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SGX-Tel Aviv pact may spice up IPO scene from H1 2019

The two exchanges want to woo mid-market Israeli startups to tap Asian capital and to go for dual listings; local investors to get wider choice

By Anita Gabriel

A UNIQUE pact inked in May between the stock exchanges of Singapore and Israel to court dual listings of capital-hungry high-tech Israeli start ups could ignite activity as early as in the first half of next year, with "dozens" more such listings expected over the next three years, the head honcho of the Tel Aviv Stock Exchange (TASE) has said. 

Ittai Ben-Zeev, in an interview with The Business Times, said: "We are not talking about two or three companies undertaking dual IPOs (initial public offerings) ... we expect 30 to 50 companies to leverage over the next three years on this collaboration." 

There is good reason for the chief executive's optimism. Israel, dubbed a "Startup Nation", packs a punch with its innovation ecosystem; the full-employment economy now has more than 6,000 high-tech firms across hot sectors such as big data, cyber security, auto-tech, artificial intelligence (AI) and biomedical sciences. 

Mr Ben-Zeev said "hundreds" of these firms are worth between US$200 million and US$500 million and have a business pivot to Asia. This makes them ideal candidates for the SGX-TASE's dual-listing proposition - not least because of Singapore's gateway status to a diversified and wider investor pool in Asia. 

High-tech is not virgin territory in the Singapore Exchange (SGX). Its chief executive Loh Boon Chye, who was in the interview with BT, said: "There are some 80 companies in the ICT and fintech space (listed on the exchange) that are worth close to US$60 billion ... almost similar to the size of our Reits." 

The two exchanges could have a fair shot at wooing mid-market companies, given that the Big Boys worth US$1 billion or more tend to flock to US-based Nasdaq, which hosts more than 100 Israeli companies. 

Also, the current de facto exit route for more than 90 per cent of Israeli firms is the mergers and acquisitions (M&A) market. 

Mr Ben-Zeev, who was in Singapore last week with a delegation of 20 Israeli startups and bankers for a three-day session with investors, said: "I see no reason why part of that M&A activity can't come to us." 

The appeal of the SGX-TASE tie-up is clear - to woo startups in Israel's "Silicon Wadi", which has spawned big names such as Waze, Wix, Sandisk and Mobileye, to tap Asian capital as they seek to scale up in the region. So far, the exchanges have made pitches to between 60 and 70 high-tech firms. 

SGX's Mr Loh said: "(Israeli) Companies will have a wider pool of investors. As for our investors, they now have a wider choice." 

Mr Ben-Zeev chipped in: "We have interesting companies, but we don't have the right investor base. The companies don't want to do it on their own and now we are doing everything for them. It's a perfect fit." 

One market participant, Manor Zemer, founder of Tel-Aviv-based consulting firm Lanta Capital, agrees with this. He said: "For the first time, Israeli companies can simultaneously do an IPO in Tel Aviv and Singapore with one prospectus. This is meaningful." 

The timing is as good as it can get. 

TASE, which was demutualised in September 2017, was until last year in the grip of a six-year long IPO drought and delistings exodus. Between 2017 and this month, Israel's sole stock exchange with 452 listed companies and a total market capitalisation that is less than a third of SGX's, reversed the slide with 26 new listings and six new dual listings, raising US$1.3 billion and nearly a quarter of a billion dollars respectively. 

Mr Ben-Zeev said: "It's a positive sign. This is why we are confident to partner with SGX and approach high-tech companies." 

Under the pact, SGX members could become TASE's "remote" trading members. "Once we have 20 brokers that operate remotely in Israel, it's easier to persuade Israeli companies to seek exposure on the SGX," he said. 

If there is a cloud on the horizon, it would be that the courtship of Israeli startups by the exchanges could prove to be a hard sell - going by the stock price performance of Trendlines Group - one of two Israeli firms listed on the SGX, the other one being the mainboard-listed Sarine Technologies, a diamond technology firm. 

Except for the early weeks since its trading debut in November 2015, Catalist-listed Trendlines, an incubator of medtech and agritech startups, has pretty much spent all that time to date under water from its IPO price of 33 Singapore cents apiece. 

Asked if this could be a dampener, Mr Ben-Zeev said: "I don't think investors look at one specific company as an example." 

But there may be other hills to climb. Mr Zemer, the founder of Lanta Capital, said that in recent years, several Israel tech firms had mulled listing plans on the SGX, but none followed through on it because of a gap in valuation expectations. 

"Singapore investors want to see profitable companies. For Israeli technology companies, sometimes management prefers to invest revenues and profit into R&D, so there is a gap in valuation expectations. 

"Israeli companies would like to see a valuation based on their future profitability; capital-market investors (in Singapore) may not be so generous in the valuation," he said. 

The all-encompassing pursuit of sweeter valuations by issuers, particularly given the "culture of the exit" that drives Israeli startups, chiefly explain why the US stock market remains their holy grail for IPOs. 

For this reason too, perhaps the chiefs of the two friendly exchanges are intent on keeping it real. 

Mr Ben-Zeev said: "Our purpose is not to bring 40 IPOs in one year, but the right IPOs to the table ... those worth between US$200 million and US$400 million." 

Mr Loh remarked: "We are looking for good companies with a meaningful size to qualify for a mainboard listing ... and if preferred, they can also get a Catalist listing. (But) Clearly, investors will determine the valuation." 

Published in The Business Times 32.10.2018 Original Article

#Israel #Singapore #IPO

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