Asia's thriving IPO mart stalled by dollar moves

Asia's thriving IPO mart stalled by dollar moves

SINGAPORE (Reuter): On many bourses across Asia, a once thriving market for initial public share offerings (IPOs) has lost its vigor as investors take stock of the implications of the dollar's recent sharp falls.

"The appetite for new issues in the last month or so has been put on hold," said Bruce Rolph, head of research at Salomon Brothers Singapore Pte Ltd.

But Rolph believes that while the currency uncertainty has held up new issue activity in Asia, it is a temporary phenomenon. Over the longer term, he expects structural changes in corporate finance to result in a greater mix of debt and equity in future.

A survey of brokers and analysts across Asia reveals that in the equity markets of Singapore, Thailand, Malaysia and Indonesia, currency uncertainty is having an impact on IPOs. But in other areas like India, Australia and South Korea, the dollar's gyrations are not seen directly hurting IPO activity.

David Chang, research head of PT Sigma Batara in Jakarta, said the Indonesian capital market supervisory agency Bapepam had indicated some 50 IPO applications were in the pipeline.

"But we expect many of these new issues to be postponed or canceled due to the prevailing weak sentiment in the regional markets," Chang said.

In Bangkok, Treekwan Bunnag, a managing director at Nithi Venture Corp Plc, said investors were sensitive about the fluctuating exchange rates. "They're staying away from the market," he said.

Many companies in Bangkok issued new rights shares last year, but few have done so this year. The new rights issue market is very inactive now, said an Ekachart Finance broker.

In Malaysia, larger companies have been slow to offer new issues in the last six months as the market has been mostly in the doldrums, analysts said. "If the market is like this, I would hold back an IPO for as long as possible," said a research manager at a local brokerage.

Kuala Lumpur Stock Exchange statistics show that in the last three months of 1994, only 12 main board stocks were listed compared to 26 second board ones.

Fund raising

In Singapore, Song Sen Wun, regional economist for S.G. Warburg Securities, said issuers found it less attractive to raise funds in the equity market this year compared with 1994.

"Analysts and investors are unsure what the impact of the weaker U.S. dollar will be, which companies are hedging, and who will be winners and losers," Song said.

But in Bombay, dealers said the dollar's gyrations have not affected the buoyant Indian new issue market. Nor has there been much impact in Sydney, where local analysts say the dollar/yen level has no direct impact on Australian new share issues.

Easily the most significant factor on new share issues in Australia is the buoyancy of the local market, which this week hit new highs. The Australian All Ordinaries index rose above key resistance at 2,000 on Wednesday after two weeks of steady gains.

The weaker dollar has also had little effect on plans by South Korean companies to raise funds overseas. A Daewoo Securities official said: "Basically, the government controls the amount of new issues and the recent dollar plunge and higher yen has had little impact on South Korean companies."

Outside India, Australia and South Korea, companies in many Asian nations appear to be reassessing financing plans and turning from equity issues back to bank borrowing or trying new methods such as bond issues.

In future, Warburg's Song said it was likely Singaporean companies would use bank borrowings as a source of funding as monetary authorities are curbing lending to non-productive sectors to fight asset inflation, while banks are sitting on huge deposits which they are more than willing to lend.

Alternatives to equity raising in Kuala Lumpur are bank loans and bond issues, but rising Malaysian interest rates act as a deterrent and underwriters are not keen to issue bonds for lesser-known companies, analysts said.

PT Sigma Batara's Chang said an alternative to equity market raising in Jakarta has been the bond market.

"Currently, lending rates are about 19 percent, whereas firms are able to raise funds through the bond market paying a coupon rate of 17.5 percent over a five-year period," he said.

Chang forecast Indonesian corporations would raise at least 1.5 trillion rupiah (US$48 billion) through bond issues this year, a rise of 76 percent from 1994.