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Thursday 8 October 2009
New listings face up to harsh realities
More initial public offerings (IPO) are on their way to charm the stock market, but they may get the cold shoulder from investors if a recent trend is any guide.
IPOs pick up in Q3 but some mull putting off listings
By LYNETTE KHOO
(SINGAPORE) More initial public offerings (IPO) are on their way to charm the stock market, but they may get the cold shoulder from investors if a recent trend is any guide.
Although IPO activity picked up in the third quarter, most new listings ran out of steam along with the broader stock market. Of the 12 IPOs here, eight have already tanked below their offer price.
Earlier gains in these IPOs were supported by low IPO valuations, industry players said. But as small issuers that did not command an institutional following, many have since languished in thin trades.
‘Given the poor performance of IPOs in Hong Kong recently and the weak performance of the bigger listings here, the reception to IPOs is likely to be muted,’ said Chan Tuck Sing, executive director of UOB-Kay Hian.
The performance of future new listings will be closely watched by IPO aspirants. ‘If they do not perform, future IPOs may be deferred,’ he added.
David Hoon, co-head of investment banking at CIMB Bank, felt that there is still a lot of investor interest for companies with good fundamentals and that are willing to price their IPOs attractively.
Of the three listings that are still above water, mainboard-listed PEC was priced at 3.5 times its fiscal 2008 earnings, while Catalist firms Teho and Heatec were priced at 3 times and 4.25 times their respective fiscal 2008 earnings per share.
In the third quarter, nine IPOs were launched on Singapore Exchange raising total funds of about $213.44 million, compared to three IPOs with total gross proceeds of $16.84 million in the first half of this year.
After a dearth of listings from China on SGX in the first half this year, three Chinese firms launched IPOs here in the third quarter, raising total capital worth $154 million. The largest IPO so far this year came from textile firm China Gaoxian, which raised $98.8 million in September.
Stirring the IPO market are a pool of ‘ready companies’ that had earlier shelved their listing plans because of poor market conditions. They are joined by those at the tail-end of their due diligence and preparation process.
This month, three more companies have registered their IPO prospectuses, with estimated gross proceeds totalling $26.94 million. Two others, however, have withdrawn their prospectuses.
Issue managers say they have also received more inquiries for potential new IPO mandates in the past few months. These would be ready for listing next year, going by the nine to 12 months’ timeline to prepare for listing.
‘The trend is moving in the right direction, so barring significant market shocks, the positive trend should continue into the first half of 2010,’ said Mark Liew, director of PrimePartners Corporate Finance.
Brendan Goh, head of corporate finance at DMG & Partners Securities noted that it is only to be expected that some IPOs may not perform well given the volatile stock market conditions. But he expects the IPO window to remain open in the next 12 months.
With audit being a critical part of the IPO process, reporting auditors are working hard to complete the audit for their IPO clients.
‘Given the current level of uncertainty, there is a premium to getting the timing right,’ said Tham Sai Choy, KPMG regional head of audit for Asia-Pacific.
Despite the urgency in their work, IPO professionals assert that due diligence and the standard of work has not been compromised.
Marcus Chow, a director at Drew & Napier noted that there has been increased awareness among IPO professionals and ‘ramping up of standards in line with SGX’s expectations.’
Notwithstanding the recovery in the IPO market, 2009 still looks set to be the most challenging in recent memory in terms of both the number of IPOs and the funds raised, industry players said.
The pipeline of Chinese listings also remains uncertain, they added, given that since September 2006, Chinese companies that want to list overseas need approval from China Securities Regulatory Commission.
Robson Lee, a partner at Shook Lin & Bok, observed that a number of IPO candidates have been affected by poor earnings last year and the first half of this year.
Hence, they are preparing to list only in the second half of 2010 with updated audits for second-half 2009 and first-half 2010 results in hope of better IPO valuations, he said.
Globally, IPO activity has rebounded in the third quarter, driven by China. According to the latest Ernst & Young report, a string of billion-dollar Chinese IPOs drove the total value of IPOs globally in the third quarter to US$37.8 billion - a 292 per cent surge from a quarter ago and the highest level since the second quarter of 2008.
Gregory K Ericksen, Ernst & Young’s global vice-chairman of Strategic Growth Markets noted that this does not seem like a ‘dead cat bounce’ nor a universal recovery in global IPO markets.
