Southeast Asia’s prolonged equity deal drought came to an abrupt end in the second quarter as several sizeable transactions rained down on the market, helping it to its busiest three-month period in more than a year.
Regional bankers now hope to keep up the momentum over the rest of 2016, with initial public offerings in the wings for the likes of Pilipinas Shell Petroleum in the Philippines, Fullerton Healthcare in Singapore, Eco World International in Malaysia, and Gunung Sewu in Indonesia.
Southeast Asia notched up a total of $5.2 billion in equity deals in April, May, and June -- the highest quarterly showing since the first quarter of 2015, according to Dealogic.
What a contrast to the preceding 12 months when the region struggled with depreciating currencies, US rate hike worries, and plunging oil and commodity prices. Resource-rich Malaysia and Indonesia were especially hit but even financial hub Singapore saw just one IPO over this period.
Much of that uncertainty lifted earlier this year as commodity prices bounced back, encouraging capital to flow back into the region and enabling investors to refocus on corporate fundamentals, Edward Lee, head of Southeast Asia equity capital markets at Deutsche Bank, told FinanceAsia.
“The key driver to the revival in Southeast Asia ECM activity [is] the improvement in economic fundamentals and the outlook for corporate earnings,” Lee said.
In the second quarter, Deutsche Bank advised a number of Southeast Asian clients including Malaysian state investment fund Khazanah Nasional, which executed a M$829 million ($201 million) secondary share sale in IHH Healthcare in May. Deutsche Bank was also a bookrunner on Cikarang Listrindo’s Rp3.6 trillion ($272 million) IPO in Indonesia and the $470 million IPO of Manulife US Reit in Singapore.
Canadian financial services provider Manulife is not the only foreign company to tap Southeast Asian equity markets for funds in recent months. Mexican building materials supplier Cemex is currently homing in on a $470 million IPO in Manila of its Filipino subsidiary, while Thai tycoon Charoen Sirivadhanabhakdi last month raised $663 million by offloading some of his Australian property assets through an IPO in Singapore of Frasers Logistics & Industrial Trust.
Off the back of the second-quarter ECM revival, regional bankers are optimistic that deal flow will remain robust over the rest of the year. That's in spite of the potential market-moving events many thousands of kilometres away, not least the US presidential elections and the continuing Brexit drama as Britain negotiates its way out of the European Union.
For some bankers, the unfolding Brexit saga could even provide Southeast Asian ECM with a boost.
“The region could well benefit from a flight to quality after Brexit as investors look for stability and yields,” Eng-Kwok Seat Moey, group head of ECM at DBS, told FinanceAsia. “This will particularly benefit Singapore because it is a relatively stable market and has a deep Reit market that provides investors with stability and certainty in terms of yields and liquidity.”
DBS is the top deal maker in Singapore’s ECM market so far this year, having advised on the IPOs of Manulife US Reit and Frasers Logistics & Industrial Trust, which together raised more than $1.1 billion, amongst other things.
“The silver lining from Brexit is that it might delay the Fed rate hike,” Tan Jeh Wuan, head of ECM Singapore at DBS, told FinanceAsia. Such a delay is widely expected to raise the attractiveness of Reits relative to other competing yield-generating products.
Still, some bankers are more cautious.
“While Southeast Asian ECM activities have picked up in the first half, global markets may continue to be volatile going into the second half,” Cheun Hon Ho, head of Southeast Asia ECM at Credit Suisse, told FinanceAsia. “The UK referendum will have a knock-on impact and it will take time for investors to figure out what this means [to the global market].”
Credit Suisse is ranked first in the Southeast Asia ECM league table so far this year, according to Dealogic. It was involved in $661 million worth of equity deals during the period and has advised clients such as CVC Partners and Telkom Indonesia on their transactions.
Yet, deal flow in the second half could well be supported by increasing the participation of domestic investors, particularly in markets such as Malaysia and Thailand, Ho told FinanceAsia.
Political factors are contributing to the region's improved ECM climate too, providing investors with more reason to put money to work.
The election of the outspoken Rodrigo Duterte in the Philippines last month came as a surprise to some market watchers but global investors appeared to view it positively, giving local stocks a boost. Meanwhile, President Joko Widodo of Indonesia delivered a series of welcome reforms in September to improve public spending and encourage greater investment.
So if the region's secondary markets continue to recover, some issuers could well be drawn into accelerating their fundraising plans, bankers say.