SINGAPORE: An Introduction to Capital Markets: Domestic
Overview of Singapore’s Equity Capital Market
Offers of equity securities of corporates, REITs and business trusts to investors in Singapore are regulated under the Securities and Futures Act 2001 of Singapore (SFA, which requires all offers of equity securities to be accompanied by a prospectus and a product highlights sheet registered with the Monetary Authority of Singapore (MAS), unless otherwise exempted.
The Singapore Exchange Securities Trading Limited (SGX) is the main stock market in Singapore. Equity securities are listed and traded on the Mainboard and the Catalist Board of the SGX, with the latter board focused on fast-growing enterprises.
Issuers seeking a listing on the Mainboard of the SGX must satisfy quantitative and qualitative requirements. These include profitability tests requiring an operating track record of at least three years and either a minimum pre-tax profit of SGD30 million in the latest financial year or being profitable in the latest financial year and a market capitalisation of SGD150 million upon listing. Issuers may also satisfy the market capitalisation requirement (only) of SGD300 million upon listing. There is no restriction on the issuer’s jurisdiction of incorporation. Issuers with multiple voting shares meeting certain criteria can also list on the SGX.
Issuers seeking a primary listing on the SGX will need to comply fully with the SGX listing requirements post-listing. Issuers listed on other markets may apply for a secondary listing on the SGX – such issuers do not need to comply with all of the SGX’s requirements post-listing. Issuers in developed market jurisdictions and in certain regional markets comply principally with their home market requirements and put out reports on a similar basis (in English) on the SGX.
There are no financial or market capitalisation requirements for the Catalist Board. Catalist issuers must be brought to list by an authorised full sponsor that will continue to act as the issuer’s continuing sponsor for at least three years post-listing.
Issuers considering a listing of securities on the Mainboard undergo a regulatory review process by the SGX’s regulatory arm, which determines whether an issuer is approved for listing. In a public offering, the prospectus is reviewed by both the SGX and MAS. Prospectus disclosure requirements are governed by the SFA and prescriptive requirements set out in the relevant regulations track International Organization of Securities Commissions (IOSCO) requirements, among others. For issuers seeking a Catalist listing, the regulatory review is undertaken by the SGX only.
Audited financial statements are required for the most recent three financial years (or from the issuer’s date of incorporation, if more recent), together with interim financial statements depending on the recency of the last audited financial year. Pro forma financial statements may also be required for acquisitions or disposals of a material nature or material changes in share capital.
The listing process is confidential during the regulatory review period until the lodgment of the preliminary prospectus, which typically marks the commencement of roadshow marketing. Pre-deal research reports are also permitted to be issued in compliance with regulatory requirements. There is retail participation in the IPO – in fact, the SGX listing rules provide for a minimum retail offer of 5% of the number (or SGD50 million in value) of the securities offered for subscription (whichever is lower). It is also common to have cornerstone participation alongside a Singapore IPO – these investors typically subscribe under prospectus-exempt placement rules in advance of the launch of the IPO and their committed participation is disclosed in the prospectus.
In 2023, global macroeconomic, geopolitical and other factors resulted in subdued global capital market fundraising activity, which was also observed in Singapore and most of the markets in the region. 2023 saw more new listings on the Catalist board than the Mainboard and also marked the first Mainboard de-SPAC (Special Purpose Acquisition Company) completion. The Singapore REIT IPO market was also challenged by the high interest rate environment. However, South-East Asian markets (including Singapore) should fare better in 2024 than 2023.
The SGX attracts listings of issuers with regional or global business and operations. Consequently, adverse global market developments impact capital markets activity in Singapore significantly. Given the pipeline of IPO-ready companies, an improvement in investor appetite will see a rebound in the number of Mainboard listing applicants. REIT IPOs are also expected to return in a favourable interest rate environment. There are also a number of companies looking at a dual listing and concurrent IPO on the SGX and other global stock exchanges.
Overview of Singapore’s Debt Capital Market
Similar to equity offerings, offers of debt securities to investors in Singapore are regulated under the SFA. The SFA requires all offers of debt securities to be accompanied by a prospectus and a product highlights sheet registered with MAS, unless otherwise exempted.
