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Home away from home – Singapore becomes Asian alternative for Chinese ADRs

NIO [NYSE:NIO; HKG: 9866; SGX:NIO] went public in Singapore in May via a listing by way of introduction, a month following its floating in Hong Kong. The first major US-listed Chinese company to have landed on the Singapore bourse could now provide a blueprint for others.

The listing – without any fresh capital raised – will allow the largest Chinese electric vehicle maker to raise funds in more than one Asian exchange, a crucial insurance policy for corporates at a time when equities swing wildly amid recession fears.

NIO has set the precedent for many of the Chinese American Depositary Receipts names pondering where to trade in Asia, as the US and China remain far from reaching a consensus on the US Holding Foreign Companies Accountable Act. The legislation demands full access to audits of all foreign companies listed in New York, or they will be delisted by 2024.

“Since NIO listed its shares in Singapore earlier this year, there’s been an acceleration in conversations with Chinese American Depositary Receipt (ADR) companies exploring the same idea,” said Global Head of Equity Capital Markets, Mohamed Nasser Ismail, at Singapore exchange (SGX).

A major selling point for an SGX listing is the commercial proximity to Southeast Asia and the growth opportunities it offers to Chinese companies seeking international expansion beyond mainland China, said Ismail.

Despite Hong Kong's geographical proximity to China's vast pool of institutional and retail wealth, NIO has risen about 19% since its debut in Singapore, way outperforming the Hong Kong-listed title's negligible 1% gain.

Also, Singapore’s benchmark Straits Times Index trades at 13x earnings on average, almost doubling the Hong Kong benchmark’s Hang Seng Index's 7.7x multiple.

Singapore is rapidly emerging as an innovation hub with an increasing number of technology-focused investors and technology businesses setting up their regional headquarters or research and development centers in the city, a Singapore-based ECM banker said.

But it is not just Chinese companies that have been attracted to Singapore’s rule of law and relatively stable government.

Manila-listed Emperador [PSE, SGX: EMI], the world’s largest brandy maker, debuted on the Singapore exchange mid-July too, also by way of introduction.

“This secondary listing leverages Singapore’s position as a global financial hub and will ensure we are well positioned to broaden our access to the international investment community in the future,” Bryan Donaghey, Head of Whisky Business of Emperador, said in a statement.

Still, Singapore needs to assure prospective issuers that it has the depth of liquidity required to support any secondary fundraising if it aims to overtake Hong Kong as Asia's capital hub one day.

Robust secondary trading is crucial for companies to consider any secondary issuance from share placements to equity-linked bond offerings in the longer-term, they noted.

The Singapore Exchange's daily trading volumes averaged around SGD 1.165bn (USD 828m) in June this year, versus Hong Kong's HKD 150.7bn (USD 19.26bn), based on official data from the two exchanges. NIO's average daily trading over the past month stood at USD 6m in Singapore versus USD 29m in Hong Kong and USD 236m in the US.

Chinese companies leveraging Singapore’s platform for regional expansion goals will attract investor and trading activities, said Tham Tuck Seng, Capital Markets Leader at PwC Singapore.

The last official figure released in 2020 put the number of family offices in Singapore at 400 while in the first four months of 2022, the Monetary Authority of Singapore (MAS) approved more than 100 new applications to set up family offices in the city state, according to Citywire.

Investors from China’s Greater Bay Area accounted for 44% of the new family offices in Singapore in the first four months, up from 38.6% last year, according to Singapore’s Chinese daily Lianhe Zaobao.

Thanks to Singapore's political neutrality, the Singapore benchmark index has edged 0.3% lower year to date, versus the Hang Seng Index's nearly 10% drop.

Singapore’s aspirations may still be a long way from Hong Kong’s track record. But the gap may narrow.