Tuesday, 18 June 2019

Flush with liquidity

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Efforts to improve liquidity in South-East Asia’s equity markets have catapulted Malaysia, Singapore and even the Philippines up the capital markets rankings.

Children cool down at a pond at Sau Gia village in Ha Tay province, outside Hanoi.

Source: Reuters/Kham

Children cool down at a pond at Sau Gia village in Ha Tay province, outside Hanoi.

Efforts in South-East Asia to increase liquidity in the region’s equity markets and make it easier for companies to list promise to be additional attractions for investors looking to take advantage of the region’s stable growth.

“South-East Asian equity markets remain attractive for investors because of the strong GDP growth driven by domestic demand and largely stable foreign-exchange and interest-rate regimes,” said Vineet Mishra, head of South-East Asia ECM at JP Morgan.

Some regional economies, such as Indonesia and Philippines, were also receiving additional funds flows, as a result of the former becoming investment grade and the latter having the potential to do so, and these factors were also making them more attractive, Mishra added.

Efforts to increase liquidity are likely to help institutional investors, who previously could not buy sizable numbers of shares in certain markets, such as the Philippines and Indonesia. “There were not enough liquid stocks to build long-term positions,” a source said.

Last year, the Philippines implemented its minimum 10% free-float requirement and refused to grant extensions to nearly 25 companies that had not met the deadline. Ultimately, most managed to comply with the requirement and those that could not were delisted. At the start of 2011, there were 50 companies that had not met the deadline. Indonesia, meanwhile, has been granting tax benefits to companies with a 40% free float.

Other countries have also taken steps to encourage capital raisings.

The Stock Exchange of Thailand and the Securities and Exchange Commission have been encouraging companies to convert their infrastructure businesses into funds before listing them. Thailand has also allowed pure holding companies with assets abroad to list.

Malaysia, the world’s top venue for IPOs last year, also put in place rules for the listing of business trusts. Malaysia hopes to attract local and foreign companies wanting to list parts of their businesses through trusts. Traditionally, neighbouring Singapore is an active market for business trusts.

Sentiment towards South-East Asia remains positive with Morgan Stanley recently upgrading Indonesia to positive from neutral.

“Despite investor concerns regarding the impact of falling commodity prices, currency volatility, 2014 elections and policy volatility on business sentiment, Corporate Indonesia is quite bullish,” Morgan Stanley wrote in a recent research report. “We believe a combination of investment growth and positive business sentiment could drive upgrades to earnings outlook,” the report added.

Morgan Stanley said it was also positive on Thailand, which had performed well because of attractive valuations and a strong domestic story.

In addition, Morgan Stanley raised its index targets by 11.9% for Indonesia, 6.9% for Thailand and 8.3% for Singapore.

Unsurprisingly, the issuance pipeline out of South-East Asia also looks strong.

Last year, Malaysia was the leader in South-East Asia for the number of US$1bn-plus IPOs, but, this year, there are expectations for Indonesia, Thailand and Philippines, not to mention Singapore, to catch up,.

JP Morgan’s Mishra said he expected Malaysia and Indonesia to be active overall this year, while Singapore would continue to be so in the real estate investment trust/business trust segments.

Indonesia’s Matahari Department Store is likely to launch an IPO of up to US$1.4bn later this month. The exact size of the float depends on how much of a stake private-equity house CVC decides to sell. The deal size is based on the vendor selling a 40% stake, which makes the company eligible for a cut in the corporate tax rate.

CIMB, Morgan Stanley and UBS are managing the deal.

“This deal is going to sail through,” one source said.

BTSGIF, an infrastructure fund linked to Bangkok rail operator BTS Group, plans to launch a Bt50bn–Bt60bn (US$1.6bn–$1.95bn) IPO towards the end of March or early April.

BTSGIF will pay distributions to shareholders from the net ticket revenue on a stretch of the Bangkok SkyTrain monorail network for 16 years ending in 2029.

Morgan Stanley and UBS are the joint international bookrunners on the BTSGIF IPO, while Phatra Securities is the domestic bookrunner.

The success of these mega IPOs could pave the way for more issues from companies that are plays on the domestic consumption and demographic aspects, such as healthcare, consumerism, media, distribution, logistics and the like.

After a relatively quiet IPO market in 2012, Singapore got off to an strong start this year as Mapletree Great China Commercial Trust raised US$1.36bn in the largest REIT IPO.

Two Singapore industrial REITs – Viva Industrial Trust and Soilbuild – are expected to come to the market at mid-year with circa US$400m deals.

Bank of America Merrill Lynch, HSBC and Standard Chartered are joint global co-ordinators for the Viva deal, with CIMB and Maybank Kim Eng as joint bookrunners. DBS and OCBC are heard to be managing the Soilbuild REIT IPO.

Business trust IPOs, especially those related to overseas companies, are expected to be plentiful. India’s Infrastructure Leasing and Financial Services’ wind-power business is likely to launch an IPO of up to US$400m in the second quarter. Deutsche Bank, JP Morgan and Nomura are the bankers on it.

Activity in the Malaysian market is expected to pick up once the uncertainty surrounding the federal election ends.

Malakoff and the oil and gas unit of UMW Group are expected to come out with IPOs in the US$750m–$1bn range, while the floats of Air Asia X, Westports, Iskandar Waterfront and Berjaya Sports Toto each expected in the US$200m–$400m range.

Malaysia is also allowing special purpose acquisition companies to list so as to offer investors exposure to the energy sector.

Cliq Energy, TerraGali Resources and Australaysia Resources and Minerals are moving towards their respective floats of up to US$162m, US$97m and US$101.6m.

In the Philippines, where the placement market has been active of late, a decent number of follow-on offerings and IPOs are expected from companies in the banking, casino and real estate sectors.

Travellers International Hotel Group, which operates Resorts World Manila, plans a US$500m–$1bn IPO; Manchester International Holdings a US$200m float, while Asia United Bank plans to raise US$150m from a listing.

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

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