IPOs take a back seat in rocky stock market

[SINGAPORE] The anaemic stock market has taken the wind out of the sails of the initial public offering (IPO) market here.

While January began on a bullish note with four listings that added more than $1 billion in value to the market - compared with the lone listing of Logistics Holdings in the same month last year - the next few weeks or even months could see a lull in IPO activity as potential issuers wait for the market to calm down.

"IPOs will definitely be reconsidered," said CIMB market strategist Benjamin Goh. "Certainly companies don't want to issue their shares in a downward spiralling market."

On Monday, the Straits Times Index fell below 3,000 points, a psychological support last breached in November 2012, on concerns over weakness in emerging markets, hints of an economic slowdown in China and a further reduction in the US Federal Reserve's quantitative easing programme.

The bourse lost more ground yesterday, slipping 0.84 per cent to 2,965.80. The benchmark index has lost 6.7 per cent so far this year.

Some US$12 billion moved out of emerging markets last month, with retail investors leading the charge, the Financial Times reported.

"Right now it's pretty bad. Every market is falling, the sell-off is pretty sharp," an investment banker told The Business Times. "It will take a bit of time (for the market to settle), so I'm not that confident that Q1 is going to be easy for IPOs."

The weak market, coupled with the Chinese New Year break and the poor performance of IPOs this year, has thrown a spanner in the works where looking for cornerstone investors is concerned. "Most of the IPOs that we have seen are still working towards cornerstone," the banker added. "It's not a great time to cornerstone (an IPO) as that would need a better market."

The selection of cornerstone investors is important to the success of an IPO and its after-market trading performance, said Matthew Song, HSBC's head of equity markets in South-east Asia.

"Given the current sentiment in the market, and without a good set of cornerstone institutional investors, issuers will find it challenging to complete the order-taking stage from institutional investors," he warned.

January's four IPOs, which raised $433.3 million in gross proceeds, have seen mixed fortunes so far, with Catalist listings finishing higher on their trading debut.

Luxury car dealer EuroSports Global, the first off the starting block, has since slipped below its offer price of 28 cents. The stock closed at 23 cents yesterday.

On the flip side, offshore oil and gas contractor Kim Heng has benefited from the market's warm reception to the oil and gas support services sector. It ended at 29 cents yesterday, above its offer price of 25 cents.

Shares in medical oncology firm MedTalk Group soared to 82 cents on its first day of trading last Thursday, quadrupling its offer price of 20 cents. It closed at 68 cents yesterday.

The only mainboard listing, OUE Commercial Reit (OUE C-Reit), closed unchanged at 80 cents on its trading debut, but it has since gone underwater.

This prompted one of its bookrunners, Standard Chartered Bank, to buy around 14 million shares - or 33.5 per cent of the 41.6 million units available to the bank under the over-allotment option - through five stabilising actions between Jan 27 and Feb 3. The stock closed at 78.5 cents yesterday.

"OUE C-Reit coming down was a bit of disappointment, considering that they had already tied up with anchor shareholders," said CIMB's Mr Goh, adding that the decline in the counter could be due to institutional investors' aversion to the Reit sector.

"The institutional investors that CIMB has generally are not very convinced about the Reit story," he added.

"So if they're not going to be too excited, retail investors will not be as well."

BT understands that OUE C-Reit, whose cornerstone investors included RHB Asset Management, a subsidiary of Malaysia's RHB Investment Bank, and an investment firm wholly owned by Chinese property tycoon Tong Jinquan, did not attract much interest from institutional investors.

But it may not be time to write off listings of Reits or yield stocks just yet, bankers cautioned.

"There are people who take a view and say these are short-term issues," said another banker. "The verdict is still out. It doesn't mean that subsequent Reits or yield plays will do badly."

What is certain, however, is that pricing for upcoming listings, especially for Reits and business trusts, would come under pressure.

"Clearly an IPO that is not performing well is going to influence the pipeline and the pricing of the next IPOs," said the first banker.