Malaysia is marking itself out as the IPO destination to beat this year
with a string of billion-dollar-plus deals. Impressive, for sure, but don’t
take the booming IPO market as a sign that Malaysia is poised to become a
regional financial hub, experts say.
The reasons for this, they add,
are simple: once the slew of big Malaysian companies seeking new listings runs
out there is likely to be a dearth of initial public offerings (IPOs) in
Malaysia. Because Malaysia is still developing open and liquid capital markets,
foreign firms looking to list in the region are likely to pick Singapore and
Hong Kong over Kuala Lumpur.
All the big companies listed in
Malaysia this year are local firms. To really develop itself as a centre for
IPOs, Malaysia needs to attract new listings from big foreign firms in the way
Singapore and Hong Kong have done in the past, analysts add.
“Part of the boom in the
Malaysian IPO market can be explained by the well-developed pension system in
Malaysia, which has allowed for growth in domestic demand for equities,” said
Herald Van Der Linde, Head of Equity Strategy, Asia-Pacific at HSBC in Hong
Kong.
“However, when it comes to
comparing Malaysia with Singapore and Hong Kong, these markets are much larger,
more diversified and much better developed. As such, they can compete for
global IPOs. This is unlikely to happen in Malaysia yet,” Van Der Linde said.
Pay-TV company, Astro Malaysia
last week said it would launch an IPO, worth about $1.75 billion. The new
listing, expected by the end of September, would be Malaysia’s third largest
this year and follows a $3.3 billion listing in June by palm oil firm Felda
Global Ventures and a $2.1 billion IPO by state-backed IHH Healthcare last
month.
The high-profile listings –
Felda’s IPO is the biggest globally so far this year after the listing of
Facebook – have certainly made investors sit up and pay attention to the
developments in the Southeast Asian economy.
The hot IPO market in Malaysia
also compares with a generally lackluster market globally as the fragile state
of the global economy prompts many companies to shelve their IPO plans. Jeweler
Graff Diamonds postponed a $1 billion listing in Hong Kong in May, while motor
racing company Formula One earlier this year postponed a listing, worth up to
$3 billion, in Singapore.
Despite these setbacks, the
long-term outlook for IPOs in Asia still favor Hong Kong and Singapore over
Malaysia, analysts said.
“To have a large IPO market, you
need an international investor community and that isn’t there in Malaysia,”
said Sanjay Mathur, Director of Research Strategy Asia ex-Japan at Royal Bank
of Scotland in Singapore.
“You need to have an unfettered
flow of capital, a diaspora of fund managers and a strong linkage with other
financial centers,” Mathur added, referring to the things Malaysia would need
to turn its booming local market into a regional one.
Domestic Focus
According to research firm
Dealogic, Malaysia has moved to third place after the U.S. and China in
rankings of new listings in value terms globally. That’s up from twelfth place
last year.
Analysts point out that the boom
in the Malaysian IPO market must be seen in the context of what is happening in
Malaysia locally and not as a sign of what is changing in terms of Malaysia’s
role regionally.
The Malaysian government, keen to
open up the equity market, has encouraged firms to list and the growth of large
domestic pension funds has meant there has been strong demand locally for the
new listings.
HSBC says that the core of
Malaysia’s pension system is the Employees Provident Fund, which covers around
half of the country’s work force. It adds that the equity portion of the fund
is estimated to have grown to almost 30 percent of total assets in 2010 from
below 5 percent in 1991 and 20 percent in 2000.
Against this backdrop, the
momentum in Malaysia’s IPO market was expected to continue for a little while
longer. Malaysian Power firm Malakoff
and Karex, the world’s biggest condom maker, are both said to be considering
listings in the months ahead.
“The IPOs will continue for a
while. Remember there is a herd mentality, so if one company does well that
encourages others,” Mathur at RBS said.
From the perspective of a foreign
investor, what Malaysia lacked was a regional exposure, analysts said. Hong Kong has attracted new listings from
global companies keen to tap into the China growth story – examples of this are
the listings of commodities trader Glencore and luxury goods firm Prada in
2011.
“We are looking at very different
markets here,” said Chris Wong, Senior Investment Manager at Aberdeen Asset
Management in Singapore. “Hong Kong is the market centre for the greater China
story and Singapore is a magnet for the regional story.”
“As for the outlook on IPOs in
2013, I would think that this is very dependent upon global growth and how
Europe will resolve its crisis,” said HSBC’s Van Der Linde. “If it was up to
Asia, it should be a good IPO market - demand for equities is rising and
companies need to invest more and can tap equity markets for this.”
Dhara Ranasinghe
Business & Investment Opportunities
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