Singapore’s dreams of listing dampened by data center operator troubles – find out why!

Key Challenges Faced by Singapore as a Financial Hub

Singapore, one of Asia’s most potent financial centers, is faced with complex challenges regarding the quality of listings and the importance of transparency and disclosure. Industry experts suggest increased regulatory scrutiny, focus on quality listings, and refined disclosures as a way to progress and ensure market integrity.

1. Transparency and Disclosure Concerns

The Digital Core REIT case is a prime example of the transparency and disclosure challenges faced by Singapore’s shrinking pipeline of new stock listings. The trust’s second largest client, Sungard, which accounted for about 7% of its rental income, filed for bankruptcy. However, the trust did not disclose the bankruptcy by name at the time of its IPO.

2. Quality Listings vs. Quantity Listings

The growing concern over shrinking new stock listings pipeline in Singapore calls for emphasis on quality over quantity. The country has to be careful and not approve listings that could face negative consequences in the future. Experts have suggested that Singapore change the way it lists REITs, shifting focus from the current valuation-led approach to a criteria-based approach.

3. Regulatory Pitfalls

The regulatory framework also needs to be refined so that companies, especially those with troubled operations, can not go public without full disclosure. This could ruin investors’ confidence in the country’s institutions and future listings.

The Way Forward

1. Increased Disclosure Standards

While the rules of continuous disclosure in Singapore require listed companies to disclose information that could materially affect securities’ price or value, it’s essential to increase disclosure standards further. Singapore could develop a more extended set of disclosure standards to protect investors and ensure the protection of shareholder interests.

2. The Need for Strong Regulation

Strengthening the country’s regulations is an essential part of ensuring market integrity. There is a need for firms to clarify their reporting requirements to keep investors informed of their financial status, rather than relying on confidentiality protections on lease agreements. Real estate investment trusts (REITs) and exchange-traded funds (ETFs) could provide better opportunities for investors in an evolving environment than offered by traditional stocks.

3. Quality Listings

The shrinking pipeline of new stock listings in Singapore calls for a shift towards quality over quantity; Singapore cannot keep up its financial boom without a pipeline of quality REITs. A quality-centered approach to listing REITs would encourage stronger interest from an increasingly savvy coterie of investors, propelling the country’s financial markets forward.

Conclusion

Singapore appears to be thriving as an Asian financial hub, even despite the challenges it faces. Greater emphasis on transparency and disclosure, quality listings, and strong regulation will play a significant role in its success. By embracing these changes and upgrading its existing approach, Singapore can remain among the most significant and prosperous financial centers globally.

Singapore is thriving as an Asian financial center. Record amounts of capital are flowing into the city-state from China, Southeast Asia, the United States and other countries. Not only has Singapore gained from the closure of rival Hong Kong during the pandemic, but the nation has benefited from a more neutral approach in a world marked by geopolitical polarization.

But it has struggled with its ambitions for a key part of its strategy as a financial hub: developing a thriving stock market with a pipeline of new stock listings. Monthly delistings they often outnumber new companies, and the number of listed companies dropped from 720 at the start of 2020 to 645 in April. The Straits Times index for the market is broadly flat over the past five years, excluding a Covid-related dip and recovery.

And the market has received a fresh blow from the dismal performance of a high-profile listing of a foreign firm, Digital Core REIT. It’s not just a matter of a sharp drop in the stock price. The circumstances of the real estate investment fund’s problems raise questions about the level of disclosure required in the market.

The owner of data centers in the US, Toronto and Frankfurt, was spun off from US real estate group Digital Realty and was Singapore’s largest stock listing by funds raised over the past five years and fourth largest over the past decade, according to Dealogic. Shares of the company are down 35% from their offering price and 60% from their early 2022 high.

A key factor in that slide were issues with two major tenants. Earlier this month, data center operator Cyxtera, reported to be Digital Core REIT’s second largest customer, filed for bankruptcy. The company accounted for approximately 22% of the trust’s rental income.

Cyxtera’s woes have been documented in the media since at least the beginning of this year. But until recently investors might not have known about them from just reading Digital Core REIT disclosures, or even that it was a very large client of the trust. According to management, the Singapore-listed group is typically bound by confidentiality provisions in lease agreements.

Nor was the identity of the trust’s second largest client, Sungard, disclosed at the time of the IPO. Sungard went bankrupt for the second time in April 2022, just four months after Digital Core REIT’s IPO. The trust notified investors of the bankruptcy of its fifth largest tenant 10 days after Sungard filed in the United States. It did not mention Sungard by name, which had accounted for about 7% of the trust’s rental income.

It wasn’t until April that there was talk of the trouble Cyxtera faced, when the trust was released answers to shareholder questions. Cyxtera filed for bankruptcy protection two months later on June 4. This time the failure was revealed the next day, although Cyxtera was still not mentioned by name.

Under Singapore rules of continuous disclosure, companies are required to disclose information that could materially affect the price or value of their securities. The exception is if the information is confidential, prepared for internal management purposes, or involves an incomplete trade. The Singapore Exchange says: “We evaluated the flow of information and the timeliness of the disclosures bearing in mind the impact on the REIT’s financials.”

Mak Yuen Teen, a professor at the National University of Singapore, says if Digital Core REIT had gone public in the US, some of its “late disclosures” could have seen investors “following” them.

A spokesperson for Digital Core REIT said, “Upon learning that its second-largest client had filed for bankruptcy, Digital Core REIT immediately requested a halt to trading and promptly provided timely and robust information. . . In general, we believe it is inappropriate to speculate or comment on the financial condition or actions of any client.” The company previously told shareholders it expected “little impact” from the bankruptcy.

But Digital Core REIT’s poor share price performance speaks to diminished confidence in the company’s prospects and the assets chosen for its portfolio. In an effort to attract more listings, it seems fair to ask: Did Singapore land a bad deal with Digital Core REIT? The city-state has developed into something of a hub for REITs but as a center for IPOs, it hasn’t matched its commercial successes elsewhere. Digital Core REIT’s issues underscore the importance of quality in the candidate list and strong regulation to ensure market integrity if it is to do better.

mercedes.ruehl@ft.com