More billion-dollar equity deals expected in Asean with markets rebound: Citi

Singapore

CITI is expecting more billion-dollar deals in South-east Asia's equity capital markets over the next 12 months as markets rebound, with the region looking to play catch up to the rest of the world.

The big transactions are likely to come from tech, household consumer and healthcare players - the clear winners from the Covid-19 crisis - to raise fresh equity for growth as business confidence recovers in the region, said Udhay Furtado, Citi co-head for Asia equity capital markets, in an exclusive interview with The Business Times.

More cases of "defensive" needs for equity, such as the recapitalisation of airlines, could also surface, though Asean markets are overall in growth mode with more initial public offerings (IPOs) expected in Q4 through to 2021.

Thailand-based SCG Packaging's 39.5 billion baht (S$1.72 billion) IPO announced last month marks the first of many more billion-dollar deals to come, said Mr Furtado.

He told BT that Covid-19 concerns in the first quarter had disrupted a large growing issuance pipeline across Thailand, Indonesia, and the rest of South-east Asia.

As the global economy eases out of the pandemic, Asean equity capital markets have generally rebounded slower than the rest of the world, mainly due to the length of lockdowns in some markets and ongoing national policy adjustments.

Year to date, there has been US$6.3 billion of equity issuance on the Asean bourses, potentially the lowest annual issuance volume level this decade. Issuances since March have generally been block trades and follow-on placements, with below-average deal sizes, said Mr Furtado.

Thailand has been the busiest market by new issue volume, together with Singapore which has been dominated by rights issues from Singapore Airlines and Sembcorp Marine.

Thai conglomerate Central Group, via its retail arm, was the only major IPO over a billion dollars year-to-date in South-east Asia. There were only four IPOs above US$100 million, with the Phillippines' Ayala Land Real Estate Investment Trust (Reit) at US$250 million being the largest.

"That's kind of shocking to say," Mr Furtado noted.

Within the broader region, Australia, India and China corporates have seen record levels of equity issuance activity due to the crisis impact. US firms were also "very quick" to return to the equity markets, with the first wave being mostly recapitalisations, said Mr Furtado.

On South-east Asia, he noted: "We're starting to see the new issues markets opening up, just that it's been a lot slower. We don't have that many weeks left in 2020, but I do think we're going to see a few more interesting transactions.

"South-east Asia is one of the highest growing regions. We have a young population and strong underlying consumer growth, which is what the global market is attracted to."

Citi's pipeline of deals across the region include a "good mix" of companies from high-growth industries and traditional sectors.

"The New Economy, over the next 12 months, is going to be a large component of issuance," said Mr Furtado, who is expecting more unicorn IPOs.

"We're also going to see more traditional sectors, such as the banks, coming in to raise equity. Hopefully, as travel and leisure come back in 2021, we will see a broader spread of issues."

Amid the growing trend of strong tech IPO debuts across markets, Mr Furtado said Reits will remain a cornerstone of Citi's pipeline across South-east Asia.

"The rate environment we live in will make these yield instruments attractive." More Reit listings are expected to come from Thailand, Singapore, Indonesia and the Philippines.

Singapore Reit (S-Reit) IPOs account for the majority of listings here in three out of the last five years, data from Bloomberg showed. With an average dividend yield of 6.2 per cent, S-Reits are one of the highest yielding in the region and globally.

When asked if Citi will steer away from hard-hit sectors such as aviation and tourism, Mr Furtado told BT that the bank is able to find solutions "even for guys who may be losers from Covid-19."

Citi participated in some recapitalisation exercises recently, including for Norwegian Cruise Line and several airlines, he noted. The bank also executed a block for Indonesia-based PT Merdeka Copper Gold benefitting from the gold rally amid the crisis.

In August, Citi led US grain trader ADM's capital raise of US$850 million using a concurrent block of Singapore-listed Wilmar International shares and an exchangeable bond - a deal Mr Furtado sees as "opportunistic monetisation" in the current business climate.

"That was over a billion Singapore dollars done overnight. It was a good indication of the strength of the market," he said.

"It is clear Asean will recover from this Covid-19 test and the future for capital markets is bright. One lesson of this crisis is that access to liquidity is a strategic imperative for all businesses."