The last three months of 2020 saw a frantic pace of fundraising by companies on Bursa Malaysia. From October to December, a total of RM5.47 billion was raised from the equities market, making up more than 50% of the RM9.9 billion in total that investors forked out for placements last year.
The fundraising scene in the equities secondary market had seen better days before. It hit a high of RM14.5 billion — proceeds from placements — in 2017. Together with new listings, companies on Bursa raised a total of RM16.5 billion in 2017, which is the best performance over the last four years.
In 2018 and 2019, companies raised RM9.17 billion and RM6.57 billion respectively from placements. Including the amount raised from IPOs, the total amounted to RM9.17 billion in 2018 and RM6.6 billion in 2019.
Against a backdrop of uncertainties last year, fundraising activities by companies on Bursa was quiet until September, and picked up significantly from then on.
A combination of low interest rates and the frenzy in the equities market paved the way for companies to go on a fundraising spree. Unprecedented intervention by governments — from the US to South Africa and nearer home in Malaysia — helped boost confidence in the capital markets.
It mitigated the effects of the pandemic, which normally would have had a devastating effect on the capital markets.
The bond market also saw healthy activity with more new issuances for most months in 2020 compared with redemptions. The only exception was in August when there were more redemptions than issuances.
New issuances of debt last year were RM366.67 billion, which is lower than the RM385.93 billion and RM384.85 billion raised respectively in 2018 and 2019. Nevertheless, the total bonds outstanding in 2020 is RM1.7 billion, which is higher than the amount outstanding in the last three years.
The blistering pace of fundraising is a global trend, with companies raising US$400 billion in the first three weeks of the year. The comparable average over the last 20 years was only US$170 billion, according to reports.
So, what does this suggest?
Obviously, investors have thrown caution to the wind by putting more money in the capital markets and brushing aside concerns of the pandemic continuing to rear its ugly head this year.
Central banks committed to keeping interest rates low — even though there are fears of asset inflation — help keep the capital markets healthy. The speed at which vaccines are being rolled out have also added to investor confidence.
Data shows that since the peak of 843,364 cases on Dec 20 last year, cases have come down by more than 50% to about 360,000 new daily infections. Developed countries with a bigger cheque book have a more structured rollout programme.
Developing countries are counting on vaccines from China, Russia and India to bring the pandemic under control, something which has got the developed nations worked up.
Towards this end, France has warned that Europe should immediately start sending vaccines to Africa or lose out to the “vaccine diplomacy” of China and Russia.
A bigger motivation for countries to speed up the vaccine rollout is because of the correlation between those that have managed to control the pandemic better and economic growth.
China, Norway, Japan and some Asian countries, which have managed the pandemic better than the developed countries, have shown better growth rates in the final quarter of 2020. China’s economy grew 6.5%, in contrast to that of the UK, which declined more than 7%.
The fundraising spree is likely to continue for the next few months. But the winners of the rally last year are not going to be the same as this year. This means investors putting money into companies that performed well last year may not see good returns this year.
Broadly, the fundraising can be broken up into two categories. First, companies that need new capital to stay afloat and revive business amid the recovery phase and, second, companies seeking to expand or build new businesses with fresh capital.
Between the two, putting money in the first category is a better option. Companies such as AirAsia Group Bhd is seeking to raise RM454.5 million for working capital and repay some of its debts. Air travel will be back in vogue when the economy opens up. And there is no doubting that companies such as AirAsia will bounce back fast.
The same goes for the Genting Group, which is weighed down by huge capital commitments. It will be back on its feet when the economy recovers and will likely see a better bounce back than most expect.
But the same cannot be said of the prospects for glove and technology companies, which have been winners of the pandemic. Valuations are high and the business dynamics will change when the number of active cases come down.
Not all the money raised by these companies will see gains. Many will feel the pain.
M Shanmugam is contributing editor at The Edge