Analysts see IPO drought persisting

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By Arra B. Francia
Senior Reporter

COMPANIES looking to raise funds via initial public offering can still be expected to stay on the sidelines for much of this year, as they await better market conditions amid easing inflation and improving global trade, analysts said in recent interviews when asked for their assessment.

The Philippine Stock Exchange ended the first six months of 2019 without any maiden share offer, the last being property and construction firm D.M. Wenceslao & Associates, Inc. on June 29, 2018.

Several firms have intended to debut on the stock market this year, including canned fruit manufacturer Del Monte Philippines, Inc.; Taiwan’s Cal-Comp Technology (Philippines), Inc.; food cart business Fruitas Holdings, Inc. and budget carrier Philippines AirAsia, Inc.

Coconut product manufacturer Axelum Resources Corp. has also filed for a P7.7-billion IPO potentially within the year, as well as members of the Allied Care Experts group to finance construction of medical facilities in Bohol as well as in General Santos, Dumaguete, Iloilo, Malolos and Butuan cities.

“I think that many would-be issuers are still reeling from last year’s tumble. While the market did recover in November 2018 and peaked in February 2019, the market is actually in a consolidation phase,” PNB Securities, Inc. President Manuel Antonio G. Lisbona said in a mobile phone message.

The benchmark PSE index (PSEi) hit a low of 6,843.83 on Nov. 13 last year and crawled back to the 7,000 level in succeeding months. The main index ended at 8,117.94 last Friday, and increasingly ventured north of the 8,000 line starting last month.

Regina Capital Development Corp. Equity Analyst Rens V. Cruz II noted how the Philippine market was impacted by several local and overseas factors, dissuading IPO planners in the first half.

“Overseas, we got the then-looming tariff skirmish between US and China, lending some concerns on emerging markets; then, there’s news of the MSCI rebalancing that will shift towards China A shares, adding worries for Philippine prospects,” Mr. Cruz said in a text message.

He noted some sectors are still reeling from lingering effects of fast inflation, which had hit a nine-year-high 6.7% in September and October 2018 before gradually easing to within the central bank’s 2-4% target band.

The overall rise in prices of widely used goods averaged 3.4% last semester — especially in the wake of June’s 2.7% that was the slowest clip in nearly two years — compared to 4.3% a year ago.

“A positive general market condition — translating to a higher possible price setting — will always be the number one consideration for any private entity before going public,” Mr. Cruz said.

PNB Securities’ Mr. Lisbona also called easing inflation a “silver lining” for the local market.

“The silver lining for us is that inflation has trended lower and that monetary authorities have taken an accommodative/stimulative stance which we observe has had a positive effect on the market,” Mr. Lisbona said, referring to the central bank’s 25-basis-point cut in benchmark interest rates and a phased 200 bp reduction in banks’ reserve requirement ratio (RRR) that will be completed on July 26 after a cumulative 175-bp hike in rates and 200 bp RRR cut last year.

The central bank adopted in its June 20 policy review “[a] prudent pause… to observe and assess the impact of prior monetary adjustments.”

For Philstocks Financial Inc. Research Associate Piper Chaucer E. Tan, companies will be encouraged to debut on the market if the PSEi sustains the 8,000 level.

“We may see an IPO in the third or fourth quarter… The reason why companies defer an IPO is they feel they are entering into a bad economy but they are a fundamentally good company. So even if the company has good prospects, their share price will go down,” Mr. Tan said on the sidelines of the company’s media briefing last week.

Unicapital Securities, Inc. Technical Analyst Cristopher Adrian T. San Pedro said via text that many firms remain on wait-and-see mode, despite a better demand outlook amid easing inflation.

“I believe there might be a chance in the second half of the year for some IPOs after the ghost month as we approach the Christmas season given investors are bullish for the prospects of next year,” Mr. San Pedro said, referring to Aug. 1-29 this year when many investors can be expected to hold off major decisions in observance of this annual Chinese tradition.