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Business: Singapore's Dotcom Flip-Flops
Suddenly high-tech Chinatown is looking like a ghost town
By ASSIF SHAMEEN

October 6, 2000
Web posted at 7.30 p.m. Hong Kong time, 7.30 a.m. EDT

Some months ago, I lunched in Singapore with a dotcom entrepreneur — a friend of a friend — who wanted to bring me up to speed with his own vast dotcom ventures. He had investments in a few dotcom companies and was hoping to list all of them within a year. He talked endlessly about valuations, IPOs, third, fourth and fifth-round funding programs. The entrepreneur is a fairly well-connected Singaporean, and my agenda, if any, was to tap his vast knowledge and contacts in the island-republic. Moreover, I guess I was so busy washing the chicken fillet down with orange juice that I wasn't paying much attention to what he was saying.

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Every few weeks since then, my new friend has called me. Sometimes we just chat over coffee or drinks, sometimes we wash down more chicken or beef or some such with more drinks. Despite the washout on Nasdaq, I had begun to notice how my new friend had kept his own spirits high. His Internet companies weren't affected by the Nasdaq downturn. All of them were so unique that investment banks were still dying to do the IPO in double-quick time. During the last two coffee sessions I have noticed that the magic words of IPO, listing, investment banks etc. have mysteriously disappeared from his vocabulary. Indeed, I get the feeling that my friend has been thinking about returning to the old economy — or walking away from his investments, which were once worth hundreds of millions of dollar on paper.

Six months after the Nasdaq Internet bubble burst, Singapore Internet companies are finally waking up to the reality that the land of milk and honey doesn't exist. Unlike Hong Kong, where there have been over 30-odd dotcom IPOs and several old-economy companies reborn as dotcom companies through injection of Internet assets (or reverse takeovers), Singapore caught the dotcom fever a bit too late. But in trying to play catch up, it may have spoiled the party for my friend and even for genuine dotcom entrepreneurs with technology and decent business models.

Of the half a dozen or so Internet IPOs in Singapore in the past six months, each one has turned out to be a disaster. Ain't no Internet stock in Singapore high enough to sell even at IPO price.

Take last week's IPO, WizOffice.com, a B2B portal that sells stationery online to small and medium-sized businesses. That's everyday stuff like pencil, paper, staplers etc. Because the Singapore market is so small WizOffice has started selling PCs to small businesses and has launched similar portals in Malaysia, Hong Kong and Japan. To lure customers, WizOffice is offering paperclips and plastic trays and whatever else is used in the offices at below cost. That's a strategy that Amazon.com used in the early days: sell books 30% to 40% cheaper than the bricks-and-mortar bookshops to lure customers and build a loyal base of customers. But selling books to consumers and selling office supplies to small businesses are as far apart as chalk and cheese.

In December, WizOffice.com did its third round of funding, which attracted, among others, Japanese Internet investor Hikari Tsushin. Hikari's injection of capital valued WizOffice at S$110 million. Last week, WizOffice listed on Singapore bourse at an IPO price of 20 Singapore cents, valuing the company at just under S$90 million. In the past four trading days, WizOffice shares have fallen 50% to just 10 cents. That means the market valuation of WizOffice has fallen to under S$45 million. Those who invested in WizOffice during the third round have seen the paper value of their holdings plummet over 60%. Most of those investors actually still can't sell because of the one-year lock-up period. If they could sell, demand for WizOffice stock is such that analysts say the bottom might fall out. The problem is, the WizOffice burn rate is high, and the company by its own admission has cash that won't last more than a few months. That means the dotcom must come back to the market to raise more cash. That would dilute existing shareholders interest and depress stock even further.

Another good example of the reversal of fortunes is SPH AsiaOne, the Internet subsidiary of Singapore Press Holdings, the monopoly newspaper publisher. AsiaOne listed in June at 60 Singapore cents a share. Today its stock price is down to 25.5 cents or 58% below IPO price. SPH AsiaOne, incidentally, just released its annual results earlier this week. It lost S$15 million on sales S$5.5 million. Merrill Lynch estimates it would lose S$15.6 million in the year to August 2001 and S$12 million in the year ending August 2002. That's not a widely held view. Many analysts expect far bigger losses — up to twice as much as Merrill's estimates over the next two years. "We believe prospects for the group remain difficult," Merrill Lynch wrote in a recent report. "It seems the company is having difficulty in converting pageviews into advertising dollars. We estimate that only 20% of the pageviews are saleable inventory." The report reiterates Merrill's investment thesis that "the relatively small advertising budgets in the domestic market could limit opportunities for local portals such as AsiaOne."

Still, AsiaOne has S$100 million in the bank and a parent with a government-sanctioned monopoly in most of its businesses. It is one company that can survive for another few years — though it may not make money for foreseeable future.

