This article first appeared in The Edge Malaysia Weekly on May 20, 2024 - May 26, 2024

MALAYSIA’s initial public offering (IPO) market has been short of mega listings in recent years, with the largest in the last five years being that of Mr DIY Holdings Bhd (KL:MRDIY), which raised RM1.5 billion in 2020.

Citigroup’s head of Asia, North Australia and Asia South ECM origination and solutions Udhay Furtado believes this could change over the next 12 to 18 months.

“In the next 12 to 18 months, we should start to see [bigger IPO deals coming into play] across some sub-sectors such as consumer, telecoms infrastructure and technology,” he tells The Edge in a recent interview. 

Udhay does not name any companies but it is worth noting that the market has been waiting for several big IPOs for a number of years now, with the most talked about including fast-food operator QSR Brands and telecommunications tower owner Edotco Group.

Udhay is positive about the prospects for the Malaysian IPO market and confident of a “better mix” going forward compared to the last few years.

Malaysia’s IPO market has been prolific over the last five years, with as many as 35 public share sales taking place in a year (in 2022), if LEAP Market participants are included.

While the number of IPOs has been nothing short of impressive, total funds raised have not turned heads, especially when compared to 2012’s high, as the majority of the listings were on the secondary market.

In 2023, a total of RM3.6 billion was generated by the IPO market, with the biggest listing being returnee DXN Holdings Bhd (KL:DXN), which raised slightly more than RM120 million.

The year 2012 continues to hold the record as a total of RM23.2 billion was raised by mega offerings such as Felda Global Ventures Holdings Bhd (KL:FGV), IHH Healthcare Bhd (KL:IHH) and Astro Malaysia Holdings Bhd (KL:ASTRO), accounting for the bulk of total funds raised.

Bursa Malaysia was put on the map that year with its offerings ranked among the top 10 IPOs globally.

Citi’s Udhay believes one of the reasons the time is ripe for big-scale IPO deals in the near future is that Malaysia’s political climate is now more stable.

He also says he is starting to see greater confidence among the corporations of growth and expansion, as is evident from the recent investments in data centres and the restructuring of some conglomerates.

Furthermore, he says that the market is expecting more funding activity around government-owned portfolios.

There has certainly been more activity around government-owned portfolios recently. While it was not an IPO-related activity, Malaysia Airports Holdings Bhd (KL:AIRPORT) announced last week that it had received a takeover offer from a consortium led by its major shareholder Khazanah Nasional Bhd and the Employees Provident Fund (EPF) in a deal worth over RM12 billion. 

The other parties in the consortium that is planning to take MAHB private are Global Infrastructure Partners (GIP) and Abu Dhabi Investment Authority (ADIA). Upon completion of the deal, Khazanah will have increased its ownership of MAHB to 40% from 33.2% and the EPF to 30% from 7.9%. ADIA and GIP will hold the remaining 30% stake. 

“Malaysian companies have been beneficiaries of relatively cheap capital. The local banking system and bond markets are so liquid. So they haven’t had to go and do a lot of equity financing,” observes Udhay, adding that the scenario should change going forward.

Another factor fuelling his confidence about the IPO pipeline is the comeback of the private equity market, where activity is starting to pick up after stagnating over the last two years.

He reasons that if corporations are doing pre-IPO or private fundraising, it is an indication that they are getting ready for something big.

“It may not be 2024, but in 2025, you’ll see them come [to market]. So I would say that the activity levels are picking up as there’s greater interest.”

It is worth noting that Citi has not underwritten any IPO deals in Malaysia in recent years. In Southeast Asia, it has underwritten IPO deals worth US$1.73 billion in Thailand, Indonesia and Singapore in the last three years. 

In 2023, a total of 732 companies in Asia-Pacific went public, raising a total of US$69.4 billion, which is a 44% decline year on year, according to an EY Global IPO Trends 2023 report.

Generally, the equity capital market (ECM) in Asia was muted in 2023 — an environment that Udhay describes as being “as bleak as it gets” in terms of issuance volume.

Again, he says there are signs of a turn in the market this year.

“In the first quarter of 2024, there was a flurry of issuances, including IPOs in the US, Europe, Japan, India, which is a very important barometer for strength of investment appetite.”

Moreover, there is movement of large private businesses preparing to move to the public market, he says, adding, however, that the timing is likely to be 2025, post-the US presidential election and after there is more clarity on the US Federal Reserve rate cuts.

Within Asia, the Asean ECM has been relatively slow compared to other regions, notes Udhay, partly due to the political cycle as Indonesia held its general election this year and Thailand the year before.

The banker also believes the region may have caught a bit of the “China cold” as the slowdown in China and Hong Kong has impacted Asean economies such as Thailand.

On challenges for the ECM, Udhay thinks the biggest risk is if the market “overshoots or undershoots” expectations. “We’re at a trough period in the market cycle and no one really knows when you’re going to get out until you do, hence the current debate and focus on timing of rate cuts.

“We haven’t quite figured out where monetary policy is, we’ve got a big US election coming up, which will create volatility. We’ve also got geopolitical issues in many places. Any one of these things can cause a reprice in the equity market and that’s the challenge we have.” 

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