June 14, 2023 - Singapore is thriving as an Asian finance hub. Record amounts of capital are flowing into the city-state from China, south-east Asia, the US and elsewhere. Not only did Singapore gain from the closure of rival Hong Kong during the pandemic but the nation has benefited from a more neutral approach in a world marked by geopolitical polarisation.
But it has struggled with its ambitions for a key part of its finance hub strategy — to develop a thriving stock market with a pipeline of new equity listings. Monthly delistings often outnumber new companies and the number of quoted companies has fallen from 720 at the start of 2020 to 645 as of April. The Straits Times index for the market has essentially flatlined over the past five years, excluding a Covid-related dip and recovery.
And the market has been delivered a fresh blow by the dismal performance of a high-profile listing of a foreign business, Digital Core REIT. It is not just a matter of a steep share price decline. The circumstances of the real estate investment trust’s problems raise questions over the level of disclosure required on the market.
The owner of data centres in the US, Toronto and Frankfurt was spun out of US property group Digital Realty and was Singapore’s biggest equity listing by funds raised of the past five years and the fourth largest over the past decade, according to Dealogic. The company’s shares have dropped 35 per cent from the offer price and 60 per cent from an early 2022 high.
A key factor in that slide has been problems with two major tenants. Earlier this month, data centre operator Cyxtera, reported to be Digital Core REIT’s second-biggest customer, went bankrupt. The company has accounted for about 22 per cent of the trust’s rental revenue income.
Cyxtera’s troubles have been documented by the media since at least the beginning of this year. But until recently investors would have not known about them by reading only the disclosures by Digital Core REIT, or even that it was a very big customer of the trust. According to management, the Singapore-listed group is typically bound by confidentiality provisions in lease agreements.
Nor was the identity of the trust’s reportedly fifth-largest customer, Sungard, disclosed at the time of the IPO. Sungard went bankrupt for a second time in April 2022 — just four months after Digital Core REIT’s IPO. The trust informed investors of the bankruptcy of its fifth-biggest tenant 10 days after Sungard had filed in the US. It did not mention Sungard, which had accounted for about 7 per cent of the trust’s rental revenue, by name.
It was not until April that there was any mention of the troubles facing Cyxtera, when the trust released responses to shareholder questions. Cyxtera filed for bankruptcy protection two months later on June 4. This time the failure was disclosed the next day, though Cyxtera was still not mentioned by name.
Under Singapore’s continuous disclosure rules, companies have to disclose information that would be likely to materially affect the price or value of their securities. The exception is if the information is confidential, prepared for internal management purposes or concerns an incomplete negotiation. The Singapore Exchange says: “We have been assessing the information flow and promptness of disclosures bearing in mind the impact on the Reit’s financials.”
Mak Yuen Teen, a professor at the National University of Singapore, says if Digital Core REIT had been listed in the US, some of its “tardy disclosures” might have seen investors “come after them”.
A Digital Core REIT spokesperson said: “Upon learning that its second-largest customer had filed for bankruptcy, Digital Core REIT immediately requested a trading halt and promptly provided robust and timely disclosures . . . In general, we believe it is inappropriate to speculate or comment on any customer’s financial condition or course of action.” The company earlier told shareholders it expected “minimal impact” from the bankruptcy.
But the poor performance of Digital Core REIT’s share price speaks to the reduced confidence in the company’s prospects and the assets chosen for its portfolio. In seeking to attract more listings, it seems fair to ask: did Singapore get a poor deal with Digital Core REIT? The city-state has developed into something of a hub for Reits but as a centre for stock exchange listings, it has not matched its business achievements elsewhere. The woes of Digital Core REIT underline the importance of quality in listing candidates and strong regulation to ensure market integrity if it wants to do better.
