Stronger IPO flows in Asean seen for 2nd half of the year

Singapore

SOUTH-EAST Asia may see more initial public offering (IPO) activity in the second half of the year amid rising business confidence in this part of the world, top bankers told The Business Times.

"Most South-east Asian equity indices are trading in significant positive territory in 2017 year to date," said Ho Cheun Hon, head of Southeast Asia equity capital markets (ECM) for Credit Suisse.

"Against this backdrop, we see a healthy IPO and secondary offering pipeline in most South-east Asian markets. In particular, Malaysia looks to be enjoying a strong revival in ECM volumes this year compared to the previous year, with several large IPOs in various degrees of progress."

Likewise, Choo Oi Yee, head of corporate client solutions for Singapore, UBS investment bank, said the stronger activity is a reflection of the rally in markets.

"Markets have rallied strongly since the end of last year, and companies looking to raise capital have been able to take the opportunity to tap on the liquidity available," said Ms Choo.

In the second quarter of this year, there was a stronger IPO pipeline out of Asean markets compared to the first quarter in both volume and value terms, data from EY showed. IPOs in this region raised a total of US$3.1 billion from 33 deals, up from US$1.1 billion from 15 deals three months earlier.

The Indonesia Stock Exchange was the most active in Asean for the second-quarter period, with 13 deals raising US$221 million, while the highest proceeds came from Malaysia at US$1.34 billion. In Singapore, five IPOs on the Singapore Exchange (SGX) raised a total of US$182 million in the second quarter.

Sreenivasan Iyer, head of corporate finance South-east Asia at Deutsche Bank, said there is specific IPO activity out of Singapore and Thailand in the infrastructure, power and utilities, and professional services space. Deutsche Bank was the sole issue manager for HRnetGroup, which was one of the few non-Reit IPOs in Singapore in recent years.

In Malaysia and Indonesia, more activity is expected from the chemicals and industrial sectors at the moment, added Mr Iyer.

"After a couple of years of low inflation and weak regional currencies and commodity prices, we're again seeing growth and that is giving businesses the confidence to invest and grow," he said.

"On the other hand, the improved outlook has not yet resulted in rising local rates, hence the environment remains constructive for income as well as growth equities."

UBS's Ms Choo also pointed out that Reits - a stronghold for the Singapore market - have traded strongly since the beginning of the year as investors continue to look to deploy capital into well-managed Reits with capacity to grow through strong rental reversions, asset enhancements or acquisitions.

"We are seeing more Reits that will own foreign assets listing on SGX, or are considering a listing," she said.

The healthy Reit and business trust IPO pipeline also reflects the ample liquidity from yield-hungry institutional, corporate and high net-worth investors, said Credit Suisse's Mr Ho.

Singapore's largest IPO in about four years will soon come on board in the form of Singtel's NetLink NBN Trust. The listing will raise gross proceeds of about S$2.35 billion. DBS Bank, Morgan Stanley and UBS are the joint issue managers and global coordinators of the deal.

In Thailand, WHA Utilities and Power, a unit of WHA Corp, Thailand's biggest warehouse developer, raised about US$174 million in an IPO this year. Stronger activity in the infrastructure space in Asean should offer some relief to investors ranging from pension funds to insurance companies that are seeking out long-term assets. PwC has estimated that about US$1.7 trillion in global infrastructure spending is expected to be doled out from now through to 2020.

Data from Deloitte showed that consumer business, energy and resources, as well as industrial products were the top three industries based on IPO count in Asean between 2014 to 2016. In South-east Asia emerging markets, all these industries represent 50-60 per cent of the total GDP.

"With cheap labour market, improved infrastructure and technology utilisation, as well as recent formation of the Asean Economic Community which further eases exploitation of economies of scale, South-east Asia is seen as a growing production base for the three sectors," Deloitte said.

For the three years ended 2016, Thailand led the Asean region both in terms of total IPO amount raised - at S$6.6 billion - and in market capitalisation of S$26.3 billion in value, data from Deloitte showed.

Vietnam contributed the highest number of IPOs at 147 out of 409 IPOs across Asean from 2014 to 2016. This is due to government efforts to privatise state-owned enterprises, and to reduce the country's increasing government debt-to-GDP ratio resulting from the consistent 5 to 6 per cent GDP budget deficit in recent years, said Deloitte.

It also observed that as Asean develops, the market has shown a movement towards tertiary industries such as financial services, life sciences and healthcare, speaking to the emergence of the middle class in the developing markets.

"The countries that make up this dynamic region represent a thriving trade and economic hub, and the prospects will be even greater if there are to be further improvements to infrastructure and regulatory policies," Deloitte said.