DESPITE funds of publicly held companies showing a healthy run last year—with the benchmark index ending 2017 on a high note—investors are expected to hold back on betting all their cash on the Philippine economy.
Jose Pacifico E. Marcelo, head of investment banking group of First Metro Investment Corp. (FMIC), points to the number of companies going public this year.
According to Marcelo, this year there may only be four companies undertaking their respective initial public offering (IPO), an economic activity that allows the public to park their hard-earned money for potential income. Marcelo said if the IPO of these companies and those who announced intentions to go public last year push through, the total IPOs this year may only hit P21 billion.
“On IPOs, we’re not optimistic, which is sad because IPOs add depth to the market because of new names,” Marcelo said. “Our market has a very limited supply of shares.”
There are two immediate issues this year, one is The Lush Co. and the other is AirAsia.
Lush, which operates a food-carts business under different brands that include Fruitas and Johnny Lemon, will use the proceeds of the IPO to expand its business.
Lush’s registration statement for the IPO is expected to be filed with the Securities and Exchange Commission within the first quarter of the year, in time for its going public by the first half of the year. Marcelo declined to give the amount of the deal.
AirAsia Philippines, meanwhile, is planning to raise through the Philippine Stock Exchange (PSE) also within the year up to $250 million. Proceeds of the company’s IPO will be used to fund new routes and expand its domestic operation.
Last year only four new companies were listed. These were Wilcon Depot Inc., Eagle Cement Corp., Cebu Landmasters Inc. and Chelsea Logistics Holding Corp.
Since 2015 only a dozen companies became public at a rate of only four companies per year. There were three follow-on offerings of dollar denominated securities: two by Del Monte Pacific Ltd. and one by Cirtek Holdings Philippines Corp.
“The equity issues this year will mostly be new issues. Most of the old issues before will probably not be floated this year because of various issues with the PSE and also with the market like mining issues; they have regulatory problems,” Marcelo said. “But, of course, these will be dependent on market conditions.”
The PSE is still working out its attempt to acquire PDS Holdings, which owns the Philippine Dealing and Exchange Corp. or PDex, the operator of the fixed-income exchange. On the other hand, the mining industry is still seeking clarity on government’s policy stance, especially on open-pit mining.
Market stirring may come from San Miguel Corp., which is reorganizing its food and beverage group to combine it into one larger company. San Miguel may still help to increase activity in the market as the conglomerate prepares its follow-on offering of its food- and-beverage firms worth up to $3 billion, or about P150 billion.
Marcelo said that would be the single biggest issue for the year, which may also lead to mopping up the market’s liquidity for other issues to come in. The San Miguel follow-on offering, he added, can be considered as a “re-IPO,” since there are only a few shares listed for the food-and-beverage unit of the conglomerate.
According to data, a total of P138 billion was raised from the PSE last year, down from 7 percent from the previous year’s P149 billion. Of the figure, only P23 billion came from IPO and P41 billion came from follow-on offering and preferred shares. The rest came from stock rights offer.
FMIC data showed that IPO figures for this year are expected to shrink further to just P12 billion. However, P162 billion will come from follow-on offering—the bulk of which will come from San Miguel’s deal—and P73 billion from stock rights offer or a total of P247 billion.
“That will be a record for the PSE when all of that materialized,” Marcelo said. The amount raised from the PSE in 2017 was still a fraction larger than the corporate bond issuances that totaled to P125.70 billion.
What Marcelo is excited about are the infrastructure bonds, or debt papers issued by companies that have seasoned projects already built and up and running. The PSE also has a program lined up for these firms to instead list their projects at the PSE.
FMIC, an investment bank present in most deals in the country, is also optimistic the Real Estate Investment Trust (REIT) would come to fruition. Negotiations beginning last year showed hopes the REIT would fly as these talks led to the repeal of some of the contentious issues, mostly on taxation.
The REIT law was designed to recycle real-estate assets by placing it in another Reit company in which the public can invest into by purchasing shares. The shares of the company can also be traded at the PSE.
The Aquino administration—hard-pressed to shore up cash through taxes—held stubbornly on its stance on taxation issues, which include slapping a 12-percent value-added tax on the transfer of asset into the Reit company and a 30-percent income tax rate.
Reit owners are also required to sell to the public a majority stake, or at least 67 percent, in three years from the initial 40 percent upon listing. FMIC also expects the benchmark 30-company PSE index to hit 9,400 points by the end of the year.
“The stock market now is very exciting. I don’t see any negative impact from the new taxes to be imposed. No amount of tax burden will deter you [from investing at the stock market],” said Cristina Ulang, FMIC vice president.
Broker Philstocks Financial Inc. is much more positive and views that the PSEi may reach 10,700 points to 11,000 points by the end of the year on the upside but may return to the 7,900-point level on the downside.
It believes that market players are expecting a third player to come in the telecommunications market, while investors will put their money in the infrastructure and construction companies.
“If domestic risks are contained the market’s overall sentiment will stay positive even ahead of the 2019 political exercise and the extended bull run. But the risks also include rising inflation and a weakness in the currency as central banks in developed economies shift more towards tightening,” the broker said. “In essence, the long-term view posits that the bull, though still able to subsist, is losing steam gradually.”