This article first appeared in The Edge Malaysia Weekly on April 24, 2017 - April 30, 2017

WITH investor interest having returned rather significantly to the local stock market since February, investment banks (IB) have been at their busiest in a long while, pitching existing and prospective clients for initial public offering (IPO) mandates.

“I’ve done four pitches in the past week. Not all were new; some were already ongoing and we expect to know soon if we received the mandate or not. I’m sure all the other IBs are just as busy. Things are moving fast and furious … it has not been like this in a long time,” a senior investment banker from a local IB tells The Edge.

Given the stock market run-up and surge in investor interest over the last few months, IBs — both big and small — are moving quickly to land themselves equity-related deals, particularly IPOs.

“We’re all trying to make hay while the sun shines, so to speak. There is a lot of pent-up demand from investors. At the same time, the interest level is very high from companies seeking to list. The stock market gets hot and correspondingly, the urgency on the client’s side [to list] picks up. Everybody wants to catch the wave, right?” remarks the investment banker.

The head of another local IB concurs. “It is for sure a more active market this year. Apart from having more deals in the pipeline, we are also busy pitching for more IPO jobs. We are definitely more active this year,” he reveals.

The stock market started heating up from January, with the FBM KLCI peaking at 1,754.67 — its highest close in 22 months — on March 23. The benchmark index had gained 5.92% this year as at the April 19 close of 1,738.95.

But it was only from February that daily trading volumes got noticeably stronger. The average since February is 3.2 billion shares compared with 1.69 billion shares in the same period last year. The average daily trading value, meanwhile, is RM2.63 billion compared with RM1.94 billion in the same period last year.

“It’s a clear indication that investor interest is back. With those kind of daily average volumes, you know that syndicates and speculation activity are back. It is not necessarily a bad thing as it lifts overall market sentiment,” says the earlier investment banker. Improved sentiment helps create appetite for new listings, he adds.

He, nevertheless, cautions that IBs may have just a small window to ride the current positive sentiment. “With [US President Donald] Trump’s warmongering and geopolitical tensions, a major correction or crash could be coming. That’s my view,” he says, adding that this could dampen appetite for new listings.

So far this year, there have been six new listings — three on the Main Market (KIP REIT, Serba Dinamik Holdings Bhd, Eco World International Bhd) and the rest on the ACE Market (HLT Global Bhd, Matang Bhd, Eversafe Rubber Bhd) — that collectively raised RM3.47 billion. The latest was Eversafe’s, a tyre retreading firm, which was listed just last Friday. Eversafe’s shares made available for the Malaysian public was oversubscribed by a whopping 64.99 times.

The RM2.58 billion raised from Eco World’s listing — the year’s biggest so far — earlier this month already exceeds the total of RM1.03 billion raised in Malaysia last year from 12 listings. In 2013, some RM3.88 billion was raised from 13 new listings.

Among the big IPOs anticipated in the market this year is South Korean conglomerate Lotte Group’s Malaysian petrochemical unit, sometime in the third quarter. The listing of Lotte Chemical Titan Holding Bhd on Bursa Malaysia’s Main Market could reportedly raise as much as US$1.5 billion, which would make it one of the biggest in the region this year.

In Malaysia, there has not been an IPO that raised over US$1 billion since the 2012 flotations of Astro Malaysia Holdings Bhd (US$1.5 billion), Felda Global Ventures Holdings Bhd (US$3.3 billion) and IHH Healthcare Bhd (US$2.1 billion). Maybank Investment Bank Bhd is the principal adviser on the Lotte Chemical IPO.

Apart from Lotte Chemical, the other anticipated big IPO is that of QSR Brands (M) Holdings Sdn Bhd, which sources say could be relisted either this year or the next. News reports indicate that it could raise RM1.6 billion or more. QSR has picked Citigroup, Credit Suisse and Maybank IB to lead the IPO, Bloomberg reported last November, citing sources familiar with the matter. QSR operates the KFC and Pizza Hut restaurant franchises in Malaysia.

Smaller IPOs this year include that of building contractor Inta Bina Group Bhd — which plans to list on the ACE Market in the second quarter — and earthworks and civil engineering services group Advancecon Holdings Bhd on the Main Market in mid-year.

The size of the IPO matters to the IBs as they generally take a percentage of the amount raised as their fee. In any IPO, IBs usually earn the most from placement, underwriting and advisory fees, in that order, bankers say.

For underwriting, IBs generally earn around 2% of the amount raised from the IPO, says an investment banker. This falls on the lower end of the scale of what IBs earn in the region. Given the stiff competition at home, IBs sometimes agree to lower fees in order to land the job, he explains.

Among the busiest IBs for the IPOs so far this year are Maybank IB, CIMB Investment Bank Bhd and M&A Securities Sdn Bhd. Maybank IB, in particular, is one to watch given that it seems to be involved in all the big IPOs to come. It was the joint adviser to Eco World’s IPO, together with CIMB IB and Hong Leong Investment Bank Bhd.

M&A, a wholly-owned subsidiary of Insas Bhd, has been involved in ACE Market listings, including that of Matang in January, which raised RM16.9 million, and the upcoming Inta Bina IPO.

The second biggest listing so far this year — Serba Dinamik’s on Feb 8, which raised RM584.1 million, had Affin Hwang Investment Bank Bhd and RHB Investment Bank Bhd as joint advisers.

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