How Finance Binds Singapore Together
Since Singapore’s stock exchange, the SGX, was founded in 1999, the number of mineral, oil and gas companies (MOG) has increased steadily. The proliferation of MOG companies on the SGX is “simply a question of time,” according to Lawrence Wong, executive vice president and head of listings at the SGX. Linc Energy, a diversified energy company’s move to list in Singapore from the ASX in Sydney in December 2013 was indicative of the growing interest in Singapore as a key location in Asia for oil and gas companies to access share capital.
“I believe that the so-called tipping point is an arbitrary concept; it is far more important what a given market denotes for a company. MOG companies are attracted to list on the SGX because of the matching industry clusters we have here and because we are perceived as a far more international and independent center,” states Wong.
Kris Energy’s listing in 2013 saw the exchange begin to formalize the rules that impact on energy and resource companies whose shares are held on the main board of the exchange. These had previously not been fully matured due to the relatively recent maturing of the exchange, but will now add to the supportive regulatory framework that facilitates business here.
“Singapore is one of the most important financial centers in the greater Asian region,” according to Wong at the SGX. “Being the asset and wealth management center of Asia, with a sovereign wealth fund alone which exceeds USD 2 trillion, Singapore is most certainly the regional hub for financial investors of all types.”
The new dynamic of the SGX also offers advantages to energy companies beyond that of the larger, more established exchanges. “Compared to the global exchanges, the SGX is a minnow. Yet, I see this as an advantage,” says Simon Crellin, director of Deloitte Petroleum Services in Singapore. “For instance, on the ASX, TSX and AIM, smaller independents have been drilling wells and indeed have a good story to tell. Yet their share price is flat-lining because there are simply too many companies listed: each one is like a tree in a forest, unable to stand out!” To be recognized and generate value on these markets, says Crellin, smaller independents need to consolidate. “By contrast, the SGX has a concentrated list of oil and gas E&P companies, and because of this, a good story will get a lot more traction than on the bigger exchanges. As investor appetite in Asia is voracious, the regional energy industry buoyant and the fact Singapore is fast becoming a wealth management hub, I can see the number of E&P companies gravitating towards the SGX expanding.”
Mans Lidgren, CEO of Rex Energy, an independent upstream oil and gas company, concurs: “Exploration and production companies naturally gravitate to London for their IPOs as it has one of the largest energy exchange markets. Nonetheless, the Singapore exchange only has eight listed companies and we prefer to be one of the few than one of the many. Additionally, there is a need for foreign and local investors to invest locally to help Singapore’s future inflow. We have very ambitious plans to grow in Southeast Asia and this is why we listed in Singapore.”
This gravitation of companies is building up the SGX, step by step. When asked what it will take for Singapore to become a key investment center, PwC’s Cornelius replies: “The government is putting in a lot of effort to educate the mining and oil and gas community. However, I am still somewhat skeptical over the SGX’s ability to compete against the major international exchanges. Specifically, for alternative areas of energy, a number of clients still come to me and state it is easier to raise money in London and Hong Kong. Their perception is that the market is more attuned to the risks associated with the energy industry and are drawn by the established track records of raising capital in these markets. Nonetheless, Kris Energy has had a very smooth and successful listing and if it can develop a good track record, it can be the flag bearer for the SGX’s oil and gas sector. We need another three or four companies like Kris Energy to come through onto the SGX to really evolve the exchange into a sector powerhouse. A further development in Singapore’s capital markets has been the growth of the analyst community, which I view as essential. They are part responsible for making recommendations on company’s and have the capacity to stir the investment community to invest.”
“Singapore is critical to the company’s holistic development and to the future of our assets here,” says Kang of Headland Capital Partners. “Being based in Singapore is very important because it allows us to operate in a business ecosystem that is transparent, stable and business friendly – all traits that are instrumental for a private equity house.” Whilst Headland itself focuses on investing in small to medium sized enterprises, these qualities equally benefit both listed and unlisted companies.
There is a confidence in the city’s ability to attract the companies that will build up the SGX. “The city-state has a fantastic business ecosystem,” says RH Petrogas’ Chang. “In the past year we have seen several new oil and gas companies come to the market. Despite a surge in sector IPO to the SGX, the exchange for listed O&G companies is still a fledgling and rather immature home. I would like there to be more proper, two way dialogue between the SGX and listed O&G companies.”
He anticipates the emergence of Singapore as a fully established exchange as taking a little longer. “Return on investment may take years from discovery to first production. Patience and sector understanding are traits that competent oil investors should embrace and we are trying to educate our stakeholders to be with us for the long-term. That is the challenge we face in Singapore: educating the investor market.”
This progression, from cauldron of technical capabilities to launch pad for fully listed companies, did not happen instantly, and this is reflected in the companies that have built themselves up in Singapore over the years. “Established in 1998, we have leapt from a mere service agent to a fully integrated automation solutions provider,” explains Teo, the CEO of Nordic Flow Control. “In 1998, we were a tiny company consisting of five people and two desks. Over time, we have established a manufacturing capability and a large-scale marketing team. In 2010, the progress of the company reached a new peak when it listed on the SGX. Through unwavering energy, commitment and determination, we have secured our place as one of Singapore’s premier automation service companies.”