Migration of the Chinese Albatross

This is the time and season - Those S chips listed on the SGX are stirring. For a long time, they have slumped and weighed heavily like a dead albatross on many mariners' shoulders. Now, some are rebelling.

The first off the block is Chinese fertilizer company, China XLX Fertilizer, who yesterday announced that they are seeking a dual-listing in HK. Away from the usual PR talk of how a HK listing will align their business more closely with the capital markets, the real reason is simply, HK listed entities have enjoyed a higher price multiple. In other words, HK counters generally trade higher than those listed in SGX. One reason is: Investors believe that the HK Exchange regulates the listing more tightly and there is less risk of fraudulant listing. The recent spate of S chip problems strengthened this view. SGX must now be fretting and quite worried that this could become a trend.

The implication is huge. Imagine, if the better few starts the migration to HK, what will investors think of those that didn't migrate? Thus, the risk is: S chips that remained on SGX that didn't seek dual listing would be assume to be of a second class to those listed in HK. The entire SGX could be tainted.

In the meantime, today's price action said it all. At 9:40am, CXLX was up 16% while China Milk, probably a rumored candidate with migratory tendencies, was up 10%. This must be a sad day for the SGX. But, what can the SGX do? There are so many S chips running afoul that they have casted a cloud of doubt on all S chips. If I were a S chip CEO (assuming I'm clean), I too would be disappointed that my company's stock price has underperformed because of wrong association.

Well, SGX could start by acknowledging their laxness. Then they could review the listing and disclosure policies. For one, if the Management of a company pledges its entire stake to financial institutions, shouldn't this be disclosed? Currently, I think it is not required. In addition, Singapore and China should sign some extradiction treaty so that recalcitrant CEOs could be tried in Singapore Courts.

In the meantime, the migration north is starting. Happy reading.