Ailing home economies and depreciating currencies are making foreign businesses flock to Singapore to take advantage of the billions of dollars which investors have poured into trust listings this year.
The island-state’s legal framework for business trusts, as well as its stable macroeconomic outlook, have made it a hub for companies like Larsen & Toubro and Mytrah Energy to list their business trusts here.
Business trusts are established by companies that want to raise capital by selling shares in their assets to investors. Companies which do so usually have a steady stream of revenue that can compensate investors by offering them a guaranteed yield for a set period of time.
This opens up another investment option for market participants, who can put their money into cash-generating assets such as infrastructure, transportation or real estate.
According to a Wall Street Journal article titled ‘Indian Companies Seek Business-Trust Listings in Singapore’, there are about 50 business and real estate investment trusts with a total of US$65 billion in market capitalisation.
Close to 90% of US$4.24 billion raised via IPOs on the Singapore exchange this year were in trusts, data provider Dealogic said.
Analysis by Singapore company registration specialist Rikvin shows that companies whose home economies are developing and are in need of capital can set up in Singapore to meet their funding needs. However, they will need to have attractive assets which will generate revenue, as well as a capable management team, to court investors before they bite.
The fact that more and more foreign companies are coming to Singapore to list their trusts shows that they are confident of raising capital from investors here.”
Under the Singapore Business Trusts Act, a business trust is operated and run like an enterprise, but is not considered a separate legal entity. It is created by a trust deed in which the trustee is the legal owner of the trust’s assets and manages the trust in the interests of its beneficiaries.
Commenting on this, Mr. Satish Bakhda, Head of Operations at Rikvin, said foreign companies should make full use of the opportunities offered by Singapore’s trust market and list their trusts here.
“The fact that more and more foreign companies are coming to Singapore to list their trusts shows that they are confident of raising capital from investors here. Incorporating in Singapore is beneficial to their businesses because they are not only able to get more capital, they can also take advantage of the low costs and strong legal framework. We expect the number of business trusts listed on the Singapore Exchange to increase steadily over time, on par with the recovering world economy,” he said.
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