With the debacle that was the Facebook IPO
(NASDAQ:FB) the IPO market which was already somnambulant in 2012 has turned
positively comatose.
The
uncertainty in the global markets has even reached the Asia-Pacific region with
the proposed $3 billion F1 IPO on Singapore’s exchange put on hold. In Hong Kong year over year IPO volume
through May is off 85%. Excluding
Facebook U.S. IPO’s are off 53% and globally they are off 46% of 2011’s pace,
which itself was just 58% of 2010’s banner year.
But
don’t tell any of this to Malaysia’s government who very confidently are moving
forward with a June 28th offering of their state-owned Felda Holdings, which is
one of the largest Palm Oil producers in the world; supplying around 8% of
global total. The IPO is looking to
bring in 10.5 billion Ringgit ($3.3 billion USD) which would make it the 2nd
largest IPO in the world this year, behind the massively overpriced
Facebook.
Malaysia
is the 2nd largest producer of Palm Oil in the world. Sime Darby Berhad, whose 2011 revenues topped
$13.2 billion and 1.15 billion in operating income is a major component of the
iShares MSCI Malaysia Index ETF (AMEX:EWM ) at 7% of the fund’s $847 million
AUM.
With
this IPO this would make 4 major Southeast Asian Palm Oil companies available
for trade in Singapore, for while Felda will list on the Bursa Malaysia Berhad,
recent moves to integrate ASEAN’s equity markets will be in place by then to
allow cross-listing of stocks from Singapore and Malaysia. Thailand’s exchange will be added in August
while Vietnam and the Philippines are will be added further out in time.
Malaysia’s
equity market has a current market cap or nearly $300 billion. When Thailand is brought into ASEAN Trading
Link the combined market cap of the 4 bourses will be $1.4 trillion which
should pave the way for much greater liquidity across all of them; giving
prospective public companies access to far larger pools of capital than they
would have had otherwise.
This
will be especially valuable for the smaller exchanges like the two in Vietnam
with its $30 billion spread across both the Hanoi and Ho Chi Minh City
exchanges which are illiquid and dominated by retail speculation without much,
if any, discipline. As ASEAN pushes
towards the Asian Economic Community by 2015 the two highest priorities have
been the completion of various physical infrastructure projects, e.g. road,
rail and port upgrades, as well as standardizing financial and banking
regulations across the region.
As for
the IPO market, however, the trends are firmly in place. Over the past 3 years most of the IPOs in
both number and total value have come from Asia-Pacific. In 2009 and 2010, Asia-Pacific accounted for
66% of the total value of global IPOs while in 2011 that share dropped to just
51%, though 200 of the 338 deals were made in 2011.
Spain’s
Bankia who is now looking for more than $19 billion in support/bailout from
anyone who will help, raised $4.4 billion last July. Between that and Facebook’s disaster
potential public companies are rightly spooked and will continue to wait. 46 IPOs in Asia have been postponed this year
so far for a total of $7.7 billion with F1 Corp. accounting for $3 billion of
that.
The
palm oil market is in far better shape than the IPO market and Felda’s IPO
would be the 2nd major IPO in that industry this year as Burmitama Agri listed
in Singapore earlier this year. It did
the opposite of Facebook shooting up 31% during its first day of trading. The Indonesian company’s IPO was 31 times
oversubscribed at the end of the investor roadshow.
Palm
oil trades in sympathy with soybean oil as well as crude oil. This is due to substitution effects with both
soybean oil and diesel fuel, as some palm oil demand comes from there. Both the UBS E-TRACS CMCI Food TR ETN
(AMEX:FUD) and the iPath DJ-UBS Agriculture TR Sub-Idx ETN (AMEX:JJA) are
agricultural funds with significant exposure to both soybeans and soybean
oil.
They
both attempt to match the performance of the futures market for a basket of
commodities. JJA has heavier exposure
(9.4%) than FUD (5.0%) to soybean oil.
The iShares MSCI Singapore Index (AMEX:EWS) has approximately 5.1%
exposure to two palm oil companies, Wil Mar International and Golden Agri
Resources.
With
Malaysia announcing that their palm oil stockpiles are at 13 month lows the
recent 15% move down in price to $924 per metric tonne is a normal reaction
when the price of palm oil nears parity with soybean oil (black line in the
chart).
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