January 9, 2014 12:00 am JST

Asian IPOs: Mixed view

MICHAEL SAINSBURY, Contributing writer

BANGKOK -- Southeast Asia has been very much in favor with international equity investors since the global financial crisis, experiencing a boom up to recently in the number and volume of initial public offerings. Countries such as Malaysia in 2012 and Thailand (by volume) and Indonesia (by number) in 2013 topped regional league tables that have traditionally been dominated by Singapore.

     But after several solid years, the market for IPOs on the region's bourses is looking distinctly mixed for 2014 as key economies in the region falter, investor appetite for riskier developing markets recedes and more attractive Chinese companies step up their offshore listings in Hong Kong and the U.S.

     The failure so far by stock exchanges in Singapore, Thailand and Malaysia to achieve momentum in a cross-border trading platform branded the Asean Trading Link has left Hong Kong and Australia as the destinations for more than 50% of the Asia-Pacific region's IPOs during 2013 -- a trend that is likely to continue.

    Still, IPO proceeds for shares on Southeast Asian stock markets rose to $13.5 billion in 2013, up 2.1% from 2012 according to Thomson Reuters data, representing the strongest annual period for IPOs in the subregion since 2010 when the total was $16.6 billion.

     Last year, while the number of IPOs was down the total value of capital raised was up, boosted by two major listings: Thailand's BTS Rail Mass Transit Growth Infrastructure Fund IPO raised $2.1 billion in the biggest IPO yet seen in the country. In Singapore, the real estate sector continued to bolster the market with the Mapletree Greater China Commercial Trust raising $1.3 billion for its flotation as the largest ever real estate investment trust in that market.

     But REITs have fallen out of favor in recent months and are not expected to feature so strongly in this year's public flotations in Singapore and elsewhere.

     The decision by the U.S. Federal Reserve in December to begin its so-called taper, reducing its stimulative bond-buying program, has cast a cloud over more optimistic predictions about regional markets by groups such Ernst & Young.

     "Despite the freeze in IPO activity in mainland China with listings suspended since late 2012, the region has seen high levels of activity in 2013, with Hong Kong, Japan and Southeast Asia seeing an increase in the number of deals and capital raised -- a trend that is set to continue into 2014," said Max Loh, EY's Asean and Singapore managing partner and IPO leader, in a November report.

     IHS, a research house, estimates that global growth will rise from 2.5% in 2013 to 3.3% this year. But some, including Macquarie Securities Managing Director Viktor Shvets, are wary of this prediction and see declining IPO activity in Southeast Asia. Still, likely decisions by both the Bank of Japan and the European Central Bank to inject more funds into their economies would help to offset any impact of U.S. tapering.


Joseph Chee, co-head of global capital markets for Asia at UBS -- the biggest IPO underwriters in Southeast Asia for the past few years -- warned that deteriorating economic fundamentals in Southeast Asia, particularly in its biggest economy Indonesia and emerging manufacturing hub Thailand, will weaken currencies in 2014.

     "It will definitely be a tougher year for Southeast Asian equity markets as the U.S. dollar strengthens; fund flows into Southeast Asian currencies will be negatively impacted. IPO volumes will not be as high as in the past few years," Chee told Nikkei Asian Review.

     "The decision to raise capital on the market has to do with asset prices and market demand. Asset prices will come down substantially -- as much as 20-30% in some countries and sectors -- which means less people will raise capital and when they do it will be more expensive, so they will raise less."

     There is also growing political uncertainty in key markets across the region. Thailand's escalating turmoil is further denting its already dim economic prospects for 2014 as the country's stock market plumbed 16-month lows last week. In Indonesia, where asset values are already sliding in the face of rising inflation and high government debt, the IPO market is also facing the uncertainty of quinquennial presidential and parliamentary elections. Vietnam is grappling with a similar conundrum to neighboring China in rebalancing its economy. Along with many other economists, Chee and Shvets agreed that Singapore and the Philippines remain the region's brightest spots.

     The continuing attractiveness of the technology sector, as the second boom in technology stocks in the past two decades continues apace across the globe, will see continuing IPO strength in that sector. Chee also says that logistics and health care will be popular sectors for IPOs.

     Overall, the regional IPO outlook for 2014 is mixed, with stock markets such as Singapore, Malaysia and the Philippines expected to attract relatively more IPOs than those in Thailand and Indonesia, where economic and political factors will crimp activity.