Another Singapore dotcom that is reeling is the much touted Internet Technology Group, which spent millions trying to promote itself. ITG dubs itself the Hikariu Tsushin or Softbank of Southeast Asia, or an Internet incubator of sorts. Basically, it has just been buying whatever stakes in whatever dotcoms it can get hold of with no apparent concern for synergy. From an IPO price of 65 cents in July, the company's shares are down 64% to just 23 cents. No analyst covers ITG, though many have gone to see its illustrious Chairman Koh Boon Hwee. Koh, who is also the non-executive chairman of Singapore Telecom, used to have a reputation as an astute angel investor in Singapore. But of the five listed Asian Internet companies where he is director, all are at least 40% below IPO price. Hacks have begun to describe the Internet IPOs' slide as the "Koh Boon Hwee Effect."

In a recent report on Singapore Internet companies, investment bank Jardine Fleming (now renamed Chase JF) had this to say about ITG and its likes : "We are generally wary as to whether these vehicles are here to build companies, or are they merely keen on selling valuations. Lacking in subscriber base and not having a first-mover advantage, many of these investments face a slim chance of survival."

Another newly listed dotcom — eWorldofSports.com, a sporting goods retailer masquerading as an e-retailer—has been hammered badly not just by investors but by the local media for covering up the fact that the IPO was grossly undersubscribed. A criminal investigation of UOB Asia, the investment bank that took it public, is now underway. Regulators are investigating whether UOB Asia deliberately misled investors to drum up support for the IPO. eWorldofSports.com, which listed over two months ago at 42 cents a share, is now down over 60% to just 16.5 cents. By the way, Koh is also director of eWorldofSports.com.

Some of the old economy companies that dotcommed themselves early in the game haven't fared any better. Take Panpacmedia.com, a loss-making publisher of second-rung magazines in Singapore. Panpacmedia dotcommed itsel;f last year only to see its shares climb six-fold. Its stock is now less than fifth of its peak, and despite heavy losses, the company is still an ongoing concern. Panpacmedia was actually relatively lucky. In its bid to expand into Southeast Asia, Nasdaq-listed, Hong Kong-based Chinadotcom bought a stake in Panpacmedia (through a share swap) when Panpacmedia shares were soaring skywards. Panpacmedia has since sold its Chinadotcom shares for a profit of S$7.1 million.

Panpacmedia.com owns several portals like ZingAsia, a leisure and travel portal as well as AsiaStockWatch.com, a regional financial market information portal. Panpac said earlier this year it planned to list at least three of its portals within the next 12 months. Nine months later, that is looking like pipedream. Jardine Fleming, one of few brokerages that actually covers Panpacmedia, rates its as a SELL. "We remain negative on Panpacmedia.com," JF wrote in recent report. "Given its current cashburn rate, it has an estimated 18 months to go before it hits the wall." The JF report added that "unfavourable capital market conditions and eroding valuations for many privately held dotcoms put ZingAsia.com and AsiaStockWatch in the vulnerable position. Going forward, competition (in the field) is expected to heighten." The report said that Panpacmedia's portals, "although vertical, are not deep enough to capture the entire value-added chain. Both ZingAsia and AsiaStockWatch are mainly content-driven. Its ecommerce engines are merely to complement its stock of content. It chooses to remain entrenched in its content provision role rather than evolving to a more transactional position. To succeed, Panpacmedia.com would need extensive brand marketing — something which could worsen its net losses." Analysts say even Panpacmedia's magazine division is losing money.

A few months ago, there was a long queue of Internet companies wanting to list on the Singapore bourse this year. Investment bankers were knocking on doors of old shophouses in Singapore's Chinatown area, where most of the local dotcoms are based, to get their next IPO deal. The lanes adjacent to those shophouses used to be cluttered with BMWs and Mercedes and there was nary a car park space. Now it's like a ghost town. At one time the number of Internet companies in Singapore that had formally engaged an investment bank was close to 70, with another 150 or so waiting in the wings. Today investment banking sources say just three or four Internet IPOs are imminent. "I'd be surprised if we see six pure Internet IPOs in next nine months to June," one investment banker told me a couple of weeks ago.

With every Internet IPO below IPO price and most Internet IPOs not even fully subscribed, investment bankers are waking up to the huge risks. "Unless it's a company with track record of profit or is generating good cash flow, we just wont touch it," says the investment banker, whose bank has several dozen old-economy IPOs in the pipeline. "To tell you the truth, we don't need that sort of business."

Funny how the world has changed. Six months ago, profits and cash flow and sales didn't matter. The only thing that mattered was being a dotcom. Six months ago, analysts and investment bankers were saying the risk was not being in the Internet. Now the risk is being there. Welcome to the New New Economy.

Write to Asiaweek at mail@web.asiaweek.com

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