FYI - Hong Kong & Singapore Rivalry to be premier financial center. -- and find out Why our commissions are so high.
Business: Hong Kong Vs. Singapore
A new variation on a very familiar story
By ASSIF SHAMEEN
March 9, 2000
Web posted at 4:15 p.m. Hong Kong time, 3:15 a.m. EST
If you thought the Singapore-Hong Kong rivalry was restricted to tourist attractions and telecom takeovers, you have missed the action on the stock exchanges. Both cities are vying to be premier financial services centers in the region and both want to attract foreign portfolio investments as well as boost retail online trading. Both are trying to attract more dot-com IPOs (initial public offerings) not just from local companies but from companies around the region. As Asian populations start graying, the biggest prize of all might be in the fund-management arena. So far Hong Kong has had the lead but that lead is being eroded by the day. Last week, the competition just got more intense.
Three days after Hong Kong's Pacific Century CyberWorks trounced SingTel in the battle to take over the Hong Kong telco, HKT, Singapore announced sweeping amendments to its listing rules. Having lost one big battle, it wanted to make sure the war was still on. Then on March 6 Hong Kong followed with several new moves of its own -- mainly pertaining to commissions and fees. Each city is trying to close the gap where the other has a perceived lead.
Singapore, having missed the boat on Internet IPOs and backdoor listings, wants to catch up. The new rules cut the lock-in period for "promoters" of IPOs (it's just six months now) and redefine who might be considered a promoter (the directors and anyone owning 5% or more of the company). Singapore also announced relaxation of rules on IPO's documentation. It is now easier to apply for a listing by submitting a draft prospectus instead of providing a draft plus a formal application of listing. Moreover, the draft prospectus for companies listing both on the Singapore exchange and the Nasdaq need comply only with American accounting standards, rather than both U.S. and Singapore standards. Hong Kong's SEC and Stock Exchange has already given such waivers to recent listing candidates like tom.com and Singapore just wanted to keep things even.
Hong Kong, on the other hand, hasn't moved fast enough to cut commissions, stamp duties and other charges that Singapore started deregulating last year. Last week, Hong Kong officials and regulators announced that they were abolishing minimum brokerage commissions and minimum rates for stamp duty on securities transactions. Hong Kong will remove its 0.25% minimum charge on all securities transaction from the end of March 2002. The charge will be cut in several stages until it is completely abolished in two years. The Hong Kong government also announced reducing the 0.11% minimum stamp duty on securities transactions. The transaction levy that is shared between the government and HK stock exchange will be drastically cut too.
Still, transaction fees in both HK and Singapore won't fall to the levels that traders in U.S. pay to online brokerages such as E*Trade or Schwab anytime soon. Of course, there are online brokerages in Hong Kong, like Boom.com, but a minimum trade there could set you back upwards of U.S. $100. In the U.S., parts of Europe and Australia, the going rate for an online trade is U.S.$ 20. It could be18 months before transaction fees get that low in Asia. Only then will the popularity of online trading in Singapore and Hong Kong start to match that of Korea, where Internet trading now makes up 50% of all transactions in the Korean Stock Exchange.
For Singapore, relaxation or some fine-tuning of listing rules isn't going to open a flood of IPOs. Certainly, not just yet. For starters, there is still a perception that the regulatory regime in the island-republic is too strict. Some of the dot-com companies in Singapore I have been talking to have been thinking of listing in -- of all places-- Hong Kong. They claim that the meteoric rise of Pacific Century CyberWorks, the remarkable IPO of tom.com (whose price has surged sevenfold since the listing two weeks ago) and the backdoor-listing successes of Asian affiliates of Hikari Tsushin and Softbank is proof that Hong Kong investors understand the true value of technology (or at least are able to give tech stocks a higher valuation). Why risk listing in Singapore, they say, when you are guaranteed success in Hong Kong? Moreover, the listing queue in Singapore is far too long. A dot-com that decides it wants to list immediately may need to wait at least seven months before its shares are actually traded on the Singapore bourses. In Hong Kong, Li Ka Shing was able to get tom.com listed in six weeks. Sure, not everybody has the name and clout of the Superman, but even unknown entrepreneurs can get their companies listed in four months maximum.
Investment bankers and regulators in Hong Kong move far faster than their Singapore counterparts. There are stories of some Hong Kong investment banks getting a draft prospectus ready in three days (in more normal times, getting the draft just right could take a month or two). Such stories only add to the tech stock mania.
But what's the big deal whether a company lists in four months or seven months? Well, no one knows when the tech stock bubble might run out of air. Imagine that two companies applied for listing today -- one in Hong Kong and the other Singapore. If the bubble bursts in five months, the Hong Kong company would have just scraped through, while the Singapore company would either have had to put off its listing or accept a much lower valuation in a very volatile environment. It is exactly that sort of uncertainty that is forcing dot-com companies to go public fast, but with half-baked business plans, in Hong Kong. Of course, all this will ultimately expedite the the bubble's end. But the tech stock correction will be short-lived, and both Singapore and Hong Kong are now rightly looking at creating a better playing field for well beyond the current stock market cycle and the next one.
Still, Hong Kong is ahead in the dot-com race and the Singaporeans don't like it. While the Hong Kong market has held up nicely since Richard Li's triumph last week, foreign funds have been exiting Singapore. Their perception evidently is that regulated Singapore isn't quite ready for the world of tumultuous takeovers and cut-throat competition the way Hong Kong is. By making bold changes in other areas, Singapore is trying to send a message of sorts: It is still in the game.
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