Making Its mark as top IPO destination
by Ronnie Teo, firstname.lastname@example.org. Posted on July 15, 2012, Sunday
Malaysia is making headlines worldwide with major listings in unique fields.
Despite having less listings in the fi rst half of 2012, Bursa Malaysia saw a total of RM11.1 billion raised through initial public offerings (IPOs) compared with RM2.7 billion seen in the first half last year.
BizHive Weekly looks at major IPOs and listings in the fi rst half and the outlook for Malaysia in coming months.
Enhancing the local stock market via IPOs
With a capital market largely dominated by local investors, Malaysia is set to see a major inflow of foreign investment in light of the listing of FGV and IHH.
Will the second half of the year see this trend continuing?
KUCHING: Malaysia is making headlines worldwide with the listing of Felda Global Venture Holdings Bhd (FGV) and the upcoming listing of Integrated Healthcare Holdings Sdn Bhd (IHH), touted to be the two largest global initial public offerings (IPOs) after Facebook this year.
These two major IPOs affi rmed Malaysia’s potential as the top IPO destination in 2012, running neckto- neck with Shenzhen, China for this position.
These IPOs also underscore how well Malaysia’s equity market has been insulated from the global volatility as it is dominated by local investors and a large domestic pension fund system.
Last year, two IPOs in Malaysia were among the top 10 best performing offerings in 2011, namely
MSM Malaysia Holdings Bhd and Bumi Armada Bhd. Malaysia is thus pegged to be a safe haven for investments, with investors locally and globally remaining committed to these two listings on the back of strong optimism moving forward.
This recognition attests to both the quality of companies being listed and the resilience of the Malaysian equity market. “This is the year of mega IPOs in Malaysia where we are expecting the second largest IPO in the world after Facebook and possibly the third to be listed by end July,” noted Frost & Sullivan Asia Pacific’s vice-president of Business and Financial Services, Sanjay Singh.
“Mega IPOs attract foreign funds into the market and generate market momentum/liquidity and are seen as more benefi cial to the market.
“We expect the mega IPO factor to weigh on a number of mid-sized companies to delay their listing plans,” he opined.
As of time of writing, there are 828 companies listed on the main market of Bursa Malaysia, and 113 ACE market-listed companies. Frost & Sullivan’s Business and Financial Services director, June Liang, noted that in 2011, out of the 28 listings, 61 per cent were Main Market listings and the remaining on the Ace Market. Meanwhile, Hwang Investment Management Bhd (HwangIM) chief investment offi cer, David Ng, was of the opinion that the trend seen so far this year was reflective of 2011.
“This year’s market trend seems like a déjà vu of last year’s, whereby the markets rallied at the start of the year, followed by a sell-off and fi nally recovering to close the fi rst halves at new highs,” he said during an interview with BizHive Weekly.
“Similar to last year, 2012 started off with a good run in the equities market.
“In fact, the global markets saw the strongest rally since 1994 due to the risk-on mode and general positive sentiment in the market.
“It is largely powered by the ample liquidity in the system as a result of the two rounds of Long Term Refinancing Operations in Europe, expectation of ultra-low interest rates environment till end-2014 in US and positive economic data in US.”
However, Ng said the momentum started to fizzle off by May 2012 when US economic data started to show signs of weakness compounded by the bombshell election results in Germany, France and Greece. “It is difficult to predict what will happen next in the market as market cycles are getting shorter,” he forewarned.
“Market performance is also increasingly intertwined with the political situation in Europe and US.” Ng affirmed that concerns about the impact of prolonged pain in Europe would continue to dominate the global and local markets as opinions remained divided on how to promote growth and relieve financial strain within the European region.
It was also difficult to predict what will happen next, as many of the decisions that need to be made are political in nature and involves multiple governments, he added.
“However, there has been some progress in finding resolution to the region’s debt crisis. Though it has been slow, but it is moving ahead.
Much like the formation of the US federation, it takes time and pain, but integration was finally achieved in the form of fiscal and monetary union.”
Sanjay concurred, adding that Malaysia held several factors in play that would help cushion the impact from the crisis overseas.
“Although we are of the view that Bursa Malaysia will not be unaffected should the eurozone crisis worsen, several factors that will help to cushion the impact would be the a strong domestic demand, private investments which is holding up the economy and government spending and support in key sectors under the Economic Transformation Programme,” they highlighted.
