Friday, 19 July 2019

Back on track

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Malaysia may not live up to last year’s bumper IPO volumes, but strong domestic demand and new equity instruments are keeping the market active even in a period of rising global volatility.

Mercedes Formula One driver Michael Schumacher of Germany roller blades down the track in the rain ahead of the Malaysian F1 Grand Prix at the Sepang circuit.

Source: Reuters/Bazuki Muhammad

Mercedes Formula One driver Michael Schumacher of Germany roller blades down the track in the rain ahead of the Malaysian F1 Grand Prix at the Sepang circuit.

For most of last year, Malaysia was Asia’s IPO capital. Three deals of more than US$1bn – from Felda Global Resources, IHH Healthcare Holdings and Astro Malaysia Holdings – left Hong Kong and Singapore looking on enviously.

When the last of those three fell on its trading debut and the new deal pipeline slowed, it looked as though 2012 was an exception rather than the rule.

Little happened in the first quarter of this year, as market participants waited for confirmation of the date of the country’s general election, and no IPOs above US$1bn are expected this year. Expectations were that a burst of activity would ensue once issuers were able to set firm dates for their equity offerings, but activity so far has been subdued.

However, the success of long-haul discount airline AirAsia X in completing its M$987.5m (US$308m) IPO this month, despite terrible market conditions and surging volatility, underscored the resilience of Malaysia’s equity capital market. Several Hong Kong and Singapore offerings fell by the wayside or decided not to launch during the offer period, but AirAsia X was able to price its deal above the bottom of guidance.

Malaysian deals often benefit from support from state-owned pension funds, and a separate tranche for indigenous Bumiputera investors enables issuers to ascertain domestic demand before going out to foreign accounts, meaning that domestic investors tend to drive pricing.

Next up are deals from power and water company Ranhill Energy and Resources, which is expected to raise around US$400m, and UMW Oil and Gas, which could target US$750m–$1bn in its IPO. Maybank is principal adviser and joint global co-ordinator of the Ranhill IPO with CIMB. CIMB, Credit Suisse, Goldman Sachs and Maybank are the joint global co-ordinators for the UMW deal, while Standard Chartered is a bookrunner. Port operator Westports Malaysia is also expected to proceed with a US$500m IPO this year, via joint global co-ordinators Credit Suisse, Goldman Sachs and Maybank.

“Given that the oil and gas sector is one of the key thrusts of Malaysia’s Economic Transformation Programme (ETP) and one of the major beneficiaries of the allocations and incentives from the Federal Government’s 2013 budget, it will be one of the busiest sectors for equity issuances this year, alongside the property and construction sectors,” said Zafrul Aziz, group CEO of Maybank Kim Eng.

Trust opportunities

The Securities Commission introduced guidelines allowing business trusts at the end of last year, which some hoped would boost the number of deals coming to market. The structure allows issuers to inject specific assets into a listed trust, similar to the format that has been used so successfully in Singapore, and means Malaysian issuers will no longer need to go abroad to use the structure.

However, at time of writing, no company has attempted to launch a business trust offering in Malaysia. Some bankers complained that some assets that would have been ideal constituents for a trust, such as Astro Malaysia’s subscription television business or Malakoff’s power plants, had already been listed recently or earmarked for corporate IPOs, while Berjaya Sports Toto has already chosen Singapore as the planned listing venue for its gaming business trust, which will come to market later this year.

“Although the entry of business trusts as a new asset class is expected to add to the depth and breadth of the Malaysian capital markets, potential issuers, including listed companies, are still evaluating the merits and framework of a business trust structure, as a robust business trust sector in Malaysia would require players with significant market capitalisation and strong and sustainable investment returns,” said Zafrul.

One area that has been highly active is listings of special purpose acquisition companies, a unique structure in Asia. Malaysia is the only country in the region to allow such ‘cashbox’ listings, in which a management team raises funds for an acquisition in a certain sector, without having a particular acquisition agreed. If a SPAC does not make an acquisition within 36 months of listing, shareholders will receive 90% of their investment back, but if an acquisition goes ahead they have the chance to exercise warrants issued for free with the IPO.

South Korea has a similar structure, but only mergers are allowed.

Since Hibiscus Petroleum opened the market with its M$235m IPO in July 2011 and successfully executed an acquisition in October 2011, investors have shown strong appetite for the asset class. Several other SPACs have listed, and Cliq Energy’s M$364.3m offering in April was Malaysia’s largest IPO of the year to date, until AirAsia X priced its deal in late June. Sona Petroleum is targeting M$550m from its SPAC offering this year, which would be the largest since Malaysia introduced the asset class.

To see the digital version of this report, please click here.

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