Saturday, 17 June 2017

(The Star) IPO market heats up

The two mega listings coming to the Malaysian market mark a significant milestone of sorts for the domestic capital market.

For starters, the two are foreign-owned entities that have chosen to tap the local market for a whopping total of more than RM8bil in fund-raising.

The first listing is that of Lotte Chemical Titan Holding Bhd, a unit of South Korean multinational ethylene producer Lotte Chemical Corp which aims to raise some RM6bil in its IPO exercise slated for next month.

The next large IPO on Bursa Malaysia is expected to be that of Brunei’s largest lender, Bank Islam Brunei Darussalam, which reportedly wants to raise more than RM2.1bil in proceeds.

At RM6bil, Lotte will be the country’s biggest IPO since Felda Global Ventures Holdings Bhd and IHH Healthcare Bhd’s IPOs back in 2012.

Observers say the planned listings of these two companies are a significant progress from the most recent foreign-related listings here, namely the 10 over Chinese companies that are listed on Bursa Malaysia.

These Chinese firms today trade at very low valuations, do not attract much investor interest and are often times embroiled in accounting scandals.

“Within Asean, Malaysia has been the darling this year, partly owing to improving corporate earnings and commodity prices as well as valuations that are cheaper, compared to say two years ago,” says an investment banker.

“There’s the belief that the ringgit has seen its worst after being one of the worst performers last year, and with a possible General Election this year, there are expectations of a lot more activity,” he adds.

Year-to-date, the Malaysian stock market has given out one of best returns among Asean stock markets at 9.2%, second only to the Philippines.

Its economy in the first three months of the year grew by some 5.6%, surpassing consensus estimates of 4.6%

So far, Bursa Malaysia has seen eight listings materialise this year - three on the Main market with the remaining on the ACE market.

Of these, the RM2.58bil IPO exercise by property developer Eco World International Bhd was the largest in size.

Comparatively, IPO volumes in Malaysia had collapsed last year amid a soft overall market, with combined IPOs raising just over RM1bil for the entire year.

“What we’re seeing now is very similar to what we saw in 2008/2009 during the global financial crisis when there were hardly fund-raising exercises, by the end of 2009 however, we had the Maxis Bhd IPO which raised US$3.3bil, we are seeing that situation play out again now,” says the banker.

As an investment banker with an Asean-centric bank, he says he sells Asean in his investment pitches.

“But people are asking for Malaysia now more than the others,” according to him.

“For the longest time , one global investor did not ask for Malaysia at all but this year alone, they have been on two visits here and have already started deploying very significant amount of capital into selected companies here.

“For them, the tide has turned, for others, it’s not all in yet, they are watching and waiting.”

Some argue that while Malaysia’s economy is on the right track, there remain worrying signs such as possible tax hikes which could dampen consumer and overall investor sentiment, moving forward.

Maybank Investment Bank CEO Datuk John Chong (pic) says momentum and appetite for deals in general is “definitely there” this year.

“It’s a huge difference from last year, we’ve got a good pipeline and are hopeful that more deals will come in.”

As an investment banking outfit, Maybank has had a good six months. So far, this year, it has been involved in most of the major deals such as Eco World International’s listing.

Together with Credit Suisse and JPMorgan, it is also joint global coordinator for the Lotte Chemical deal.

While Chong declines comment, Maybank together with JPMorgan are reportedly set to be joint global coordinators for the Bank Islam Brunei deal.

More foreign interest

Aside from Lotte Chemical and Bank Islam Brunei, a number of large foreign companies have also been showing interest in local companies, by buying big into these firms in recent times.

These include Japanese firm Yamato Holdings buying into courier firm GD Express Carrier Bhd and Korean outfit CJ Korea Express Asia Pte Ltd coming into Century Logistics Holdings Bhd.

“I think for a lot of people, they need to see how they can position themselves strategically within Asean, which is a growing economic block with its huge population and growing disposal income....and then within Asean, which country, and which company...”

“In view of that, I think you are going to see increasing foreign direct inflows here,” says another investment banker.

Minister of International Trade and Industry Datuk Seri Mustapa Mohamed who officiated Lotte Chemical’s prospectus launch yesterday said the size of Lotte Chemical’s listing “confirmed Malaysia’s position as one of the preferred destinations for investment.”

According to him, the IPO will contribute significantly to the expansion of Malaysia’s capital markets by increasing the liquidity needed to fuel economic growth, and Lotte Chemical’s efforts to drive growth here and abroad will also support the country’s ambition for higher levels of fund-raising this year.

Recalling earlier days, the banker says :

“Some 15 years ago, foreigners were leading deal discussions around cornerstone investors and pricing in Malaysia, today foreigners will often look to our local investors such as the Employees Provident Fund and Permodalan Nasional Bhd for the lead, times have changed.”

To be sure, Malaysia is not the only Asean country which has seen some changes in the way investors view it.

“In those days, say ten years ago, when we did deals in countries like the Philippines, the biggest cheque that we could get was a US$5mil cheque, today the biggest funds can write a cheque for US$75mil,” the banker says.

“If you look at the multiples and valuations in Thailand, Philippines and Indonesia, they now far exceed Singapore’s for instance, now a lot of the local companies are asking why do we want to list in Singapore, maybe we should list in our own home country because our markets have grown so much, the dynamics have changed.”

In the same vein, recall the cycle that was seen in the oil and gas sector in the early 2000s where Singapore commanded the highest valuations in the sector across the region.

However, that changed after the two Petronas company listings in 2010 which saw the Malaysian market take the lead for premiums within the oil and gas sector.