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December 10, 2012 9:18 pm

Southeast Asia 2013 ECM market strong but investors wary

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This article is provided to FT.com readers by dealReporter—a news service focused on providing insightful intelligence on event driven situations to investors. www.dealreporter.com

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Southeast Asian equity capital markets are expected to show strength in 2013 on the back of continuing regional economic growth although fund managers want to see a better crop of companies at more realistic prices.

‘’The bigger countries see their economies in reasonably good shape. The last four or five years have shown steady but solid growth,’’ an ECM banker in Singapore told dealReporter. ‘’There’s been a general progression and it feels like that will continue.’’

Upcoming regional deals include Chinese orange grower Asia Agricultural’s at least USD 200m IPO in Singapore, power generator Malakoff Corporation’s USD 1bn IPO in Malaysia and the about USD 100m IPO from Indonesian state-owned cement maker Semen Baturaja.

Banking to spirits conglomerate LT Group [TDY:PH] in the Philippines is planning an about USD 1bn follow on offering to comply with free float rules, and other companies there have similar deals in the works.

While the pipeline may be full, some investors remember being at a similar point this time last year and, looking back, don’t feel 2012 may bode well for next year.

‘’A lot of the deals that did complete aren’t trading well,’’ a fund manager said. ‘’We expected a bit more . . . The quality of the assets and pricing were just not as good as we thought they would be.’’

Deals that have gone underwater include Indonesia’s Bank Pembangunan [BJTM:IJ]. Its shares are down 11.6% from July, when it raised USD 137m from an IPO. Malaysia cable operator Astro Malaysia’s [ASTRO:MK] shares are down 3.3% after it raised USD 1bn from an IPO in October. Retailer Courts Asia [COURTS:SP] raised USD 11m in Singapore in October from an IPO, but it shares have traded flat.

Deals that have performed include Indonesian satellite television operator MNC Skyvision [MSKY:IJ]. Its shares are up 54.7% since raising 227m from an IPO in July. Philippine conglomerate GT Capital’s [GTCAP:PM] shares are up 30.4% since it raised USD 439m from an IPO in April. Gas Malaysia’s [GMB:MK] shares are up 20.4% since it raised USD 233m in June.

The MSCI Southeast Asia Index is up 15.36% by comparison.

The more bullish on the region see domestic consumption intact, a good balance of payments and the right demographic profile with a young and growing workforce.

Expectations, however, need to be kept realistic, a fund manager focused on the region said. Indonesia, where confidence tends to be high, can appear attractive but actual growth can be more problematic.

“In greater Jakarta, you talk to people there, and every year the infrastructure completion dates are shifted back,” he said. “I recently spoke with a developer who said for a project that was initially slotted to be completed in 2016, now 2018 seems too optimistic.”

Uncertainty over national elections in the country in 2014 will also slow down a lot of decision-making in 2013, he said.

Regional markets will also be sensitive to how well the European Union manages the debt crisis there, resolution of the US fiscal cliff and Chinese economic growth. Any volatility on the back of those would make launching and completing deals difficult.

Expected volume may also not be as strong in specific markets, such as the Philippines, where the largest companies are pushing back against the exchange’s larger free float requirement. San Miguel unit San Miguel Brewery 5 December said it requested a 12 month extension to comply with the requirement.

How companies go forward with equity raising plans and who succeeds, as in the past, will define next year’s market.

‘’For 2013 one of the questions is which country is the country of the moment,’’ the first fund manager said. ‘’In 2011 it was Indonesia somewhat and in 2012 it was Thailand and Malaysia driving things, so which one is it going to be in 2013?’’

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