‘Until we see properly functioning markets globally, and in particular a return to confidence on the main European bourses, questions will remain over the health of the recovery,’ he said.
2 comments:
New listings face up to harsh realities
IPOs pick up in Q3 but some mull putting off listings
By LYNETTE KHOO
(SINGAPORE) More initial public offerings (IPO) are on their way to charm the stock market, but they may get the cold shoulder from investors if a recent trend is any guide.
Although IPO activity picked up in the third quarter, most new listings ran out of steam along with the broader stock market. Of the 12 IPOs here, eight have already tanked below their offer price.
Earlier gains in these IPOs were supported by low IPO valuations, industry players said. But as small issuers that did not command an institutional following, many have since languished in thin trades.
‘Given the poor performance of IPOs in Hong Kong recently and the weak performance of the bigger listings here, the reception to IPOs is likely to be muted,’ said Chan Tuck Sing, executive director of UOB-Kay Hian.
The performance of future new listings will be closely watched by IPO aspirants. ‘If they do not perform, future IPOs may be deferred,’ he added.
David Hoon, co-head of investment banking at CIMB Bank, felt that there is still a lot of investor interest for companies with good fundamentals and that are willing to price their IPOs attractively.
Of the three listings that are still above water, mainboard-listed PEC was priced at 3.5 times its fiscal 2008 earnings, while Catalist firms Teho and Heatec were priced at 3 times and 4.25 times their respective fiscal 2008 earnings per share.
In the third quarter, nine IPOs were launched on Singapore Exchange raising total funds of about $213.44 million, compared to three IPOs with total gross proceeds of $16.84 million in the first half of this year.
After a dearth of listings from China on SGX in the first half this year, three Chinese firms launched IPOs here in the third quarter, raising total capital worth $154 million. The largest IPO so far this year came from textile firm China Gaoxian, which raised $98.8 million in September.
Stirring the IPO market are a pool of ‘ready companies’ that had earlier shelved their listing plans because of poor market conditions. They are joined by those at the tail-end of their due diligence and preparation process.
This month, three more companies have registered their IPO prospectuses, with estimated gross proceeds totalling $26.94 million. Two others, however, have withdrawn their prospectuses.
Issue managers say they have also received more inquiries for potential new IPO mandates in the past few months. These would be ready for listing next year, going by the nine to 12 months’ timeline to prepare for listing.
‘The trend is moving in the right direction, so barring significant market shocks, the positive trend should continue into the first half of 2010,’ said Mark Liew, director of PrimePartners Corporate Finance.
Brendan Goh, head of corporate finance at DMG & Partners Securities noted that it is only to be expected that some IPOs may not perform well given the volatile stock market conditions. But he expects the IPO window to remain open in the next 12 months.
With audit being a critical part of the IPO process, reporting auditors are working hard to complete the audit for their IPO clients.
‘Given the current level of uncertainty, there is a premium to getting the timing right,’ said Tham Sai Choy, KPMG regional head of audit for Asia-Pacific.
Despite the urgency in their work, IPO professionals assert that due diligence and the standard of work has not been compromised.
Marcus Chow, a director at Drew & Napier noted that there has been increased awareness among IPO professionals and ‘ramping up of standards in line with SGX’s expectations.’
Notwithstanding the recovery in the IPO market, 2009 still looks set to be the most challenging in recent memory in terms of both the number of IPOs and the funds raised, industry players said.
The pipeline of Chinese listings also remains uncertain, they added, given that since September 2006, Chinese companies that want to list overseas need approval from China Securities Regulatory Commission.
Robson Lee, a partner at Shook Lin & Bok, observed that a number of IPO candidates have been affected by poor earnings last year and the first half of this year.
Hence, they are preparing to list only in the second half of 2010 with updated audits for second-half 2009 and first-half 2010 results in hope of better IPO valuations, he said.
Globally, IPO activity has rebounded in the third quarter, driven by China. According to the latest Ernst & Young report, a string of billion-dollar Chinese IPOs drove the total value of IPOs globally in the third quarter to US$37.8 billion - a 292 per cent surge from a quarter ago and the highest level since the second quarter of 2008.
Gregory K Ericksen, Ernst & Young’s global vice-chairman of Strategic Growth Markets noted that this does not seem like a ‘dead cat bounce’ nor a universal recovery in global IPO markets.
‘Until we see properly functioning markets globally, and in particular a return to confidence on the main European bourses, questions will remain over the health of the recovery,’ he said.
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