SINGAPORE - Initial public offering (IPO) activity is set to pick up in 2013: there is a queue of companies waiting to list this year, many of them in the consumer, retail and healthcare sectors, as well as business trusts and real estate investment trusts (Reits), say investment bankers.
But business trusts and Reits hoping to capitalise on investors' continued chase for yield will now have to stand up to the latter's scrutiny, as they have become more discerning regarding the quality of their structure.
As poor market conditions forced companies to postpone listing plans into 2013, IPO activity tapered off in December, to end with a whimper with just one listing.
In the last three months, at least three companies shelved their listing plans.
Dynasty Reit - which was to have been Singapore's first renminbi-denominated Reit and largest IPO this year - was the first to pull the plug, blaming worsening market conditions.
Next to follow was Croesus Retail Trust, which offers exposure to Japanese retail properties. While it initially planned to list in November, it has delayed its plans due to the weak market.
Malaysian lottery operator Sports Toto also pushed its planned November IPO to Jan 13.
The only firm to swim against the tide - Singapore-based engineering and construction services firm Kori Holdings - started trading on Dec 11. It closed trading on Dec 28 at 30 cents, up 20 per cent from its IPO price of 25 cents.
Investment bankers whom BT spoke to said that the 2013 pipeline of IPOs is strong, with many large-sized business trusts and Reits lined up given investors' continued preference for yield plays.
"Investors will continue to be selective for 2013, and companies with a strong track record, reputable sponsors and solid growth potential can still raise money in the equity capital markets," said HSBC managing director and head of Singapore advisory, Alvin Lim.
But even while business trusts and Reits remain popular, investors will be more discerning about quality.
"Beyond the demand for yield, investors are focused a lot on other qualitative factors," said Vineet Mishra, JP Morgan's head of Southeast Asia Equity Capital Markets. "Now the market is a bit more discriminating on the quality of sponsors, quality of pipeline of properties, and whether it is a real asset management business or a more opportunistic exit."
Besides Reits and business trusts, investors will also see companies in the consumer, retail and healthcare sectors going public this year as valuations for these sectors continue to be attractive, HSBC's Mr Lim said.
This is also driven by investors' interest in buying the Asian consumer story, said Mr Mishra.
"The IPOs that investors were buying (in 2012) had a particular theme - the Asian consumer," he said, adding that the lack of supply of such listings in Singapore last year is one reason why the hot money that flowed to Asia from Europe and the US has not benefited Singapore as much as other South-east Asian equity markets such as the Philippines.
However, having raised the admission criteria to the mainboard in August 2012, Singapore's attractiveness to companies and investors in the next few years will be enhanced, said Deloitte Singapore chief of operations for clients and markets, Ernest Kan, who predicts 20 to 30 listings on Singapore Exchange (SGX) this year.
"As it is, about 40 per cent of Singapore's listings come from overseas, and SGX has established its position as an Asian gateway for capital raising," Dr Kan said. "The move to improve listing standards can be deciphered as a desire to attract the lion's share of the bigger-ticket IPOs that are predicted to flock to Asia in the next five to 10 years."
Although the number of new listings on the SGX increased slightly from 18 in 2011 to 20 last year, proceeds from IPOs fell 48 per cent to US$3.8 billion, according to preliminary data by Thomson Reuters. Excluding the mega Hutchison Port Holdings Trust IPO in 2011 which raked in US$5.45 million, however, the amount raised last year was higher.
Singapore was not alone in facing dismal IPO conditions in 2012. Asian exchanges saw a drop in capital raised from a year ago, completing only 373 deals which raised US$47 billion up till early December, down 46 per cent compared to the full 2011 when US$88 billion was raised from 610 IPOs, according to Ernst & Young.
The only exception was Bursa Malaysia. The bourse rose to become the world's fourth largest centre for IPOs last year, overtaking financial hubs including London, Bloomberg reported. Three of Asia's four largest IPOs - Felda Global Ventures Holdings, IHH Healthcare and Astro Malaysia Holdings - have taken place in Malaysia.
While investment bankers see a healthy pipeline of IPOs in Malaysia for 2013, these may not match the value or volume that was done last year, they said.
The past year also saw a spate of de-listings in Singapore, in a continuation of the trend from 2011.
Some 84 firms, including Asia Pacific Breweries and Cerebos Pacific, have taken the privatisation route, compared with 122 in 2011, according to data from Thomson Reuters. Other companies such as SC Global, machinery firm China Farm, and electronics manufacturing services provider Kinergy also announced de-listing plans in December.
Privatisations have been especially rife in the technology and real estate sectors, where valuations have come off in the past two years, said HSBC's Mr Lim.
"With current macroeconomic concerns negatively impacting the valuations of listed companies in some sectors and an increase in the level of M&A activity in general, we expect that the trend of de-listing and privatisation will likely continue," he said.
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