Listed issuers making offers of debt securities to the retail public may be exempted from prospectus registration requirements if they lodge an offer information statement with MAS under Section 277 of the SFA. The Exempt Bond Issuer Framework and the Bond Seasoning Framework, introduced in 2016 to encourage high-quality issuers to tap the retail market, provide two further exemptions from prospectus requirements.
In the wholesale bond market, issuers generally rely on the exemption from prospectus requirements for offers of debt securities made to the certain classes of investors. These investors include:
• institutional investors under Section 274 of the SFA; and
• accredited investors and certain other specified persons under Section 275 of the SFA – subject to certain conditions, such as the offer must not be accompanied by an advertisement making an offer or calling attention to the offer or intended offer – and, for specified persons relying on Section 275(1A) of the SFA, the consideration for securities must be not less than SGD200,000.
In October 2023, MAS released Notice SFA 04-N21 setting out new requirements for corporate finance advisers (such as holders of a capital markets services licence and banks), including mandatory baseline standards of due diligence (similar to equity-style due diligence) when advising on corporate finance in the context of an offering of securities, except where such offer is made only to persons who are accredited investors, expert investors or institutional investors. In reaction, the Association of Banks in Singapore (ABS) and the International Capital Market Association (ICMA) promoted tighter Singapore selling restrictions for the wholesale market by setting out “institutional and accredited investor”-only offerings as the default approach and relegating reliance on higher denomination offerings under Section 275(1A) of the SFA to a secondary alternative.
2023 was characterised by volatile market conditions fuelled by the geopolitical conflicts, inflationary pressures and a higher-for-longer interest rate environment. In March 2023, Credit Suisse further shook investors’ confidence in regulatory capital instruments when they wrote down their Additional Tier 1 instruments while handing shareholders SGD3.25 billion in Union Bank of Switzerland (UBS) shares, up-ending the traditional creditor hierarchy. As a result, Singapore’ s debt capital market remained subdued for most of 2023.
Amid tougher fundraising conditions, the following market and regulatory developments were observed.
• Increasing digitalisation of the bond market through private market platforms such as DBS’ FIX Marketplace and ADDX, which leverage on blockchain technologies to reduce costs for issuers by cutting out traditional intermediaries, remove execution risks, and allow issuers to self-execute trades without the involvement of a bank and provide fractionalisation – a process where the bond is split into smaller portions, thereby enabling the credit risk to be spread out across a broader investor base.
• On 1 February 2024, the SGX launched a new Digital Assets Register to serve as a centralised repository on global digital asset issuances with the ability to list digital bonds, subject to review of how potential technological risks and other issues are addressed by the tokenisation platform. By subjecting issuers to listing requirements and ongoing disclosure obligations for listed debt securities under the SGX listing manual, digital bonds issuers enjoy enhanced visibility and profile, higher credibility among investors, and better distribution channels. The new Digital Assets Register is currently in a proof-of-concept phase, with only debentures issued by regulated banks or their affiliates accepted for registration.
• Digitalised commercial paper (CP) programmes have been adopted to fill the short-term funding gaps. Several blue-chip companies such as Keppel Corporation, GLP, CICT, and Frasers Property have established their maiden CP programmes on DBS’ FIX Marketplace platform.
• Singapore continuing to strengthen its dominance in ESG issuances within the Association of South-East Asian Nations (ASEAN). The Singapore government announced at its 2022 Budget that up to SGD35 billion of green bonds will issued by the government and statutory boards by 2030. In April 2023, it was announced that MAS will set aside SGD15 million to enhance and extend the sustainable bond and loan grant schemes to support transition instruments until 31 December 2028, with safeguards put in place to reduce the risk of “transition-washing”.
• Private credit is now a growing asset class in the wake of tighter credit conditions. This alternative mode of financing uses flexible, bespoke solutions to provide greater financing certainty for borrowers who are underserved by the banking sector or find it cost-inefficient to tap the public markets. For investors, private credit offers attractive yields with robust downside protection.