2019 could be right time for more IPOs if economic conditions rally — analysts

With only one initial public offering (IPO) proceeding in the Philippines last year, 2019 could be the time for more companies to go public should economic conditions improve, analysts believe.

Last year, only property developer D.M. Wenceslao and Associates Inc. (DMWAI) braved the market volatility and pushed through with going public.

According to local investment houses, more firms are expected to get listed this year if the local economic situation improves.

"We should see more this year, but likely after elections," BDO Capital & Investment Corporation president Eduardo Francisco said in a text message, referring to the midterm polls in May.

In a separate message, BPI Capital managing director Reginald Cariaso said that he expects both global and local markets to remain "somewhat volatile" in 2019. "When interest rates and inflation rates stabilize, there will be windows of opportunity for capital markets issuances including equities and even IPOs," he said.

The Bangko Sentral ng Pilipinas (BSP) raised interest rates five consecutive times in 2018, tightening key policy by a cumulative 175 basis points.

Meanwhile, inflation hit a nine-year high of 6.7 percent in both September and October 2018, the fastest since the 7.2 percent rate in February 2009.

"I expect investors will prefer strong names and proven business models, especially for IPOs," Cariaso said.

Among the companies that filed for IPOs last year are Allied Care Experts (ACE) Medical Center Iloilo, Cal-Compt Technology Philippines, Del Monte Philippines, and DMWAI.

Other companies reported to be keen on going public include AirAsia Philippines, Converge ICT Solutions, and Fruitas Holdings.

Factors to consider

For equity traders, however, companies should first consider if there is enough appetite in the Philippine market for more companies to conduct initial offerings.

"We have to consider several internal and external factors that may affect investors' appetite for IPOs. First, the slowdown in the Chinese economy, as well as the negative effect of the trade war to the global growth, may decrease the demand among foreign investors for local IPOs," Jervin de Celis, equities trader at Timson Securities, said in a separate text message.

"In the local scene, I guess we have to see better macroeconomic figures that will lure back investors to our market. A faster GDP growth rate, an inflation rate within BSP's target range, and better corporate earnings versus last year may attract foreign funds back to the PSEi so this may put IPOs in the bright spot in case investors look for choices other than the blue chips," he added.

For Regina Capital Development Corporation head of sales Luis Limlingan, companies are also facing the challenge of making their maiden offerings interesting enough for the market.

"Well, market is starting on a high note, foreign funds sold heavily last year so they have cash to deploy. If IPO is interesting enough they will subscribe to it
This year is different since valuations are cheaper," he said in a separate mobile message.

In 2018, there was a total net foreign selling of $1.079 million, equivalent to P56.722 million.

Still, the local bourse is optimistic that it will be able to raise more funds this year, as it has set a higher target for 2019 in terms of capital raising, as well as the number of firms to go public.

"Last year was a record year for the PSE in terms of capital-raising with listed companies having raised more than P187 billion of capital in 2018. We are increasing our capital-raising target to an even higher P200 billion for 2019.  From one IPO in 2018, we are targeting six IPOs for 2019" PSE president and CEO Ramon Monzon said in an email interview.

Monzon said that several companies have filed their applications to go public, but did not identify them.

"We have no completed IPO applications to date. We do, however, have a number of pending applications with the applicants in the various stages of completing the requirements," he said. — BM, GMA News