As stocks soar, bourse prepares for IPO rush

MANILA, Philippines - Will the Philippine Stock Exchange (PSE) finally see an end to the dearth of initial public offerings (IPOs) in the Philippines this year?

The PSE under the leadership of its new president Ramon Monzon, is indeed hoping for a better year especially with the Philippine Stock Exchange index recently seen flirting with new all time highs or breaching the 8,000 mark.

Market observers said it’s not surprising for the PSE to aspire to go back to the heyday of IPO activities in the country. After all, it’s been a while and it’s not uncommon to hear investment  bankers say to each other over bottles of whisky and wine when they unwind after a hard day’s work: “Gone are the days of good IPOs.”

Monzon

The stock market, while it continues to attract companies, has yet to see the return of the IPO fever of the 1990s or even prior to the 2008 global financial crisis when there were double-digit listings.

PwC Philippines said from 2008 to 2009, the Philippines only had two IPOs before they averaged four to five annually.

“In the Philippines, the IPO market peaked with 12 listings in 2007 before the global financial crisis struck in 2008,” PwC said.

In 1994, prior to the Asian financial crisis of 1997, the Philippines saw 21 companies go public.

But like Monzon, PSE chief operating officer Roel Refran hopes things will change soon.

He said the exchange continues to lure private companies to go public or encourage listed ones to go back to the market.

This year, Refran said the PSE hopes to see at least twice the number of companies to list in the exchange to eight.

Last year’s listings comprised of the Villar family’s Golden Haven which raised P778 million; Cemex Holdings Philippines (P25 billion), Pilipinas Shell Petroleum Corp. (P18.4 billion) and Shakey’s (P4 billion).

“We have six to eight (in the pipeline) this year,” Refran said.

Refran said IPO numbers in the Philippines have room to improve and that the PSE is stepping up efforts to encourage companies to go back to the market and those that are still in the informal sector to formalize and list.

Reggie Cariaso, BPI senior managing director and co-head for investment banking of BPI Capital, said companies would soon find the need to go public.

“It is generally easier and more desirable to get debt financing because the banking system has been very liquid. However, over time and as companies grow, I believe more and more of them will reach a stage where doing an IPO and accessing the equity capital markets will become more compelling,” he told The Star via email.

Astro del Castillo, managing director of First Grade Finance Inc. likewise said the lull in the IPO market in the past years may soon change.

He said the lull could be attributed to the fact that many of the big companies have already listed. These include blockbuster IPOs such as the Lopez Group’s ABS-CBN and San Miguel’s Petron Corp.

“But the PSE is bent on inviting more so we will see more companies go public. In time, they will see the need for it especially with ASEAN integration,” Del Castillo said, referring to the integrated economic bloc of the 10-member ASEAN.

For Peter Lundgreen, CEO of Denmark-based investment advisory firm Lundgreen Capital, the trend is not just in the Philippines, saying that the slowdown in IPOs is global.

“We have a lot of concentration in the private equity sector. IPOs always seem interesting but there are not enough attractive investment opportunities. The dynamics in all economies have slowed down and have not been generating opportunities for cash-rich investors. You can easily sell off an asset but the problem is you don’t know where to put the money after you get the money,” he said during a recent visit to Manila.

He said the Philippines needs to attract more domestic investors so it wouldn’t rely too much on foreign funds.

“If you look at the Philippine stock market in the past two years, it was evident there was a lot of capital inflow from the US. Is there investor demand for IPOs in the Philippines? It needs to come from domestic investors,” he said.

So far, companies that went public this year are Wilcon Depot (P7 billion), Eagle Cement (P8.6 billion) and Cebu Landmasters (P3 billion). Others in the pipeline include Chelsea Logistics Corp. (P5.8 billion), Audiowav (P2.7 billion), Pure Energy Holdings (P1.5 billion), Xeleb (P736 million) and The Big Chill (P500 million to P600 million).

For his part, Monzon said the PSE continues to lure investors to park their funds in stocks.

He noted for instance the total number of stock market accounts – both online and traditional accounts – grew 8.5 percent to 773,187 last year.

Online accounts alone went up 27.8 percent to 302,516.

“The numbers show that more investors are finding out that participating in the stock market is actually an affordable investment,” Monzon said.

In terms of improving corporate governance and transparency in the capital markets, the PSE has also been unrelentless.

It has been cracking the whip on companies committing various violations – from nondisclosure of material information to providing false financial documents.

Moving forward, the PSE leadership hopes 2017 will be a better year for the local bourse.

But whether or not the stock market gauge would finally end the year at 8,000 or beyond remains to be seen.

“The index has shown resilience as it continued to bounce back every time it fell below 7,800. Selectivity will remain the key strategy to capture the value of the market until the end of the year,” said First Metro Investment Corp. and the University of Asia & The Pacific in the July issue of The Market Call.

For her part, FMIC head of research Cristina Ulang said the PSEi may reach as high as 8,200 this year on optimism on the passage of the government’s tax reform package as well as the improved performance of listed companies.