Saturday, 14 October 2017

Lion-Phillip S-REIT ETF

I received at least 10 private messages asking if i will be covering the ETF. Even though i don't really consider this an IPO, i will share my thoughts with you.

What is an Exchange Traded Fund ("ETF")?

A short while ago, ETF was not accessible to retail investors until MAS relaxes that in April 2015! If you ask me what an ETF is, it is basically a fund tracking a particular index which it is set up for. In this particular case, this ETF is set up to track the Morningstar Singapore REIT Yield Focus Index.

Key information

The minimum application amount is 50,000 units (or $50,000) and it will be listed on 30 October 2017. The Managers are Lion Global Investors Limited and Phillip Capital Management. The Manager intends to pay out dividends semi-annually and you can find more information about the ETF here. You can find the FAQs here.

Who is ETF suitable for?

Investors who want regular distribution and seeking an "index-based" approach towards investing in a diversified basket of Singapore REITs listed on SGX. According to the prospectus, the ETF will not be actively managed as the Manager do not intend to actively select the REITs to outperform the market or take defensive positions in declining markets.

What i like about the ETF
  • Low cost way for investors to start planning for their retirement. While the initial minimum subscription is $50,000, investors with less capital can subsequently buy and sell in smaller units once the ETF is listed
  • Diversification. Investors are able to gain exposure to a diversified basket of REITs despite the small outlay 
Index REITs

The ETF is supposedly going to track the above REITs based on the weightings. While there could be some tracking error as the Manager tries to replicate the index but investors can expect that their money to be invested in the above basket of stocks

Some of my concerns
  • Low liquidity - Looking at the current trading volume of ETFs on SGX, trading liquidity is likely to be limited. However, investors could ask participating dealer to create or redeem the units
  • Inefficient tax structure - It seems like there is a tax leakage as retail investors who invest in the REITs directly will be "better off" than investing through the ETF even though they will probably not "feel" it as it will not be so evident. See tax treatment for individuals by IRAS versus tax treatment for the ETF below.
Page 66 of the prospectus: "Taxable income distribution from Real Estate Investment Trusts ("REITs") listed in Singapore derived by the Fund will generally be subject to tax withheld at source at the prevailing income tax rate, currently 17%. Such taxable income distribution derived by the Fund is a non-Designated Income and will be subject to tax at the prevailing income tax rate, currently 17%, which could be offset by the tax withheld at source. The gains or profits derived by the Fund from the disposal of units in REITs listed in Singapore are Designated Income."
  • Lower returns. The targeted yield of 4 to 5% after tax is not high enough for me for this asset class
Fees involved
  • Transaction fee and Duties of $500 per $50,000 means investors who subscribe to the ETF incur a 1% creation charge. The rate is similar to placement fees in an IPO, except that this is not an IPO. Investors who didn't sell through the exchange but via redemption subsequently will incur a 1% redemption fee as well
  • Manager's Fee  of 0.5% per annum
I didn't comment on the fee levels as you don't expect this to be created for free isn't it? So you have to access for yourselves whether you are comfortable with the fees you are paying

Mr IPO's views

The ETF is great for retail investors who wants to start their retirement plans and wants to build up their portfolio in a disciplined way but do not know how to choose the REITs. It is a safe way to build up a diversified portfolio from day one. To me, the best way to invest in this ETF is to set aside a small amount of cash regularly and nibble at the ETF through SGX. 

For investors who are more savy and have more capital, my view is that you are better off creating their own "index" of REITs. There is no point paying for low liquidity and low returns and incurring the transaction and manager's fees. I will give it a miss personally. If you have $50,000 to invest, you can start creating your own portfolio and enjoy a better after tax returns. ๐Ÿ˜Ž  Maybe i can charge 0.5% as advisory fees next time? ๐Ÿ˜‹

Saturday, 7 October 2017

IPOing 101 - Share Application Rules

For the IPO newbies, i have previously written a few articles that may still be relevant and for your benefit, i am posting the links here.

  1. IPOing 101 - How to apply for IPO shares
  2. How to increasing probability of getting IPO shares from the public tranche
  3. How to lay your hands on placement shares
Even though these articles were written in 2007 (wow more than 10 years ago ๐Ÿ™‚), I took a quick glance and think that they are still applicable. Please let me know if you spot any mistakes. ๐Ÿ˜‚

Having said that, I am still learning new things everyday! Here are some questions for today and see if you have the answers. For the purpose of this article, i will not be using the printed forms anymore. At this time and age, i think they should eliminate the printed forms to save the ๐ŸŒฒ...

Let's take a look at Appendix F using the most recent APAC Realty IPO as an example and see if we can learn something new.

