Wednesday, January 9, 2013

IPOs & Malaysia - A Sobering Analysis

There is the good news and the bad news. Malaysia made the headlines in 2012 by beating Hong Kong market for IPOs listing. Malaysia was 12th in 2011 and 5th in 2012. That is over taking UK and matching HK. Still, we are nowhere near what we can call a financial hub, be it regional or not.

The IPOs volatility in Malaysia was just 7.3%, a very low figure compared to other top ten IPO markets - what that means is that IPOs will generally perform adequately without zig-zagging too much or going below IPO price levels.

The queue for Malaysia listings this year includes Malakoff Corp.'s planned $1 billion IPO, which the company's chief executive said may happen in the second quarter, and the planned $1 billion IPO of Malaysia's busiest port, Westports Bhd., in which Hong Kong tycoon Li Ka-shing is an investor. Malaysian industrial conglomerate UMW Holdings Bhd  has invited banks to advise it on a $500 million IPO, and AirAsiaX Bhd., the long-haul unit of budget carrier AirAsia plans a $250 million offering in 2013.

Last year, Malaysia was home to the world's third-largest IPO, in which Felda Global Ventures Holdings Bhd. raised $3.2 billion. Meanwhile, IHH Healthcare Bhd.'s $2 billion IPO made it Asia's largest listed hospital operator by market value.

Iskandar Waterfront, which is developing real estate in the southern state of Johor as part of the government's push to promote Iskandar Malaysia as a special economic region, has invited bankers to manage the proposed IPO, three people familiar with the development told The Wall Street Journal on Wednesday.

Malaysian businessman Lim Kang Hoo owns 60% of Iskandar Waterfront, both directly and through some subsidiaries, and the Johor state government owns the remainder. 

Malaysian state-run funds, including government pension funds, and financial institutions that sit on massive cash piles play a big role in supporting the country's equities market. When foreign institutional investors go on a selling spree, government-backed buyers tend to step in, limiting the market's downside. and thus providing a measure of security to investors who worry about the volatility that affects markets without a similar buffer.

WHAT YOU HAVE READ IS THE GOOD NEWS ... here's why its not so good:

We have to try and sustain the pace and offerings in order for Malaysia to be truly considered a viable choice for good attractive listings. I should charge a million bucks for giving this advice but never mind la, this one also give free. How come, when its talking cock, it has to be free, even though there may be some good stuff in the cock talking??!!

a) funds - if you get the listings, the funds will be there to mop it up; so far we have been doing the "good ones", the easy to sell at "cheap-ish prices"; the more anchor funds you have the better the platform as investment bankers will know that their placements will go well already; herein lies the issue, will some of our bigger local funds be "asked or forced" to take up certain issues to be seen as "national service" to help some companies to list???, or even to help enshrine Malaysia as the new capital of IPOs for foreign listing in Malaysia??;  or worse, ask the big local funds to mop up the sellers in post IPO to ensure a decent showing.

Funds will always be there as long as the company is attractive, there will be hordes of investors wanting a piece of the action; it is only when the issues are dubious, e.g. the recent Astro listing, that we would welcome more international participants as cornerstones - ever wondered why Li Ka Shing was a cornerstone in IHH and not Astro?? (key issue, we MUST allow our local funds to remain vigilantly independent in the whole scheme of things, if not, we will be gambling and not running the whole thing in a professional manner).

b) seriously folks, pipeline - how many more Feldas do we have, any more Gas Malaysias; a fact many of us may not be aware is that Malaysia already is probably the NUMBER ONE country in the world that have the highest portion of its GDP that is listed (I think more than 80%) - i.e. everything that moves in the Malaysian economy is probably owned by some listed firm already. What that means is that we have a very active listing mechanism. Every time we spot a company making more than RM3m-5m a year in profits, the IBs will be trying to list the company. Which is why many of our listings are smallish (thats OK) as well. The only things in our economy that do not get listed are our laundry shops, the fish head curry shops and our mamak stalls (although I think plenty of our mamak chains make very good money and provide exceptional ROI and ROE). The question then remains: where else are we getting more companies to list locally? Sure, we have a few in the pipeline for 2013 and then...?

c) what do we do - our population is small, which is why most of our businesses will be small, not a good start. Thailand has a good sized population 60m odd I think, Indonesia even better. Population provides scale which we don't. Look at the listings last year, Felda is almost the last bastion in major plantations to be listed. Astro is a rehash and a rerun like MASH (pun intended). Of course if we have more Anandas, we could always take some listed companies private cheaply and then relist them for higher valuations two years down the road - you get ten Anandas, you are well on your way to recycling IPOs.

This is what we should be doing. IHH is a grand example. Take what we have, professionalize the management, acquire well and build and integrate, then list. We do not have the size organically, so we need to build inorganically. Too many of our company owners are happy being the biggest frog in a small pond. For every listed company which is successful locally, they already have a proven business platform on a small population. SCALE, LEVERAGE & BUILD ... who is doing it ... Khazanah tries but not even hard enough yet in my books. Best examples: AirAsia (you can hate Tony the man but you gotta love his brilliant entrepreneurship and vision) and CIMB. The blue print is there, unless there are things holding you back, why don't you go and build a regional business, then list the regional business on Bursa?? What is stopping IOI or KLK from putting all international ops in another vehicle and raise funds separately for it and build then list on Bursa. What is stopping Tomei or even PYT or even Carat from doing likewise?

OK, we may not be so aggressive or ready to bet the farm. Here is where good government leadership in finance comes in: use Khazanah more to tap businesses that can be built regionally, help them, fund them, be their partner ... there is your IHH. Do that for 3 companies a year, after 5 years, you will have 3 very decent IPOs coming back every year.

d) foreign listings - there is a window of opportunity with the Chinese IPOs and listing freeze in China and a blackout in the US. Yes, there are a lot of shenanigans there but opportunity is opportunity. Set strict rules. Set up independent task force for verification and checks and company visits over and over. Use only top accounting and audit firms. There is a genuine need for these Chinese companies to list as they are usually deemed too small for their markets or the wait is usually more than 3-5 years.  ... Till now, I have not YET seen ONE China listed company in Malaysia paying a decent consistent dividend, and they are all apparently making very good profits - get to the bottom of that, and we may see clear blue skies, or see a couple of M&A outfits taking some of these private at fair prices (e.g. 5-6x PER) instead of the 2-3x PER market prices, then you could seen a re-energised market. Doing nothing is PATHETIC.

e) selling selling - we can keep selling our assets, but how are we replenishing them. If we just keep selling soon most things in our country will be owned by foreign entities. Whenever there are great assets for sale, I do not see Malaysian interests bidding for them - F&N's APB for example; AIG's Asian operations; etc... We have to use our resources better, to shape our future, to invests in great regional and global business platforms, to help local companies do that. Otherwise, the IPO capital tag for Malaysia is another phrase for "Cheap Sale / Closing Down Sale / Everything Must Go".

Verdict: Its good to sparkle every now and then but if its not sustainable, its nothing in the end. Now that we showed that our structure and delivery are good to take big sized IPOs and do them successfully, build on them. But if we rely on our inherent private entities now, we will be sorely disappointed as we have listed almost every single one of them. (Side note, do you know that for most developed European countries that only 40%-50% of their GDP is listed, most of the wealth is still kept private.)