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IPO - Listing your Company in Singapore

Updated on January 12, 2014

IPO in Singapore. Why list your company?

It is the dream of many entrepreneurs to start their own businesses, grow the businesses and eventually bring them public. However, a public listing should not be the natural progression once your company has grown to a certain size or profit level, nor is it the be-all-and-end-all. The preparation for an initial public offering (IPO) requires total commitment on the part of the founder and his management team. They need to look beyond the advantages and glamour, and be fully aware of what it means to be listed. This article intends to give you an overview of the listing process and some key areas to take note of in embarking on the road to IPO.

The “Why” – Pros And Cons Of Being Listed

An entrepreneur has to weigh the pros and cons of listing in the light of the company’s plans and goals. Early discussions with professional advisors like consultants, accountants and lawyers can provide him with more specific considerations and perspectives.

The Pros of going IPO in Singapore.

Ease of raising funds for expansion.

The traditional means of financing for most SMEs is bank borrowings. An IPO provides an alternative to relying on bank funding and frees the business from fixed repayment commitment. Once listed, dividends due to shareholders, if any, are declared at the discretion of the management and the company is not subject to fixed payment terms.

Enhanced liquidity of company’s shares.

Investors may buy or sell shares of a listed company in the open market. The founder can thus reap the fruits of his labour by selling his shares in the open market.

Ability to conduct mergers and acquisition (M&A) activities using the company’s shares as consideration.

Due to the enhanced liquidity of a listed company’s shares, the company is able to use its shares in place of cash as consideration for the acquisition of a potential target company . Similarly, the market value of the company could form the basis of a valuation of the company should the entrepreneur decide to sell his stake in his company, or merge his company with another.

Enhanced image and status of the company

A listed company is generally seen to be more prestigious, stable and financially viable than a private company, having passed the scrutiny of regulators in its listing attempt. Certain companies, especially MNCs, may hence give priority to listed companies in awarding contracts. A listing in this instance thus opens doors to more opportunities for a company.

Ability to attract and retain good staff and professional managers

The enhanced image and the liquidity of the company’s shares means that a listed company is able to implement an Employee Stock Option Scheme (ESOS) to attract and retain good staff and professional managers. In an ESOS, staff are awarded options which are convertible to shares in the company. The employees will be motivated to work for and align their interests with the company in effecting an improved share price performance.

The Cons of IPO in Singapore.

The cons are related to the way the business will be conducted after a listing:

Less flexibility or more bureaucracy in making major decisions

The main adjustment that an entrepreneur would have to make is the significant loss of autonomy in running the business of the listed company. Major decisions are to be made having regard to the interest of public shareholders, which would probably require shareholders’ approval. Operationally, interested-person transactions, i.e. business dealings between the listed company and other companies controlled by the directors, CEO, or controlling shareholders (and the associates of such persons) would similarly require shareholders’ approval. Shareholders of the company would also need to be mindful of the accumulation of shares in the company as there may be take-over implications.

Increased compliance costs

A listed company is expected to comply with various regulations, especially in relation to accounting and disclosure requirements. This implies more management time, effort, and compliance costs for the company post listing.

Higher expectation on disclosure of information and accountability to public shareholders

A board of directors (BOD) comprising executive, non-executive and independent directors needs to be appointed for a listed company. The BOD acts as the guardian and protector of public shareholders’ interests to ensure that the company is well-managed and that shareholders’interests are not compromised. Besides, listed companies are expected to comply with the Code of Corporate Governance issued by the Corporate Governance Committee of Singapore, to disclose their corporate governance practices and provide explanations where they deviate from these best practices.

Risk of being take-over targets.

Every listed company is susceptible to takeover raids. Ironically, the more well-run and cash-rich a company is, the more susceptible it is in being a take-over target. With the dilution of control from a public listing, the founder runs the risk of his listed company being bought over to the extent of percentage of shares not owned by him. He would then have to contend with other shareholders who may be less than cooperative.

Increased pressure for short-term performance

With public listing comes closer scrutiny from stock analysts and market players who directly or indirectly drive the share price performance, demand continual good financial performance, and expect dividend pay-outs. At the expense of long-term growth and development of the company, the entrepreneur may be pressured to deliver short-term profits or results that underpin the share price performance.

Commitment to investor relationship management

Investor relationship management is crucial in communicating to the market the financial performance and decisions of the company. However, investor relationship management demands more management time and effort.

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