IT IS somewhat counterintuitive that shares of the Singapore Exchange (SGX) have weakened since the Monetary Authority of Singapore (MAS) review group on Feb 13 announced tax incentives as part of measures to boost the equities market.
SGX is down some 5.6 per cent even as the Straits Times Index is hitting new highs, albeit driven by the bank counters.
It is clear that the intent of the tax moves is to encourage listings. What is on the table so far are generous corporate tax rebates for companies, business trusts and fund managers that list in Singapore.
There are also tax exemptions for asset managers which handle a significant proportion of Singapore equities.
In fact, the tax rebates for fund managers highlight an interesting possibility for listing aspirants.
Take Yangzijiang Shipbuilding, which is listed on SGX. In 2022, it spun off Yangzijiang Financial, a cross-border investment manager with Singapore and China as its core markets. Its stated aim is to provide a steady stream of dividends to shareholders.
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Blue-chip companies such as Keppel have grown their asset management businesses over the years, as they aim to achieve a regular stream of income. A Keppel Capital spinoff on SGX would not be outside the realm of possibility. With these large players leading the way, there is every chance that peers, including those from overseas, may follow suit.
All well and good. Apart from the details of these tax incentives in Budget 2025, there were measures to help companies access capital.
For example, Prime Minister and Finance Minister Lawrence Wong announced on Tuesday the creation of a S$1 billion private credit fund.
In his Budget 2025 speech, he noted the emergence of a private credit market but added that few of these funds focus on Asia, much less Singapore-based enterprises.
Observers say that such a fund will be a useful alternative to bank-led financing. As many companies have less-established bank relationships compared to multinationals, they may face tighter covenant enforcement and tougher credit requirements. A private credit fund can make available working capital without diluting the equity of the business owner.
Thriving hub for enterprises and financing
Enhancing companies’ access to capital is one aim. The opportunity to build up the private markets sector in Singapore is another.
In a speech last September, Deputy Prime Minister and Minister for Trade and Industry Gan Kim Yong said that “private capital has the opportunity to write the next chapter of Asia’s growth story”.
He cited a report from McKinsey which showed that private markets’ assets under management (AUM) totalled US$13.1 trillion as at mid-2023, after growing at nearly 20 per cent a year since 2018.
Over half of private markets’ AUM remains invested in North America, while Europe and the Asia-Pacific have just about 20 per cent each.
Gan, who is also MAS chairman, said: “With the anticipated growth of private markets in Asia, there is room for us to diversify and allocate a higher proportion of the AUM in private markets into Asia.”
Increasingly, Singapore is seen as being able to play a key role as an intermediary for capital flows and investment opportunities, especially in the region. Indeed, Gan drew parallels between Singapore as a hub for capital and Changi Airport as a hub for regional and global air connectivity.
The upshot is that, as important as Singapore Airlines is, Changi Airport has an equally critical, if not larger, role to play. And if Changi Airport succeeds, it will boost the national carrier’s fortunes as well.
Similarly, SGX is increasingly being viewed as but one conduit for attracting capital into Singapore. Other options are through the private equity and private credit routes, which may be more relevant to smaller companies.
Patrick Yeo, markets leader at PwC Singapore, said: “SGX, being the sole public market securities exchange, is an important cog in our financial ecosystem. However, it is equally important to develop the private market, ensuring vibrancy and depth which will complement SGX, increasing the odds for success.”
As more measures to revive the equities market are unveiled in the coming days and months, they need to be viewed against the backdrop of ensuring a thriving financial ecosystem.
