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First half seen challenging for IPOs

By Sheldeen Joy Talavera, Reporter

GOING public in the first half of 2024 may be challenging due to the uptick in inflation and hawkish policy stance from the central bank, analysts said.

“We are now seeing volatility in equity markets due to stubborn inflation, a potential delay in interest rate cuts, and elevated geopolitical risk,” China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message last week.

“As a result, it has become more challenging to do an IPO (initial public offering) during the first half of this year,” he added.

Headline inflation accelerated to 3.7% year on year in March, data from the Philippine Statistics Authority showed. This is within the forecast of the Bangko Sentral ng Pilipinas for the month of 3.4% to 4.2%.

The Monetary Board last week kept rates steady at 6.5% for a fourth straight meeting and signaled a possible delay in rate cuts due to upside risks in inflation.

Mr. Colet said that elevated interest rates impact equity valuations and reduce the appetite for equities “because investors can get fairly attractive returns by investing in debt instruments that are considered safer than stocks.”

“Tight monetary policy tends to slow down the economy by making borrowing more expensive, so those factors also impact the prospects of a company,” he said.

“If we the goal is to raise as much volume at the best valuation, it might be better to wait until we see a tapering of inflation and a clearer path to monetary policy easing before launching a sizable IPO,” Mr. Colet said.

Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks, Inc., said that while the environment for conducting IPOs may be more challenging, “it’s not necessarily prohibitive.”

“Companies considering IPOs would need to carefully assess market conditions, investor sentiment, and their own business fundamentals before proceeding,” he said in a Viber message.

Despite the uptick in inflation and hawkish cues from the central bank, the market environment remains favorable for potential IPOs, according to Rastine Mackie D. Mercado, research director at China Bank Securities Corp.

“While investor appetite for equities is seeing some softness due to changing expectations on rate cut timings, especially from the US Federal Reserve, we think that this should firm up through the coming months especially as major central banks start to cut rates,” he said.

Markets are likely to watch out the take-up and price performance of the first IPO of the year “as this could help set the pace for succeeding issuances,” he added.

Mining company OceanaGold Philippines, Inc. is targeting to publicly list on May 13, based on the updated prospectus of its Australian-Canadian parent company OceanaGold Corp.

On Friday, the company secured the approval of the Philippine Stock Exchange (PSE) for its P7.9-billion IPO. It will offer 456 million common shares at a price of up to P17.28 each.

Another planned IPO for this year is Saavedra-led Citicore Renewable Energy Corp. (CREC), which is aiming to list its shares on the PSE on May 31, based on its prospectus dated April 3.

CREC is set to offer 1.79 billion common shares at a maximum price of P3.88 apiece, including an additional 267.86 million shares for overallotment.

The company trimmed its planned IPO size to P7.9 billion from P12.9 billion. The move came after SM Investment Corp. invested P5 billion in its subsidiary Citicore Energy REIT Corp. (CREIT).

CREIT is the country’s first real estate investment trust listing focused on renewable energy.

For 2024, the PSE is targeting to have at least six IPOs and is expecting about P40 billion worth of capital to be raised.

“While inflation and interest rates do play a significant role in shaping market sentiment, other factors such as investor confidence, economic growth prospects, industry trends, and geopolitical factors also come into play,” Mr. Arce said.

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