Wednesday, April 23, 2008

Catalist: Too little, too late?

Apparently timing is not everything. Despite the turmoil in the financial markets, the Singapore Exchange has pressed ahead with Catalist, the new board that now replaces SGX’s junior board SESDAQ. Emulating the flexible regulatory system of London’s Alternative Investment Market (AIM), Catalist is part of SGX’s strategy to provide growing firms with a viable Asian listing and an alternative to the AIM.

The big question though is, how attractive will Catalist ultimately be? Will the looser regulatory standards put off firms and investors? Catalist’s forerunner, AIM had been criticized for its lax regulation and advisor conflicts of interest, the very freedom that attracted companies to it in the first place. Notably, US securities regulator Roel Campos said that “I’m concerned that 30% of issuers that list on AIM are gone in a year. That feels like a casino to me and I believe that investors will treat it as such.”

According to corporate finance lawyer Robson Lee, “At the start, Catalist aspirants may be confused by the different standards imposed by different houses, and this could pose challenges to the integrity of Catalist when listing candidates may flock towards houses which are more lax in their requirements.”

Good Signs

There are reasons to look on the bright side though. Initial response, according to Mr Lawrence Wong, Executive Vice President and Head of Listings SGX, has been good, “we have received numerous enquires from potential listed companies about Catalist”.

In London, AIM has raised more than 35 billion pounds for the 2500 companies that have listed there since 1995, and has attracted strong institutional interest- 56% of all investors in 2007 were institutional investors. The AIM market appears to be sustainable too, with more than 40% of the money that has ever been raised coming through further issues.

Catalist has the tools to compete with, not merely emulate, AIM. Besides the lighter regulatory touch that means an easier listing process and lower compliance costs for the companies, Catalist offers listing fees that are at least 33% lower than AIM, starting at $15,000 and capped at $50,000. Also, a Catalist company has the market facility to raise more funds than in AIM—up to 100% of its original share capital on a rights basis. Catalist’s biggest advantage, however, is that most trading interest in Asian stocks has stayed in Asia, and Singapore is in the same time zone as most investors, unlike AIM in London. The faster listing time in Catalist (6 weeks) compared to 17 weeks previously on SESDAQ can only be a further plus.

And going back to the issue of regulatory standards, SGX seems confident of maintaining market quality, with SGX chief Hsieh Fu Hua emphasizing that companies on the new board would be held to the same standards as those on the main board and that SGX “retains the power to discipline and ultimate accountability”. As Mr Lee commented, “There’s no water tight regulatory system” but “in Singapore, you have a balance; regulation with a lighter touch but strict enforcement.”

Will Catalist strike the right balance?