Southeast Asia’s (SEA) initial public offering (IPO) remains steady despite global economic uncertainties, according to Deloitte recent report.
In the last six months, the region’s market saw 85 IPOs raising $3.3 billion in proceeds, with an IPO market capitalization of $20.1 billion.
This versus the 73 IPOs in the same period last year which raised $3.1 billion, with market capitalization of $35.4 billion.
On year on year comparison, the first half saw a 16 percent increase in the number of new IPOs and a 5 percent increase in IPO proceeds.
According to Deloitte, the growth was largely due to the three sizable IPOs in Indonesia that had each raised more than $500 million in first half, as compared to only one blockbuster IPO that had raised $1 billion a year ago (i.e. PT GoTo Gojek Tokopedia Tbk).
However, there was a sharp decrease of 43 percent in market capitalization due to PT GoTo Gojek Tokopedia having an exceptionally large market capitalization of $27.5 billion in the first half of 2022.
Singapore saw three IPOs in the first half, with SGD 28 million ($20.77 million) in proceeds raised and an IPO market capitalisation of SGD 137 million ($102 million).
This was a 95 percent decrease in proceeds raised from the first half of 2022 which had nine IPOs with SGD 572 million ($424 million) in proceeds raised and an IPO market capitalization of SGD 790 million ($586 million).
Indonesia looks set to have its best year ever in terms of listing proceeds with 44 IPOs in the first half.
These include the listings of a nickel miner that raised approximately $683 million, an integrated electronic vehicle (EV) battery materials company that raised approximately $627 million, a geothermal power plant operator that raised approximately $594 million, and an electric motor car wholesaler that raised approximately $58 million.
Meanwhile, Thailand’s IPO market kicks off 2023 with a slower start compared to the first half of 2022.
Its IPOs include four listings of a cosmetic surgery hospital that raised approximately $91 million, an automotive retail group that raised $65 million, e-book store operator that raised approximately $61 million, and a financial advisory company focused on managing non performing assets that raised approximately $46 million.
Malaysia has a target for 39 companies to launch their IPO in 2023.
Among the top ten performers in Southeast Asia, two companies, a property developer and an electronics manufacturer from Malaysia raised a combined total of $147 million.
Deloitte said SEA’s positive growth outlook is making the region an investor favorite as there continues to be an influx of foreign direct investment due to the region reopening its doors, the restoration of the tourism industry, and the booming domestic demand.
“Together, these factors have contributed to the positive economic growth in the region despite the global economic uncertainties,” it said.
With each country’s pro-growth policies, stable macroeconomics and healthy demographics of Southeast Asia, coupled with the growing impact of tech-enabled entrepreneurs on investment, and strong trading relationships with China, it said there remains a sea of
exciting opportunities in the regional capital markets and a healthy deal flow for investors to explore and tap on.
It noted that Southeast Asia as a region has large populations, large markets, significant economic capacity, and a highly skilled talent pool.
“The Southeast Asian countries are very much inter-connected, and each country is a trading partner to its neighbors, as much as they are competitors,
“A hot IPO market in any SEA country bodes well for the rest of the region,” it said.
While the Indonesian IPO market will remain hot for the current term, it said it is sensitive to potential changes in the Indonesian government policies as investors may adopt a wait-and-see approach leading up to the elections.
Meanwhile, after two years of lockdowns and border restrictions, it noted tourism has returned to Southeast Asia.
China has stepped back from their zero COVID-19 stance, removed COVID-19 restrictions and lockdowns, and has re-opened its borders to the world, which is benefitting the Southeast Asia region in tourism, trade and investments, it said.
While waiting for more certainty around interest rates, inflation and the global geopolitical environment to whet investors’ risk appetite, it expects IPOs in several industries across Southeast Asia, including logistics, technology, mining, electric vehicles and renewable energy.
It also noted that in the first half, there were a handful of IPOs on NASDAQ from Singapore and Malaysia, in the industries of real estate services, biotechnology and vessel refueling.
“We expect this trend for Southeast Asia companies heading for United States IPOs to continue,” it said.
While taking into account possible changes to global events, Deloitte remains cautiously optimistic about the region’s prospects for the second half.
“It still remains to be seen how Southeast Asia will ride out the storm in its economic recovery,” it said.
According to Deloitte, the series of interest rate hikes has impacted Asian currencies and capital markets, and could lead to capital outflows and currency depreciations in some countries, as well as rising debt levels.
It said troubles in the banking sector, following the collapse of three banks in the United States and Credit Suisse Group has added distress.
“Inflation needs to be kept in check, particularly for food, services and energy prices. These could force central banks to raise interest rates to curb inflation quickly,” it said.
It also said a tight labor market gives rise to rising wages and consequently an increase in the price of services.
If the Russian-Ukraine conflict escalates, it opined that it would impact the fuel and commodities prices which remain high.
It also said Asian economies are vulnerable to fluctuations in oil prices.
In the event of another wave of new variants of COVID-19, it said economic recovery may also be slowed down.
The possibility of a global recession cannot be ruled out, and this will affect exports and growth in Southeast Asia, it added.
“Although the region has a heavy reliance on international trade and investment, we have witnessed strong domestic demand and capital activity within Southeast Asia,” it said.
According to Deloitte, the tariffs and bans imposed on China by American companies have resulted in some labor-intensive businesses relocating from China to Southeast Asia, including Malaysia, Vietnam and Thailand.
It opined that this bodes well for the region’s labor market, capital inflows and economic activity, setting a robust environment for the capital market to flourish.