Malaysia: IPO tide rising

Return of confidence after Malaysia’s general election has seen a surge in companies declaring their intention to go public, with more than $2bn worth of initial public offerings (IPOs) launched or mooted for the weeks following the poll.

In the months leading up to the May 5 election, IPO activity had been sluggish, with Malaysia having dropped from fifth globally in terms of funds generated by floats last year, to fifth in its region, according to international media reports. Most firms looking to tap the markets chose to hold off until after the poll, with concerns over potential political and economic instability weighing down sentiment. Now, with Prime Minister Najib Razak’s coalition returned to power, though with a reduced majority, confidence has returned, with a swathe of new IPOs either launched or flagged in the weeks following the ballot.

According to a recent Reuters report, the latest entrant into the IPO race is port operator Westports Malaysia, with the news agency citing sources as saying the firm is planning to list on the Bursa Malaysia in October. Westports, which operates Port Klang – Malaysia’s busiest export hub – is aiming to raise some $500m through the float, which is being arranged by Goldman Sachs, Credit Suisse and Maybank.

The Westports offering is likely to be popular with investors, as its Klang facility is expected to see an increase in container traffic of 7% annually for the next five years as trade between fellow ASEAN member states gains momentum in the lead-up and beyond the launch of the ASEAN Economic Community (AEC) in 2015.

Maritime transporter Maybulk is also going to the markets, with the shipping line intended to float it partially owned subsidiary PACC Offshore Services Holdings (POSH) by the end of this year or early in 2014. However, Maybulk CEO Kuok Khoon Kuan said in mid-May the listing of POSH, which provides support vessel services to the offshore oil and gas industry, could be on the Singapore exchange, saying a final decision would depend on market conditions.

In mid-May, IOI Corporation – one of Malaysia’s leading palm oil producers, announced it would be spinning off the holding’s property arm through an IPO planned for September. The float, valued at around $635m, rolls back IOI’s move in 2009 to take its real estate business private. The corporation’s chairman, Lee Shin Cheng, said the relisting was aimed at unlocking IOI Property’s true value, though some of the funds raised through the float, and a subsequent offer of shares to existing stakeholders, would be used to buy down the firm’s debt ahead of further expansion.

While the subdued activity in the first third of the year may hold back the 12-month total for IPOs, meaning the year-end figure could fall short of the number completed in 2012, Zulkifli Hamzah, head of Kuala Lumpur-based MIDF Research, believes trading will be brisk for the forthcoming offerings.

“We expect the Malaysian IPO market to remain healthy, with strong underlying demand,” he told Reuters in an interview on May 30. “There is a tremendous amount of liquidity in the system to support any offering.”

Though there is more confidence after the election and high levels of liquidity, some observers remain wary, including M&A Securities dealer Ooi Chin Hock, who cautioned that the market may not be as welcoming as some have forecast.

“It really is not a great time,” he said in an interview with AFP on May 17. “Things will turn defensive. But things could improve late in the year, and next year should be good.”

This caution may have influenced construction and utilities firm MMC Corp, which on May 13 announced it was postponing the IPO of its power unit Malakoff until next year. Initially MMC had planned to return Malakoff to the exchange’s boards in the second half of 2013, having taken it private in 2006.

While the company cited the need to improve its assets through maintenance work at one of its power stations, MMC is also looking to build up value by adding to Malakoff’s holdings, with the firm bidding on the tender for a new coal fired-power station in its home market and other projects abroad. Should these bids be successful, these additions could push its IPO worth past the $1bn that was predicted for the now-delayed float.

Early indications in the post-election period are that the market has an appetite for IPOs, with the float of property developer Matrix Concepts, which closed in mid-May, being oversubscribed more than 11 times. On its Bursa Malaysia debut, the firm’s shares gained 24%, a healthy return for its investors and a result that could encourage other companies to list.

Though the market may stage a correction some time this year, those companies that have announced they are looking to list are strong performers that can be judged by their financial soundness rather than general market sentiments. Indeed, rather than coming in on the end of a extended period of growth, the new wave of IPOs could help sustain the market’s upward climb.

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