Southeast Asia has been the region’s darling for many equities bankers in the last few years. Jumbo deals delivered record volumes that were much needed after China decided to turn off the IPO tap.
Thailand’s BTS Rail Mass Transit Growth Infrastructure Fund’s $2.1bn IPO was the biggest in Asia when it listed in April 2013 and was still the third largest by the close of the year. IPO volumes in the country more than doubled from 2012 and increased 20 times from the year before that.
In Singapore, the story was the same. Reits sold like hotcakes and bankers without a strong presence in southeast Asia complained bitterly about their missed opportunities.
But a series of unfortunate events at the end of last year and a gloomy outlook for southeast Asia means it’s time for banks to relocate assets back to north Asia. The Southeast is likely to be out of action for most of the year.
The first blow came way back in May 2013 when the then Federal Reserve chairman Ben Bernanke first started talking about tapering of quantitative easing, sparking the prospect of rate rises and sounding the death knell for yield stocks — the biggest driver of ECM activity in southeast Asia.
When tapering finally started in December, what had been one of the biggest trends in Asia ECM — namely real estate investment trusts and business trusts — suddenly became a hard sell.
And while OUE Commercial Reit and Hong Kong Electric Investments did manage to list this year, both were met with tepid demand as institutional investors stayed away despite the high profile of these deals.
Panic on the streets
If the unwinding of the world’s biggest ever fiscal stimulus was not enough of a headwind, the political environment in southeast Asia also looks much more uncertain than it did at the end of last year. In Thailand, for example, anti-government protests have intensified throughout January with no end in sight, after the hastily called election on February 2 failed to give a conclusive result.
Even state owned companies are not risking a listing, with government owned Electricity Generating Authority of Thailand telling local press on February 3 that its $515m infrastructure fund IPO could be delayed as there was no government to grant its approval. With analysts not expecting a new government to be formed for six months, Thailand is effectively closed for business.
Indonesia has elections scheduled for July, with as yet no clear frontrunner. The rest of the region is likely to suffer as investors stay away.
Not that bankers should completely abandon southeast Asia. The pipeline still contains some sizeable deals, but with most of them either Reits or other trusts in politically volatile countries, opportunities are likely to be scant.
ECM bankers increasingly tell EuroWeek Asia that their shops are starting to reallocate resources to north Asia. Anyone who is not yet taking that step ought to face tough questions from bosses — and shareholders.
China’s decision to re-allow listings and the jumbo deals from Hong Kong in November and December show that ECM momentum has returned to Greater China. The turmoil in southeast Asia is only set to accelerate the process. It’s time to migrate north for the spring.