This article first appeared in Capital, The Edge Malaysia Weekly on December 25, 2017 - December 31, 2017

THE initial public offering (IPO) market appeared to have recovered from the drought in 2016 as investor sentiment improved this year on better economic conditions.

A total of RM7.38 billion was raised in 2017 — a whopping 12 times more than the RM596.6 million raised in 2016. However, as investment bankers would say, 2016 was an exceptionally bad year for IPOs.

The total number of listings on the Main Market and the ACE Market remained unchanged from the 11 seen in 2016 — even lower than the 13 in 1989 — while two companies made their debut on the newly minted LEAP Market.

The total value of the 11 IPOs, however, was way above what was achieved in 2016, thanks to Lotte Chemical Titan Holdings Bhd raising RM3.77 billion and Eco World International Bhd, RM2.58 billion.

Other than Serba Dinamik Holdings Bhd, which raised RM584 million, the IPO value of the remaining eight was below RM300 million each.

Nevertheless, the RM7.38 billion raised this year is far off the record of RM22.94 billion seen in 2012 with the mega IPOs of Felda Global Ventures Holdings Bhd, IHH Healthcare Bhd and Astro Malaysia Holdings Bhd.

Of the 11 listings this year, five were on the Main Market and six on the ACE Market.

It is worth mentioning that the biggest IPO on Bursa this year — Lotte Chemical Titan — hit several bumps before it was listed on the exchange. The petrochemical company had to reduce its offer price from RM8 to RM6.50 per share due to lacklustre foreign investor interest and cut the size of its offering by 21.7% to 580 million shares.

Still, an investment banker with a local financial institution observes that the IPO market was much better this year than in 2016. “It is something we expected,” he says.

The improved IPO activity in Malaysia was somewhat similar to that in other Asean markets, particularly Thailand, Indonesia and Singapore, he adds.

According to the EY Global IPO Trends report for 4Q2017, the total number of listings in the region increased to 104 this year from 77 a year ago.

Thailand had the most number of IPOs this year at 35, which raised a total value of US$3.1 billion. Indonesia was next with 31 but only raised US$0.6 billion while Singapore saw 19, raising a total of US$3.3 billion. Malaysia came in fourth.

After the market’s performance this year, EY predicts more listings of Asean companies in 2018 with strong opportunities, particularly, in the real estate, consumer and technology sectors.

“Overall, the average IPO size will remain relatively low in 2018 compared with the historical average with an increasing number of IPOs of entrepreneurial businesses, particularly in the technology sector, coming to the public markets to raise funds,” EY says in its report on the outlook for the Asean market.

So far, Binasat Communications Bhd is the only company with a firm date for a listing next year. It is set to debut on the ACE Market on Jan 8 and is looking to raise total gross proceeds of RM39.55 million.

Other companies that have had their exposure drafts listed on the Securities Commission Malaysia website since August include Nova Wellness Group Bhd, MI Equipment Holdings Bhd, Gagasan Nadi Cergas Bhd, GDB Holdings Bhd and Radiant Globaltech Bhd.

Another investment banker agrees that 2018 could be a better year for the IPO market, although he warns that it is possible for listings to be delayed despite being talked about for months.

He cites the 14th general election, which could take place any time before August, as a major cause of a delay in IPOs next year.

“Unlike other fundraising activities, IPOs take a fairly long time to plan. The larger IPOs may choose to wait until the election is over before going to the market. They wouldn’t want to be in a situation where they list before or during the election. I think this would only affect the bigger IPOs and shouldn’t be the case for the smaller ones,” he adds.

According to the EY report, the geopolitical tension between North Korea and the US is unlikely to dampen IPO activity next year unless the crisis worsens. It adds that it does not see the rise in interest rates in the UK and the US leading to increased capital outflow from Asia-Pacific.

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