Wealth managers, family offices and multinationals continue to be drawn to the city-state by its political stability, neutrality, and sophisticated legal system, based largely on English common and commercial law, whose underpinnings of legal precedent create an important degree of investor confidence.
This has turned Singapore into the venue of choice for financial and legal services in the Association of Southeast Asian Nations (ASEAN). More broadly, it has made Singapore a leading commercial and trading hub for economies across north, south and southeast Asia.
Singapore attracted record high foreign direct investment (FDI) inflows in 2022 of USD141 billion, 7.7% higher than the previous year, according to UNCTAD1. This made it the third largest destination for FDI after the U.S. and China, although much of this was made up of capital flowing through Singapore and implemented in other countries, especially those in ASEAN.
Singapore has also emerged as a major hub for fund domiciliation and management, for fund managers and family offices alike, having attracted SGD4.9 trillion in assets under management2. One of the recent drivers has been the introduction of the Variable Capital Company (VCC) – a corporate entity structure under which several collective investment schemes (whether open-end or closed-end) may be gathered under the umbrella of a single corporate entity and yet remain ring-fenced from each other.
Similar to the open-ended investment company structure in the UK and protected cell company or segregated portfolio company structures in jurisdictions like Guernsey or the Cayman Islands, the VCC gives funds an alternative to unit trusts, limited partnerships, limited liability partnerships and companies and has proved popular.
Recent years have seen a surge in private capital, including private equity and venture funds looking for targets and deals in southeast Asia. Mitigating risk as they put capital to work is a key concern, with questions around deal structuring and optimal financing arrangements (in particular, around levels of security and transparency) top of mind.
Key drivers for growth
At the same time, Singapore’s government actively promotes the country as a research and development and innovation centre by offering tax incentives, research grants, and partnership opportunities with domestic research agencies. This is underpinned by a strong ethos of collaboration with businesses, which is evident in the semiconductor sector, in which Singapore has been involved since the 1980s.
Singapore’s semiconductor output currently makes up 11% of the global semiconductor market, a share that is likely to grow as the country advances towards its “Manufacturing 2030” vision to become a global hub for advanced manufacturing3, including in the petrochemical and aerospace sectors.
One of the latest examples of Singapore’s success in continuing to attract semiconductor manufacturing amid rising competition from ASEAN neighbours came in September 2023 with the opening of an expanded fabrication plant by Nasdaq-listed Global Foundries4.
This involves a total investment of USD4bn and will create 1,000 jobs for equipment technicians, process technicians and engineers. Many will be sourced through partnerships with local educational institutions, including Nanyang Technological University, underscoring how Singapore works collaboratively with inward investors on sourcing a sustainable pipeline of skilled talent.
In addition to the growth in semiconductors, Singapore continues to invest in the development of its wider digital economy, reinforcing its position as a regional hub for data centers and fintechs. In 2022, Singapore was home to around 1,580 fintech companies5.
As part of its innovation strategy, the Monetary Authority of Singapore (MAS) is investing SGD100m to develop the country’s AI and quantum computing capabilities. The funds, which form part of its Financial Sector Technology and Innovation Grant Scheme (FSTI 3.0)6, represent the latest element of MAS’s efforts to increase the use of new technologies in Singapore’s financial services industry.
Separately, the government published its Green Data Center Roadmap earlier this year. A key goal of the plan is to harness an additional 300MW of data center capacity by promoting the adoption of more resource-efficient technologies, as well as the greater use of renewables and low-carbon energy sources7.
Legal services
Legal services are also a major strength of Singapore, where the increasing maturity and complexity of cross-border activity has created significant demand for work in relation to deal-making, dispute resolution and restructuring.
Work related to enforcement of contractual rights not only in Singapore but also in relation to FDI into the wider ASEAN region has become a key driver of the city-state’s services ecosystem. Singapore has become a leader in commercial arbitration in Asia in the space of a decade, with case numbers at the Singapore International Arbitration Centre (SIAC) exceeding those at the Hong Kong International Arbitration Centre (HKIAC) in 2022, the latest year for which comparable figures are available (357 at SIAC, versus 344 at HKIAC).
Such disputes increasingly have their origin in investment activity in ASEAN and the wider Asian region, with Singapore acting as the legal entry point for the dispute resolution for such markets, thereby facilitating foreign investment activity in the region through the application of Singapore and English law. Foreign users of the SIAC from India, China, Malaysia, Indonesia, Thailand and Vietnam were among the top ten users in [2022]8.
Singapore has recently emerged as a restructuring hub for ASEAN, with growth in demand for restructuring advice stemming from a series of incremental changes to the city-state’s insolvency and corporate rescue laws since 2017. More recently, this trend has been given further impetus by developments in the global economy that have created financial strain in the region’s corporate landscape.
Together, these have facilitated more debtor-led restructurings, in particular through the modified scheme of arrangement process which has many features of the U.S. Chapter 11 “debtor-in-possession” model, including an extensive moratorium protection. The new corporate rescue laws also facilitate cross-border insolvency processes in Singapore, including allowing Indonesian and (recently) Vietnamese obligors access to the moratorium protection to center their debt restructurings with regional and international creditors in Singapore.
Since the implementation of the new laws, case precedent has built up to a degree that provides a reasonably effective guide to possible risks and how the courts are likely to behave, as well as guidance on what creditors can do to protect themselves, particularly in terms of lending structures. The certainty that the law provides, coupled with a commercially astute judiciary, encourages investments onshore into Singapore and offshore through Singapore using Singapore law as transaction governing law.
More recently, the high interest rate environment, increased competition and fragile geopolitics in Asia have contributed to a deterioration in the credit quality of certain corporates in ASEAN. This has forced refinancing conversations involving businesses that may have been significantly leveraged in the era of ultra-low borrowing rates and now face maturity deadlines and require refinancing at more expensive levels. This is creating a significant amount of work around restructuring and refinancing in Singapore, especially with new entrants into the debt market including private credit funds.
Singapore’s growing role in ASEAN and beyond
Singapore’s prospects for enhancing its role as a major financial and commercial centre remain strong. Its mix of political and economic stability, along with its status as a leading venue for restructuring and international arbitration, provide a strong platform and an attractive gateway for a diverse range of local and international businesses looking to access ASEAN’s dynamic markets and sectors.
Footnotes
[1] https://unctad.org/system/files/official-document/wir2023_en.pdf
[2] https://www.mas.gov.sg/development/asset-management
[3] https://www.edb.gov.sg/en/business-insights/insights/diverse-capabilities-infrastructure-help-drive-chips-industry-in-singapore.html#:~:text=Singapore%20accounts%20for%20about%2011,semiconductor%20equipment%20is%20manufactured%20here.
[4] https://gf.com/gf-press-release/globalfoundries-officially-opens-us4-billion-expansion-facility-in-singapore-creating-1000-new-jobs/
[5] https://www.statista.com/statistics/1296289/singapore-number-of-operating-fintech-firms/
[6] https://www.mas.gov.sg/news/media-releases/2024/mas-commits-up-to-s$100-million-to-support-quantum-and-artificial-intelligence-capabilities#1
[7] https://www.datacenterdynamics.com/en/analysis/singapore-lays-the-groundwork-for-smart-data-center-growth/
[8] https://siac.org.sg/siac-announces-2022-statistics-q1-2023-sees-high-filings
