By Goh Eng Yeow, Senior Correspondent

INVESTORS are not exactly giving the thumbs up to the latest fad on the local corporate scene - listed firms here getting a listing on the Taipei bourse as well.

When plastics maker Changtian Plastic & Chemical announced plans for such a move, the punters responded by dumping its shares, causing its share price to plunge by 17 per cent in two weeks.

Now, another company - China-based abalone producer Oceanus - has announced similar plans.

Given the two companies' positive spin on their proposed Taiwan listing, it seems strange at first that local investors are not enthusiastic about them.

To be fair to both companies, they are not abandoning the Singapore Exchange to seek their fortunes elsewhere.

Rather, they will keep the Singapore listing and issue 'Taiwan depositary receipts' (TDRs) on their SGX-listed shares to Taiwanese investors and get them traded in Taipei. A TDR is a Taiwan-registered certificate traded on the Taipei bourse which gives its holder ownership to a number of shares in a non-Taiwan company and any dividend paid out by it.

As far as management is concerned, there is no change in the status quo for investors here, as the company will still have to adhere to the local regulatory framework and the rules laid down by the Singapore Exchange.

For companies beating a path to Taipei, there are attractions to a TDR issue. Oceanus, for example, believes the Taiwanese market offers better valuations for 'certain strategic industries' in China and this will give the company an edge in raising capital at a very attractive rate.

But a fair question to ask is: What benefits do Singapore shareholders get from such an exercise, after keeping faith with the company throughout the huge financial storm stirred up by the recent global banking crisis? Not much, apparently.

Take Changtian. It is a big beneficiary of the Singapore capital market, after raising an eye-popping $101 million two years ago by selling 215 million shares at 47 cents apiece to investors here.

It now wants to issue up to 132 million new shares in the form of TDRs to Taiwanese investors. But with its share price languishing at around 18.5 cents, these fresh Taiwanese investors are getting a slice of Changtian at a fraction of what it cost their Singapore counterparts when the IPO was launched two years ago.

The Taiwanese are getting a sweetheart deal, too - by getting the shares at a discount of up to 20 per cent on Changtian's Singapore-traded price.

To rub more salt into these fresh wounds, their entry cost will be further lowered by the 17 per cent plunge in the company's share price after it announced the TDR offering.

Even that kind of a raw deal would have been acceptable to investors here if there had been a subsequent trade-off in the form of a higher price for Changtian here and better liquidity in the trading of its SGX-listed shares.

But the experience gathered from another SGX-listed firm, Medtecs International, which has also issued TDRs, offers little encouragement that this will be so.

Medtecs' TDRs currently trade at a 279 per cent premium to its SGX-listed shares. Over the past year, its TDRs are also, on average, four times more heavily traded than the SGX-listed shares.

Why is this so?

Under usual circumstances, traders would have taken advantage of the price disparity to turn a profit by arbitraging between the shares and the company's depositary receipts.

But in Medtecs' case, such arbitrage opportunities are limited, as it is virtually impossible for a retail investor to convert his SGX-listed shares into the higher- priced TDRs.

One concern is whether the SGX-listed shares will end up being treated as 'second class' stock, when compared with the TDRs, as investors turn to the Taipei bourse to trade them.

What can be done to rectify the situation? For a start, let's recognise that Singapore's one-size-fits-all share placement guidelines may have to be fine-tuned to cope with the fresh challenge thrown up by the use of TDRs.

Any shares to be issued for depositary receipt purposes should be pegged as closely as possible to market price - to be fair to existing investors here.

It is one thing for Singapore's listed companies to issue large numbers of new shares to well-placed investors here at a big discount, as this action might revitalise the stock with their participation.

But it is quite a different affair altogether to offer new shares at a big discount to foreign investors to be traded in the form of TDRs. This does no favours to Singapore's small investors, as it may result in a drying up in trading interest of the stock here.

Taken to extremes, it may cause a hollowing out of the SGX, if more companies start beating a similar path to other bourses.

No doubt, the SGX will get an annual fee from these companies' willingness to continue their listing here, but its life-blood - the income it earns from clearing stock trades - will start to dry up if it does not take action now.

Company management should also be challenged to tackle the basic issues - like the poor trading liquidity or the lacklustre performance of their shares here - before being allowed to take a dual listing route.

Otherwise, they would have failed to live up to the promises they made to investors when they first made their pitch to raise money here.

They should not take the easy way out to drum up interest in their companies by issuing new shares at far lower prices elsewhere and alienate the loyal base of shareholders here.

This article was first published in The Straits Times.