“In fact, mega IPOs with strong fundamentals and significant interest from foreign funds entering the market is great timing to attract funds looking for directions on investment opportunities and a safe haven to rebalance portfolio.”
Trend over the years Over the past few decades, Malaysia’s capital market has always been one driven by privatisation and other mega projects.
Since the late 1980s, greater openness and the deepening of Malaysian capital market, supported by proper regulatory institutions, have boosted foreign investors’ appetite for Malaysian equities.
Looking back, Nor Zahidi Alias, chief economist at Malaysia Ratings Corporation MARC) revealed that the Malaysian equity market was also known for its high yield and defensive nature.
“Based on the benchmark KLCI since 1977, Malaysia’s stock market performance has been respectable, rising at a compounded average growth rate (CAGR) of eight per cent compared with S&P’s 7.9 per cent,” he told BizHive Weekly.
“This was in tandem with Malaysia’s robust economic performance since the 80s.
“Global economic uncertainties resulting from the Euro crisis have, however, led to lacklustre performances of equity markets in the region since late last year.”
Nor Zahidi said rising risk aversion had also induced foreign investors to be on the sidelines while focusing on the bond market.
However, the Malaysian market remained resilient.
“Between January and the third week of June 2012, the benchmark FBM KLCI climbed by 5.4 per cent, compared with a 1.7 per cent increase in the corresponding period last year.
“Although the benchmark FBM KLCI has continued to climb in the 1H2012, the so- called ‘equity risk premium’ (defi ned as the difference between market yield and zero-risked instruments such as government bonds) has been on the declining trend.”
Based on past experiences, Nor Zahidi said that such a trend implied an impending weakness in the equity market which was in line with the expectation of softer economic growth in the next few quarters.
Notwithstanding this, the defensive nature of the Malaysian market might prevent a signifi – cant drop in the equity market in the near term.
“IPOs which represent fund raising exercises normally move in tandem with the economy.
A stronger growth will attract more fund raising activities and vice versa.
“At this juncture, bleaker outlook of the global economy in the wake of the European crisis and slowdown of major Asian economies such as China and India have led to stronger risk aversion among investors.
“Under such a scenario, it is quite normal to expect smaller number of IPOs this year,” he opined.
More than meets the eye In December last year, Bursa Malaysia chief executive offi cer Datuk Tajuddin Atan predicted less IPOs and listings on the board for 2012.
This prediction indeed came true as capital markets worldwide, including Malaysia to some extent, were affected by the prevailing weak sentiment, contributed by the global economic problems in US and Europe.
“The number of IPOs on Bursa Malaysia to date is indeed fewer than last year’s.
There were eight IPO listings in the first half this year versus 17 listings in the same period last year,” disclosed Ng from HwangIM.
“Apart from seeing impacts from the eurozone crisis, the lack of listings was also due to the low interest rate environment that encourages issuers to raise capital via the debt market because the borrowing cost is also lower.”
However, the volume and size of IPOs so far this year made up for the lack of listings.
For the fi rst half of 2011, the value of IPOs raised amounted to RM2.7 billion in total.
This year, Malaysia garnered some RM11.1 billion raised in IPOs within the same period, an increase in value fourfold.
“This is largely supported by FGV the world’s second largest IPO listing this year.
It pushed the FBM KLCI to a record high o f 1 , 6 1 1 points in June,” he outlined.
In fact, Malaysia’s upbeat attitude towards IPOS in this economic climate contrasted sharply from that adopted by other countries such as Hong Kong and Singapore.
“Point to note, we are the only region that bucked the IPO trend as we managed to garner huge appetite on the FGV and IHH’s listings, when our regional peers shelved theirs such as the Graff Diamonds and Formula One IPOs in Hong Kong and Singapore respectively.”
Additionally, Ng said that when Gas Malaysia Bhd (Gas Malaysia) made its debut on Bursa Malaysia earlier in June, it was oversubscribed by 21.64 times and attracted 44,561 applicants.
“Its shares surged as much as 15 per cent to RM2.52 from an IPO price of RM2.20 making it the second strongest debut in Malaysia this year.
The support is due to a combination of quality and liquidity in the market.”