Equity barely raises a whimper in first half

[SINGAPORE] Singapore's capital markets have been rather inequitable to equity investment bankers in the first half of 2014.

While their debt colleagues have been overwhelmed with deals, equity fund raising in Singapore saw a disappointing drop amid a volatile, quiet secondary market and persistently low interest rates.

The rest of the year, however, could see a pick-up as a number of trusts hovering on the sidelines could finally make their move, industry insiders said.

Equity and equity-linked deals raised US$6.9 billion in Singapore in the first half of the year, almost half the US$12 billion year-ago volume, according to preliminary data from Thomson Reuters.

The initial public offering (IPO) market contributed US$773.6 million in proceeds, just over a quarter of the US$2.8 billion raised in the same corresponding period a year earlier.

Follow-on deals raised US$945.7 million, down 77 per cent year on year.

The one sector that showed some resilience was in convertible issuance, where proceeds grew by a modest 1.2 per cent to US$5.2 billion.

"Equity capital market activities were muted in the first half of this year due to various reasons which include the uncertainties in the equity market and interest rate outlook that affected investor appetite, and the lead time needed by listing candidates for their preparations to go to market," said Tay Toh Sin, head of corporate finance at OCBC Bank.

There were only two IPOs in the second quarter: Oil and gas vessel operator PACC Offshore Services Holdings raised S$388.3 million to list on the main board in April, while catheter maker QT Vascular sold S$55 million of shares to list on Catalist.

The slowdown in the equity capital market this year has come as a surprise to many in the field. Amid talk of an improving US economy and expectations of higher interest rates, forecasts at the start of the year were for a buoyant market for equity deals.

But the US economy's recovery remains at a plodding pace, and interest rates have remained low and attractive enough for debt to remain relatively cheap.

Investors are highly selective now, said Matthew Song, head of equity capital markets for HSBC in South-east Asia.

"The 'easy' yield sectors such as telcos, utilities and Reits have rallied since the global financial crisis and have now scaled back somewhat," Mr Song said.

"As central banks continue to keep rates artificially depressed, the hunt for yield has now moved on to other sectors, most notably to technology and oil in the first half of 2014. Investors will also focus on free cash flow, sustainable growth and capital structure management, in addition to yield."

Singapore is still catching the eye of property and business trusts, said Mr Song. He noted the US$600 million Acordia Golf Trust, US$650 million L&T Business Trust, US$400 million Mytrah Energy Trust and the US$300 million I-Reit Global Management Trust as possible new listings.

Mr Song also expects the North Asian IPO market to outpace South-east Asia. In terms of industries, investors are likely to prefer information technology, financials and materials, where earnings have been below trend.

"With earnings growth and margins expansions likely to drive equities in 2014, investors will favour sectors where earnings have been depressed and therefore still have scope to rise," Mr Song said.

OCBC's Ms Tay expects more IPOs in the second half, although issuers are also looking more at alternative sources of capital such as strategic investments or private deals.

"Investors could see more fund-raising activities from the oil and gas sectors given the positive outlook in these sectors, particularly among the exploration and production and offshore supply vessel segments," she said.

"Reits and business trusts are coming back to tap the market during this window, following the recent US Federal Reserve announcement that interest rates are expected to remain low till mid-next year."