPOs in Singapore is partly a consequence of poor decisions in the past, which has affected market confidence.

For example, he said, trading of Ayondo’s shares was suspended after its chief executive and chief financial officer both left the company in 2019.

The financial technology company that listed in 2018 was delisted in 2021.

“SGX should learn its lesson and not just focus on number of listings but the quality of listings. That will require significant effort to rebuild market confidence,” Mak said.

Companies prefer to stay private due to political and geopolitical instability

The Singapore Exchange is not just relying on IPOs to drive business. It will seek to diversify its revenue with a “multi-asset strategy” involving areas like fixed income, currencies and commodities; market data; index calculation; and connectivity services.

An SGX spokesperson said Singapore could see an increase in IPO activity if global financial and political conditions change.

“The listings we have seen over the past year and to date have taken place against a backdrop of companies worldwide preferring to stay private, uncertainty around interest rates, and geopolitical tensions,” the spokesperson said in a Nikkei Asia’s report.

Meanwhile, Go said the political factors could also help it attract IPOs.

“Singapore presents a more politically stable environment that is less affected by geopolitics,” he said.

Family offices opt for Singapore wealth management

Meanwhile, Singapore has a far better track record of attracting family offices, which manage money for the wealthy.

Reports showed 59% of Asia’s family offices are located in Singapore, compared with just 14% in Hong Kong.

The number of family offices in Singapore has grown rapidly.

Even so, Singapore’s family offices have complaints about the opportunities in its stock market.

To qualify for tax breaks, they are required to park at least 10% of their assets under management or S$10 million (US$7.4 million), whichever is lower, in local investments like equities on the exchange.

According to Nikkei Asia, finding good companies can be a struggle as very limited stocks can provide good return or good yield.

Based on estimates from the Monetary Authority of Singapore, there were about 400 family offices in the city-state at the end of 2020 and 700 by the end of 2021.

At the end of last year, 1,100 single-family offices, meaning they work for just one family, were awarded tax incentives in Singapore, the MAS said in an update last week.