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Nov 29, 2010
Riding the Seoul train

Some firms starting to head for dual listings in S. Korea
By Jonathan Kwok

THE dual-listing bandwagon is on the move again with South Korea joining Hong Kong and Taiwan as destinations for ambitious Singapore firms.

While Seoul is still largely uncharted territory - so far, only three local companies are heading there to list - observers tip that more firms will soon follow.

The attraction of higher stock liquidity makes Seoul very appealing, company bosses say. The turnover velocity - a measure of how liquid shares are - of domestic stocks on the Korea Exchange was 149 per cent last year, according to the World Federation of Exchanges, well above the Singapore Exchange's 46.1 per cent.

Strong valuations could also be garnered by companies operating in industries that are well-established and understood in South Korea.

'Those in information technology and high-tech industries would be attracted to South Korea, where Samsung and LG are,' said Mr Perry Jung, who heads the China desk at IBK Securities, a major underwriter for new listings in Seoul.

'These comparable companies are important for new listings. Seoul would also be attractive to automobile, online gaming or shipbuilding companies - or those in other industries where South Korea is also strong.'

The three local pioneers blazing the trail are contract manufacturer Combine Will, textile company China Gaoxian and spray-pump maker Sunmart Holdings, although none has yet completed the listing process.

Mr Raymond Wong, China Gaoxian's chief financial officer (CFO), points to the benefits of listing in South Korea.

He said the average price-earnings (P/E) ratio of Korea-listed firms in the textile business is about 14, while the industry here trades at a ratio of about six to seven. The P/E ratio is a widely used measure of share value.

'We want an alternative capital base for the company,' said Mr Wong. 'There are about 20 textile companies on the Korea Exchange and investors are familiar with the industry.'

The Korea Exchange is courting listed companies here, and has teamed up with IBK Securities here and in Taiwan and Australia to market South Korea as a dual-listing destination, said Mr Jung.

China-based companies with Singapore listings or S-chips - which fell out of favour with many investors here after a series of corporate scandals - could be especially attracted to South Korea.

Investors there are taking to China companies in a big way - much like investors here did at the height of the S-chip fever in 2007.

That could be why all the three Singapore-listed firms now heading to South Korea are ones whose operations are based mainly in China.

'Korean investors are really crazy about the China growth story,' said Mr Jung.

Since the Korean authorities paved the way for overseas listings in 2006, about 14 foreign companies - 12 from China - have entered the market there.

More than 2,000 companies are listed on the country's Kospi mainboard and tech-heavy Kosdaq secondary board.

Sunmart CFO Ho Soo Hui said his firm finds South Korea attractive as fewer China companies are listed there than in Singapore, Hong Kong or the United States.

Mr Simon Chiu, an executive director of Combine Will, a dual-listing aspirant for Kosdaq, said the company is extending its business to South Korea.

'Koreans would rather do business with a Korean-related company than with a foreign company. Therefore, a listing in South Korea would help the company to market there,' he explained.

Still, it might not be all smooth sailing for S-chips seeking a dual listing in South Korea, as there have been some governance issues involving a China firm.

United Technology Holdings, which produces artificial leather on the mainland, was involved in an auditing and governance scandal in South Korea last year. The matter was resolved in a few months.

Mr Jung said the episode did not dampen the appetite of Korean investors, who still welcome China companies because of the growth story. They are just 'more careful' now when they invest.

Mr Robson Lee, a corporate lawyer and partner at Shook Lin and Bok, said that if the three Korea-bound firms raised a significant amount of funds or saw a jump in their P/E ratios, then more companies here would consider a listing in Seoul.

'This could be an alternative way for companies to raise funds, other than the Hong Kong or Taiwan Depositary Receipt routes,' he added.

'That would be a good thing, and could cause the Singapore market to examine its processes to see how we can emulate the factors that are making these alternative markets successful.'

jonkwok@sph.com.sg