Question: With the new government taking charge in India, will foreign law firms strengthen their India desks in Singapore and London to handle increased transactions and mergers and acquisitions (M&As) as the Indian economy picks up?
A: All foreign firms are already quite active in India. Many firms have informal tie-ups with Indian law firms already. The interest has always been there. From the legal sector, we are really supporters of the economy. If our clients are able to carry out the transactions, negotiate successfully, get the relevant approvals, then we are the beneficiaries.
Notwithstanding all the optimism, if the client faces hurdles in executing deals, in getting approvals, and can't cut through the red tape and bureaucracy, then it will be equally hard for us also. Not just topline growth -- from the transaction and execution perspective, India is still a concern.
We hope that all this will change with the new government; but at this stage we don't know. It all sounds very promising and we certainly hope that it should be better, because this will be good for entrepreneurs in India, promoters of companies as well as for foreign stakeholders.
Question: Is Singapore witnessing an IPO flight? Is it because Chinese companies now prefer to list in Hong Kong?
A: It (listings) has been a bit disappointing so far this year. It is a bit technical, but let me explain. For example, a Chinese company set up as a People's Republic of China (PRC) enterprise can list directly in Hong Kong, but if they want to list in Singapore, it will take quite a long time, comparatively. In the past, in order to find a way for these companies to list, they had to find a way to restructure into an offshore jurisdiction, which is tough because they need foreign currency -- so they need to either sell their stake cheap to foreign investors or fund or do a restructuring.
In 2006, PRC government released Provision 10, where companies require approval for restructuring. That practically stopped all restructuring ahead of foreign listings. Singapore is only left with pre-2006 restructured companies, which are few. That is why there has been a drought.
Earlier this year, Singapore Exchange signed a direct listing framework with China Securities Regulatory Commission. They have committed to do more of a process review rather than a substantial review of a candidate before listing them overseas. With this MoU (memorandum of understanding) being signed, we hope it opens up the pathway for Chinese companies to list here directly. I think there is more awareness of this framework -- but whether they will ultimately list still depends on investors' appetite -- whether they like what they see.
Question: How do you see the overall investors' appetite?
A: There is still a lot of money, but some people have been burnt. For IPOs to launch and close, it requires a certain stability in the market, and the market has been pretty volatile. If investors lose money in an IPO, it affects their appetite for the next IPO.
Certain IPOs have opened down and this has dampened the investors' outlook very much. In Singapore, the additional factor is that in the last 5-10 years, we have been very strong on REITs, but from last year and through the first half of this year, there has been talk of interest rates going up -- this whole overhang in the market has made it more challenging in launching REITs.
Sometimes, regional markets affect each other -- there is Bangkok situation, Hong Kong demonstrations.
Question: The Singapore government recently issued a consultation paper on REITs. What is your take on that?
A: I think REITs are still generating good yields -- still good value. But some unhappiness emerges from the market, like for example the formula of the fee charged by the manager, and some are due to related party transactions that could have a conflict. It started from there. So Monetary Authority of Singapore is really trying to see how we can better align the REIT manager's responsibility to the holders.
In the early days, we did tend to see the REIT manager as private manager externally managing the REITs. But if we look at the rules with the disclosure, then it is going towards the listed company model. So there will be much more scrutiny on the REIT manager, the team, what they get, what they do, the governance.
I think the elephant in the room is, why not go the full way to have internally managed structure -- that is not addressed in this consultation paper, and this can be a game changer. Right now, a lot of changes are to fix some of the issues, to increase transparency, to increase disclosure and to increase board responsibility. The bigger question is whether we will go to internally managed REITs.
I don't think the regulator and the market is ready for this. We need a lot more analysis. Internally managed REITs may or may not be superior to externally managed ones.