Question 1: Must you physically be in Singapore when you apply for the IPO shares?


The answer is yes, you have to be in Singapore! It was printed in BOLD and Capital Letters, indicating that this is an important point! In other words, it is illegal to apply for the shares through the internet banking if you are physically in United States at the point of application... feeling guilty now? ๐Ÿˆฒ

Question 2: What is the minimum number of shares you can subscribe for and in what multiples? Example, can you apply for 2,000 shares, or 2400 shares or 2,688 shares?

Answer: The minimum initial subscription is for 1,000 Offering Shares. You may subscribe for or
purchase a larger number of Offering Shares in integral multiples of 100. Your application for
any other number of Offering Shares will be rejected. 

In other words, the rules are: (1) you must first apply at least 1,000 shares and (2) it must be in multiple of 100. Based on the question above, if you apply for 2,688 shares, it will be rejected but if you apply for 2,000 or 2,400 shares, it will be accepted.

Question 3: Can you apply for the same IPO placement shares with different banks or brokers? Example - Applying for Netlink Trust placement tranche through DBS, Credit Suisse and UOB?

Answer: Multiple applications may be made in the case of applications by any person for the
Placement Shares only (by way of Application Forms for Placement Shares or such other form of application as the Sole Issue Manager, Bookrunner and Underwriter may in its absolute discretion deem appropriate)

In other words, you can apply for Netlink placement shares through different banks or brokers

Question 4: Can you apply for the same IPO under both placement and public tranche?

Answer: Multiple applications may be made in the case of applications by any person for the Placement Shares together with a single application for the Public Offer Shares whether by way of an Application Form for Public Offer Shares or an Electronic Application.

In other words, you can apply for the placement tranche multiple times but you can only the public tranche once

Question 5: Can you apply for the same IPO public tranche using ATMs from different banks? 

Answer:  Only one application (be it using physical form or electronically) may be made for the benefit of one person for the Public Offer Shares in his own name. Multiple applications for the Public Offer Shares will be rejected. Persons submitting multiple applications for the Public Offer Shares may be deemed to have committed an offence under the Penal Code, Chapter 224 of Singapore, and the SFA, and such applications may be referred to the relevant authorities for investigation. 

In other words, you can only make ONE application for the public tranche ๐Ÿง and it is a serious offence and you can be charged in court for this. ๐Ÿ‘ฎ

Question 6: Why can't i use the ATM network or Internet Banking platform of certain banks for some IPOs (the answer is not found in the Appendix F) ๐Ÿ˜‹

This is an additional question which i have added which i think some people may not know. 


Usually the issuer will have to decide which banking network they would want to use to distribute the shares during the IPO application. The de facto bank will be DBS bank. DBS has the widest ATM network compared to the other 2 local banks. If the issuer decides that DBS is adequate, it may not extend the ATMs to UOB or OCBC, especially for smaller issuance.

in addition, some banks has internal restrictions. I understand UOB has certain restrictions internally on distributing perpetuals through its ATM network.

Internet Banking

DBS has the most advanced Internet banking and mobile app platform among the three banks. As such, DBS users can apply for IPO using both internet banking or mobile app platform. I have been using the DBS internet banking to apply for shares for the longest time. At the time of writing, the UOB and OCBC internet platform is still not ready for IPO applications. Do let me know if my understanding is wrong. 

Polling time: Link is here

Wednesday, 27 September 2017

APAC Realty Limited - Balloting Results

I rarely see such balloting announcement results where there was no accompanying ๐Ÿ“ขpress release and APAC Realty Limited announced its placement and public tranche subscription rates separately๐Ÿค”:
  • Placement tranche of 44,503,200 shares was 13.4x subscribed
  • Public Offering of 4,411,000 shares was 29x subscribed
In connection with the offering, DBS, the stabilization manager was also over-alloted 9.75m shares and will step in to stabilize the market if necessary

The placement tranche was placed out in the following manner:

and the public tranche balloting results is below. 

It is also interesting to note that investors who applied for any number of shares has an equal 42% chance of getting the shares! ๐Ÿ˜Ž The Issuer didn't favor the big applicants or the small ones. 

Strong group of Institutional Investors

I am actually surprised that the issuance received quite a bit of interest from both hedge fund managers and traditional fund managers. The list is of managers awarded the shares are below and it doesn't include the cornerstone investors:

How did Mr. IPO fare in the balloting?

It is also quite rare whereby my broker said that i can still apply at the ATM even though i was given 2,000 placement shares. 

Here is my application results - 

Overall, i think APAC managed to attract strong interest in its placement tranche where it eventually priced at the high end of the 60-66 cents range. Good luck to those who managed to get some shares!

Happy APACing
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