SGX-bound Chinese trusts need to break with tradition
Dasin Retail Trust has become the latest Chinese issuer to tap a Singapore listing, raising S$146m ($102m) in its IPO last week. While mainland-sponsored trusts have enjoyed relative fundraising success in the city-state, they have stuck to a tried and tested formula. Future issuers should break the mould.
BHG Retail Reit, EC World Real Estate Investment Trust and now Dasin have given a much-needed boost to flagging volumes on the Singapore Exchange. Guangdong-based Dasin was 2017's first mainboard listing in the city. Similarly, Singapore would have ended 2015 without a single mainboard IPO if not for BHG.
Including Dasin, SGX has only had five trust listings since 2015, three of them China-based. Although Manulife US Real Estate Investment Trust and Frasers Logistics & Industrial Trust easily dwarf the Chinese issuers in size, jumbo deals like those are few and far between. SGX would clearly be worse off, had the Chinese trusts taken their business elsewhere.
Not that they would need to. Picking Singapore over Hong Kong for a Reit IPO has become a straightforward choice, even for mainland sponsors. There are far better comparables and valuations on SGX, as well as a captive investor base. But the Chinese trusts seem to have skipped that last part.
Instead, they have exported the Chinese and Hong Kong way of doing things to Singapore. The three IPOs have largely been anchored by Chinese demand and only attracted a few, if any, token bids from the rest of Asia.
They took the shortest route to achieving their financings, often hiring the same Singaporean bank as the lead and tagging on several Chinese banks who would otherwise have little to do in the city in terms of ECM. Then the shares were marketed and sold primarily to mainland funds.
A look at the cornerstone tranches of all three deals reveals that those investors have so far been exclusively Chinese, and many of them are state-owned. That clubby atmosphere may be commonplace in Hong Kong, but it has often done little to inspire confidence among international funds.
An issuer is, of course, entitled to tie up an IPO however they like. But what the recent examples highlight is a missed opportunity.
After all, the mainland trusts have come all the way to Singapore, a regional financial hub and Asia’s champion for Reits and business trusts. That gives them a chance to put themselves in front of global institutional investors, diversify their shareholder base and test the market’s appetite for a different type of asset.
Unlike the saturation seen in Hong Kong, where an issuer can be the 10th Chinese bank or broker to seek a listing, the Chinese Reits and trusts have qualities that set them apart in Singapore.
To cite a recent example, Dasin will be the only Chinese retail property trust on SGX providing direct exposure to the Pearl River Delta, arguably southern China’s fastest-growing region.
It is time for a change, and a good place to start would be improving the education process. Reit investors in Singapore stand ready to plough money into new names, provided they are engaged. The market is not exactly inundated with IPOs and there is clearly an opportunity to pitch, if only these issuers stop crowding out their deals with other Chinese investors.
Ultimately, what it comes down to is a willingness to try something different. Singing the same tune has its benefits, but even a good song gets old on repeat.