IPO market likely to see more Reit, Catalist floats in 2016

Singapore - WHERE have all the big listings gone? The fading of the local initial public offering (IPO) market's traditional strongholds of property and oil & gas this year has made 2015 one of the worst years for IPO fundraising in recent memory. But dealmakers are still holding out hope for a decent haul of listings next year, saying that sectors such as Reits, healthcare and technology could see more floats.

Upcoming entrants also look set to continue the existing trend of small Catalist listings that have tiny public tranches. There are already a few small Catalist IPOs lined up, judging by preliminary offer documents up on Catalodge. At last count, there were four companies that had posted their preliminary documents but not announced an IPO date yet: Eindec Corp, Secura Group, GS Holdings and Anchor Resources.

Partly due to the small size of the IPOs that did take place this year, the Singapore stock market has fared the worst compared to regional rivals such as Hong Kong, Malaysia, Thailand and Indonesia.

As it turns out, market participants' forecasts for the start of this year were overly optimistic. They had predicted near the end of last year that a pick-up in listings activity in late 2014 could spill over into the early months of 2015. They had also forecast that sectors such as real estate investment trusts (Reits), offshore and marine, commodities and healthcare stocks would likely continue to see IPOs this year.

In hindsight, that might have been tempting fate. The local bourse did not see a single listing for the first three months of the year, and there are only 13 IPOs in 2015 - less than half of the 28 mounted in 2014.

The total amount raised this year was also a paltry S$339 million, and nearly half of that came from the sole mainboard listing of Chinese mall landlord BHG Retail Reit which raised the highest IPO sum of S$120.94 million out of all 13 floats, according to data on financial portal ShareInvestor. The rest of the listings this year were all tiny Catalist listings that raised between S$5.4 million and S$33.75 million each. This year's total IPO fundraising figure stands in stark and dismal contrast to 2014, when IPOs raised at least S$2.32 billion, going by ShareInvestor data.

Dealmakers said that the local IPO market was hit this year by a soft global economy and weakness in the property and oil & gas sectors, segments that the Singapore bourse has traditionally had a relatively strong foothold in.

"These two sectors have been the stronghold for Singapore's capital markets, driving capital activities of blockbuster-sized IPOs from year to year. These usual blockbuster IPOs and Reit listings were missing in the 2015 IPO market with the exception of the newly listed BHG Reit," said Ernest Kan, Deloitte Singapore's chief of operations for clients and markets.

Tan Jeh Wuan, head of capital markets Singapore at DBS Bank, said: "It also doesn't help that some of the industry sectors that SGX is traditionally strong in, such as commodities, oil & gas and offshore & marine, are not performing well this year."

Crude oil prices have been trapped in a prolonged slump that began in late 2014.

One major reason for the lacklustre showing in Singapore was the relative absence of Reit IPOs this year, which Mr Tan said had been "typically the larger deals that made up a significant proportion of the IPO funds raised in prior years". DBS handled the BHG Retail Reit IPO.

Volatile market conditions and the uncertainty over when the United States Federal Reserve would hike interest rates have also resulted in a number of Reit IPOs being deferred this year, he said. The Fed raised rates in mid-December.

Reit IPOs that have stalled include a planned office Reit by Canadian insurer Manulife Financial Corp, which has been postponed indefinitely, and another China Reit, Kailong Reit.

The factors have contributed to the Singapore stock market raising the lowest amount from IPOs this year compared to its regional peers such as Hong Kong, Malaysia, Indonesia and Thailand.

Hong Kong, for instance, raised at least US$28.1 billion this year - far outstripping the amount raised here, Mr Tan noted.

One worry is that, as 2015 showed, the IPO pipeline is likely becoming harder to get a handle on.

Dr Kan said the markets have been "getting more erratic" for IPO activities, such that it has become increasingly challenging to predict deal flows. "A case in point is how we have seen Hong Kong's stock market tumble in the third quarter this year as a result of factors such as expectations over the timing of the US interest rate hike, weaker Chinese economic performance, steep correction in major stock markets and a jittery A-share market," he said.

But others disagree, saying that the market has stabilised over the past few months and activity could be coming back, particularly in the Reit and property sector.

"For next year, we have a decent pipeline so we are hopeful that market conditions will remain conducive, allowing us to launch some of the deals that we have been preparing for. The pipeline includes a number of Reit IPOs and listings of companies in sectors such as property, healthcare, technology and manufacturing," Mr Tan said.

Ronny Chng, head of group investment banking at UOB, said the bank has "a healthy pipeline of potential listings on both the mainboard and Catalist across various sectors ... We believe the level of interest in Catalist will continue to grow. In particular, we are seeing more small and medium-sized enterprises and foreign companies in Singapore exploring the secondary board for fundraising to support their growth plans. Institutional investors are also becoming more open to investing in Catalist-listed companies".

He added that since the investment community remains cautious and prefers defensive stocks, he expects to see "more healthcare and consumer companies with strong brand equity" raise funds through public listings.

Dr Kan also said Deloitte has seen an increase in the number of enquiries from SMEs, "and with the financial assistance from the SPRING-SGX collaboration on the Capabilities Development Grant, we can expect the trend for Catalist listings to continue".

This article was first published on December 31, 2015.
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