Malaysia tops ASEAN Initial Public Offerings in 2012; Thailand set to rocket up in 2013

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The years after the financial crisis struck Thailand some 10 years ago, Thailand’s stock market suffered. Literally speaking, firms were de-listing themselves from the Thai stock market, and initial public offerings dried up completely.

With the de-listing, lack of interest in IPOs and the poor state of the Thai economy sending the Thai stock market index to “Crash Level” the market capitalization of the Thai stock market tanked, and the stock market was shrinking noticeably.

However, with the Thai economic recovery from the crisis, Thailand’s stock market began to recover, and on some years after the crisis, the Thai stock market became the globe’s best performing. Currently, the Thai stock market is being driven mostly by “An Internal Thailand Engine of Growth” in that a great deal of funds are set for infrastructure spending and the government’s populous policy is injecting funds into the economy, such as through the rice subsidy scheme. Then ASEAN AEC is around the corner, while China and USA economy is looking somewhat stronger.

Yet in poll after poll of Thai business people and economist, including Standard and Poor recent research, says the greatest threat to Thailand’s economy, is politics.

  • On IPO, overall, Wikipedia says:

An initial public offering (IPO) or stock market launch is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time. Through this process, a private company transforms into a public company. Initial public offerings are used by companies to raise expansion capital, to possibly monetize the investments of early private investors, and to become publicly traded enterprises.

A company selling shares is never required to repay the capital to its public investors. After the IPO, when shares trade freely in the open market, money passes between public investors. Although an IPO offers many advantages, there are also significant disadvantages. Chief among these are the costs associated with the process, and the requirement to disclose certain information that could prove helpful to competitors, or create difficulties with vendors. Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus.

Most companies undertaking an IPO do so with the assistance of an investment banking firm acting in the capacity of anunderwriter. Underwriters provide a valuable service, which includes help with correctly assessing the value of shares (share price), and establishing a public market for shares (initial sale). Alternative methods such as the dutch auction have also been explored. In terms of size and public participation, the most notable example of this method is the Google IPO.[1] China has recently emerged as a major IPO market, with several of the largest IPOs taking place in that country.

  • Pricing of IPO

A company planning an IPO typically appoints a lead manager, known as a bookrunner, to help it arrive at an appropriate price at which the shares should be issued. There are two primary ways in which the price of an IPO can be determined. Either the company, with the help of its lead managers, fixes a price (fixed price method) or the price can be determined through analysis of confidential investor demand data, compiled by the bookrunner. That process is known as book building.

Historically, some IPOs both globally and in the United States have been underpriced. The effect of “initial underpricing” an IPO is to generate additional interest in the stock when it first becomes publicly traded. Flipping, or quickly selling shares for a profit, can lead to significant gains for investors who have been allocated shares of the IPO at the offering price. However, underpricing an IPO results in lost potential capital for the issuer.

One extreme example is theglobe.com IPO which helped fuel the IPO “mania” of the late 90’s internet era. Underwritten by Bear Stearns on November 13, 1998, the IPO was priced at $9 per share. The share price quickly increased 1000% after the opening of trading, to a high of $97. Selling pressure from institutional flipping eventually drove the stock back down, and it closed the day at $63. Although the company did raise about $30 million from the offering it is estimated that with the level of demand for the offering and the volume of trading that took place the company might have left upwards of $200 million on the table.

The danger of overpricing is also an important consideration. If a stock is offered to the public at a higher price than the market will pay, the underwriters may have trouble meeting their commitments to sell shares. Even if they sell all of the issued shares, the stock may fall in value on the first day of trading. If so, the stock may lose its marketability and hence even more of its value. This could result in losses for investors, many of whom being the most favored clients of the underwriters.

Underwriters, therefore, take many factors into consideration when pricing an IPO, and attempt to reach an offering price that is low enough to stimulate interest in the stock, but high enough to raise an adequate amount of capital for the company. The process of determining an optimal price usually involves the underwriters (“syndicate”) arranging share purchase commitments from leading institutional investors.

Some researchers (e.g. Geoffrey C., and C. Swift, 2009) believe that the underpricing of IPOs is less a deliberate act on the part of issuers and/or underwriters, than the result of an over-reaction on the part of investors (Friesen & Swift, 2009). One potential method for determining underpricing is through the use of IPO Underpricing Algorithms.

  • The following is from the Wall Street Journal:

Wall Street Journal

Thai IPO Market Off to Strong Start in 2013

After a record amount of share sales this year, Thailand looks likely to have another strong year of equity deal activity in 2013,  thanks to the possibility of the country’s largest-ever initial public offering, slated for February.

The operator of Bangkok’s skytrain system, BTS Group Holdings PCL, said Thursday it is aiming to raise at least $1.5 billion through a flotation of an infrastructure fund. The biggest-ever IPO in Thailand on record was Thai Oil PCL’s $784 million listing in 2004, according to Dealogic.

Another factor contributing to the buoyant sentiment about Thai companies’ capacity to raise funds via share sales: the country is Asia’s best-performing stock market this year, with the benchmark SET index up 32% year-to-date, outperforming Malaysia, up 8%, and Hong Kong, up 23%. Shares sales, whether through IPOs or secondary offerings, are at a record high in Thailand this year, according to Dealogic, at $5.2 billion from 31 transactions. This compares to $2 billion from 18 deals in 2011.

IPO volume reached $1.7 billion this year via 21 deals, compared to $286 million last year. The busiest year in Thailand for IPOs was 2006, where there were 21 deals raising $2.3 billion.

But this year’s hectic share sale volumes have been inflated by a $3 billion rights issue by state-backed oil firm PTT Exploration & Production PCL, announced this month, to fund its acquisition of Mozambique-focused natural gas exploration firm Cove Energy PLC.

Thailand’s IPO activity was no comparison to that of smaller neighbor’s Malaysia this year, which hosted a string of billion-dollar-plus IPOs. Malaysian IPOs, such as the world’s third-biggest this year, Felda Global Ventures Holdings Bhd.’s $3.2 billion listing, have vaulted the country to fifth place as a global IPO destination from 13th last year.

The biggest IPO this year in Thailand was a listing of UK retailer Tesco PLC’s Thai retail assets in a property fund, which raised $602 million in March.

But for investors, Thailand could have been a better bet. The Tesco Lotus Retail Growth Freehold & Leasehold Property Fund is up more than 47% since listing in March;  Asia Aviation PCL, owner of the Thai unit of Malaysian budget airline AirAsia Bhd., is up 32% following a US$143 million IPO in May.

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