Temasek and GIC Are Set to Pump Money into the Local Bourse: What are the Implications for Investors?
What happened
Yesterday, Bloomberg reported that Singapore is planning new measures to boost share trading volume and interest in its local stock exchange.
Investment firm Temasek Holdings’ 65 Equity Partners Holdings, with a fund size of at least S$1 billion, is planning to deploy the funds into Singaporean companies and regional mid-sized business, including IPOs.
Both Temasek and sovereign wealth fund GIC (Government of Singapore Investment Corporation) will tap on the new SPAC framework established by the Singapore Exchange Limited (SGX: S68), or SGX, and which was just announced a week ago.
According to sources, the Monetary Authority of Singapore (MAS), Singapore’s central bank, also plans to weigh in on these initiatives to boost interest in the local bourse.
So what
This news comes as a welcome surprise for investors as the Singapore market has seen moribund trading volumes in recent years.
Most of the interest had shifted to Chinese stocks and the US markets such as NASDAQ over the years, with returns far outstripping what the local Straits Times Index (SGX: ^STI) has managed to chalk up in the last decade.
A lack of technology companies and fast-growing start-ups is also adding to the malaise here.
As of 31 March 2021, around 24% of Temasek’s S$381 billion investment portfolio are in Singapore.
Its investments include local blue-chip companies such as Singtel (SGX: Z74), Singapore Airlines Limited (SGX: C6L), Keppel Corporation Limited (SGX: BN4) and Singapore Technologies Engineering Ltd (SGX: S63).
Now what
MAS, GIC and SGX have declined to comment on the Bloomberg report, but if true, the deployment of capital into various mid-cap names could result in a much-needed liquidity boost for the exchange.
Should the SPAC listing framework be utilised by either Temasek or GIC, it could lead to the listing of interesting technology unicorns within their respective portfolios.
Resilient, mid-cap companies could also see a big resurgence in interest from investors.
For instance, AEM Holdings Ltd (SGX: AWX) had announced last month that Temasek would be its largest shareholder after a successful placement exercise.
The group has a market capitalisation of around S$1.3 billion, so it may be reasonable to assume that Temasek may be on the lookout to invest in companies of such size.
In addition, companies may also tap on the SPAC framework to spin off highly profitable divisions to unlock value for shareholders.
One example is DBS Group (SGX: D05) which has a product called Remit. Remit performs instant transfers to 60 countries around the world.
The business is highly profitable, adding S$60 million to S$70 million to the lender’s bottom line every year.
CEO Piyush Gupta is confident that Remit could be valued at between S$5 billion to S$10 billion if it was separately listed.
Considering DBS itself is valued at S$78 billion currently, Remit itself could make up 10% of its market capitalisation and help to boost the bank’s valuation.
DBS also has a whole suite of businesses that could be spun off at some stage, and SPACs could be the catalyst that enables this to happen.
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Disclaimer: Royston Yang owns shares of Singapore Exchange Limited and DBS Group.
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