From private to public
From Private to Public
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The trend of companies opting for the private market is growing
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Companies also need new funding venues that suit their stage of growth
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Development of new funding options adds vibrancy to Singapore’s capital market ecosystem
Singapore’s status as a hub for enterprise financing
Singapore consistently ranks among the top in listings of global financial centers. Stability in its political, economic and financial system as well as robustness of its regulatory regime is among the reasons why it is a destination for international investors. The city also has a reputation for promoting high standards of corporate governance practices for its listed companies.
Increasingly however, more companies are turning to private investors before tapping on the public markets.
When Google (now Alphabet) listed in 2004, it raised US$1.7 billion. Prior to its public listing, it raised US$36.1 million in four funding rounds privately. Fast forward to Uber’s recent listing in May, where it raised US$8.1 billion in its IPO but US$24.7 billion in 23 private funding rounds.
The trend of companies opting for the private market is growing.
In 2018, fundraising came in at US$778 billion, a decline of 11% from the previous year’s record haul. But according to McKinsey’s annual review of private investing, signs are pointing to strong potential growth this year.
Singapore is further strengthening its financial ecosystem by helping start-ups, both local and global, to scale up and secure investments. The development of private market platforms is part of that strategy and Singapore Exchange (SGX) has taken steps to work alongside companies in their transition from the private to the public markets, helping them grow through their fundraising journey.
In a unique demonstration of such a partnership, SGX invested in Singapore-based Capbridge, one of the new players capitalizing on growth in private markets. Capbridge’s 1exchange (1X) platform is the first and only private securities exchange that’s regulated by the Monetary Authority of Singapore.
“Whether it's corporate governance, financial disclosure or risk management, companies have to meet stringent standards in preparation for a listing and we can offer our expertise. By working with private platforms like Capbridge’s 1X, we can help curate that experience.”
– Mohamed Nasser Ismail, head of equity capital markets at SGX
The 1exchange online capital raising platform went live in July, with a listing of Aggregate Asset Management, a boutique fund manager, and more listings are expected in the coming months. It is the world’s first regulated private securities exchange built on a public blockchain.
“We see our role as complementary to SGX while achieving a win-win for companies considering tapping the capital markets. 1X works closely with SGX to provide companies a holistic private-to-public capital market ecosystem.”
– Choo Haiping, CEO of 1exchange
A typical private-to-public scenario would look like this: A company first undergoes a private listing on 1X, where they sell/float a portion of their shares while remaining private. A private listing enables them to expand their shareholder base, raise capital, and develop price history, allowing them to reduce IPO uncertainty and price variability.
But as capital markets evolve, companies are also seeking new funding venues that suit their stage of growth and business needs. Singapore’s ADERA Group, a group of companies that is changing the face of secured data handling and smart banking automation, is one such example.
“SGX doesn’t just help companies raise funds from the public and regulate them,” said Marvin Tan, group executive director of ADERA Group. “On the private equity side, they’re also helping companies to raise funds when they’re not ready for the public yet. That taught us that we don’t have to put the conglomerate altogether and we can do separate fundraising.”
But as capital markets evolve, companies are also seeking new funding venues that suit their stage of growth and business needs. Singapore’s ADERA Group, a group of companies that is changing the face of secured data handling and smart banking automation, is one such example.
“SGX doesn’t just help companies raise funds from the public and regulate them,” said Marvin Tan, group executive director of ADERA Group. “On the private equity side, they’re also helping companies to raise funds when they’re not ready for the public yet. That taught us that we don’t have to put the conglomerate altogether and we can do separate fundraising.”
Digital assets are the next big thing in fundraising and security token offerings (STO) are a growing opportunity for that.
Security tokens are essentially digital versions of real-world assets like stocks and bonds, and unlike initial coin offerings (ICO), this is a regulated market. But unlike traditional securities, security tokens will soon fall under their own distinct category.
Lawmakers across the globe, particularly in the United States, are in the process of changing regulation around securities to exclude digital currencies and tokens from the previous definition of a security. Should these new regulations be passed, digital tokens would no longer adhere to securities laws once they become fully-functioning networks, but to their own distinct set of rules, trade agencies and commissions, and taxation.
And there is potential for digital assets to change the face and texture of fundraising in the future. Capital markets platform iSTOX, which SGX has invested in, incorporates blockchain and smart contract technology, where issuances are bought and sold in flat currency. According to Darius Liu, chief strategy officer of iSTOX, this could be a gamechanger: “We see the development of iSTOX as complementary to SGX’s efforts to advance Singapore’s position as a leading financial hub in Asia. iSTOX will operate alongside SGX to provide more options for investors and issuers around the world, adding to the vibrancy of Singapore’s capital market ecosystem as a whole.”
Whether it’s accessing capital in the private or public markets, issuers and investors face similar challenges in the external environment.
Today, that environment is dominated by headlines about trade tensions between the U.S. and China and rising geopolitics in the Middle East.
But the biggest challenge for capital markets is concerns about a global downturn, especially with speculation of a U.S. recession hitting over the next few years.
The International Monetary Fund has projected a global growth decline to 3.2% in 2019 with a slight pick up to 3.6% in 2020. Key risk factors include an escalation of trade tensions, a “no-deal” withdrawal of the United Kingdom from the European Union and a greater-than-expected slowdown in China.
Despite these challenges, Southeast Asia, and in particular, Singapore, still presents investors with significant growth opportunities. The key here would be finding the right partners that are fluent with the markets and able to provide timely access to capital at every stage of a company’s growth.
“Start-ups either exit by selling to a bigger company or listing on the stock exchange. So that’s why we think that having a strong and vibrant stock exchange (like SGX) would complement the private markets and VCs that we work very closely with in the start-up world.”
– Edwin Chow, assistant CEO of government agency Enterprise Singapore
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